Solana and Algorand introduce potentially disruptive innovations to blockchain technology.
- Cryptocurrency is hugely competitive, but assets with technical advantages tend to stand out.
- Solana and Algorand offer unique advantages over rivals.
Cryptocurrency prices have been off to a rough start in 2022, with the market’s total capitalization down 28% to $1.6 trillion at writing. That said, industry fundamentals still look good amid soaring inflation and geopolitical uncertainty in Eastern Europe, which could drive demand for potential “safe haven” assets that exist outside of traditional financial infrastructure.
Launched in March 2020 and quickly becoming the seventh-largest cryptocurrency, with a market cap of $33 billion, Solana is proof that performance matters. The asset can maintain its dominant position because of its blazing speeds and active development team.
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According to data from coinbase.com, Solana can handle 50,000 transactions per second compared to Ethereum’s 15. It pulls this off through a unique innovation called proof-of-history, which marks data blocks with time stamps to speed up the validation process. Solana’s technical prowess has caught investor attention, sending its price up by over 13,000% (to $105) since its inception.
That said, Solana is not without its challenges. The platform suffered a major outage on Jan. 22 because of duplicate transactions congesting the network. Developers resolved the latest incident with an update and plan to introduce more comprehensive improvements over the next eight to 12 weeks.
But these issues shouldn’t send investors running for the hills. According to Bank of America analyst Alkesh Shah, the outages are partly “a function of Solana’s success” because user adoption has grown so quickly (the platform boasts 2.35 million active user addresses as of December 2021). It is also important to note that rival Ethereum experienced similar outages and growing pains in 2016, so there is a precedent for these types of challenges with new blockchains.
With a market cap of just $6.2 billion, Algorand is a small fry in the cryptocurrency market. According to its website, its developers plan to power the “convergence between decentralized and traditional finance.” That’s a tall order. But Algorand is worth a closer look because of its unique technical features.
Algorand uses a proof-of-stake (PoS) block validation system where miners validate transactions using existing coins. But unlike other PoS systems where validators are self-selected, Algorand randomly selects miners from among its users. This system makes Algorand more decentralized and prevents a subset of users from getting too much influence over network security.
Algorand’s perks don’t end there. According to its official website, Algorand is un-forkable, which means the blockchain can’t be updated through a split. This is in stark contrast to the original cryptocurrency Bitcoin, which has forked 105 times. Algorand’s un-forkable design makes it a stable platform for non-fungible tokens (NFTs), which are digital proof of ownership stored on the blockchain (these assets could be duplicated during a fork, reducing their value).
Despite its innovative design, Algorand is down 56% (to $0.94) from its launch price in 2019, which suggests it is being overlooked by investors. And while it’s impossible to predict the future in the volatile cryptocurrency industry, the platform’s unique features could help market sentiment improve.
Betting on blockchain technology
Cryptocurrency is still a hugely speculative asset class, where emotions often overshadow fundamentals. But over the long term, tokens that introduce technical innovations may have a better shot at holding their value as users require more speed and security. Solana and Algorand fit the bill with their innovative designs and could make great investments in February and beyond.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
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