Why Solana Was Facing a Major Challenge Today
What happened
The world's fifth-largest cryptocurrency by market capitalization, Solana (CRYPTO: SOL), has fallen by 12% over the past 24 hours, according to CoinMarketCap.com. Some readers might rightly point out that the cryptocurrency market broadly declined during that period -- and that's true. But Solana is also facing a performance issue that is contributing to its slide.
So what
Ethereum is a blockchain that has use cases (like smart contracts) that many other blockchains don't have. But it's not very fast at processing transactions. That's why Solana was created -- it was meant to be a faster competitor to Ethereum. But it's not living up to those expectations right now, and that's why its price fell so sharply.
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A new non-fungible token (NFT) project called SolChicks (CRYPTO: CHICKS) that was built natively on the Solana blockchain launched Monday. But shortly after launch, the SolChicks team shared on social media (caps theirs) "CHICKS HAVE TAKEN SOLANA DOWN." That isn't exactly the kind of news that investors want to hear about a blockchain that's supposed to hold up to heavy usage.
Now what
Blockchains like Ethereum and Solana are called Layer-1 solutions, meaning they aren't built on top of other blockchains. However, it should be noted that scalability problems don't have to be solved on the Layer-1 level. Layer-2 blockchain protocols are being built on top of Layer-1 blockchains to help with issues related to scale. Therefore, investors need to carefully consider possible outcomes. One possible outcome is that a single Layer-1 blockchain will be able to do everything. But another possible outcome is that Layer-1 blockchain challenges will be dealt with using Layer-2 solutions.
Moreover, it's also possible that people will in time come to use Ethereum and Solana for different purposes, allowing both blockchains to be adopted long term. It remains to be seen what the ultimate outcome will be with Solana. However, if Monday's challenges are any indication, it probably won't be the one Layer-1 blockchain that displaces all others.
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Jon Quast owns Ethereum. The Motley Fool owns and recommends Ethereum. The Motley Fool has a disclosure policy.
