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BofA: Solana is stealing market share from Ethereum

17 Jan, 2022
BofA: Solana is stealing market share from Ethereum

Ethereum was the first blockchain to fully support smart contracts. This was largely behind its rise in popularity and helped drive the development of sectors of the crypto economy like decentralised finance (DeFi) and non-fungible tokens (NFTs). Just one year ago, Ethereum had a virtual monopoly, with a 97% share of all DeFi blocked funds, though this figure has now shrunk to 62%.

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In addition to rising demand, there was also a significant increase in network load, something that Ethereum wasn't quite ready for. For security and maximum decentralisation, the blockchain was built on a proof-of-work protocol, but the downside of this was low throughput capacity. Ethereum is incapable of processing more than 20 transactions per second (TPS), which means that its users are required to pay higher commission to ensure their transactions are entered into the block. Competition between users led to record high commissions that frequently exceeded $50.

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Ethereum's low speeds and high expenses incentivised the development of faster blockchains. One of the most forward-looking of these is Solana, which charges commission of less than one cent despite boasting speeds in excess of 50,000 TPS. Solana is based on a proof-of-stake protocol and is less stable and less decentralised than Ethereum. However, this has not discouraged Bank of America from calling it a "potential VISA of the digital asset ecosystem".

Over the course of the past financial year, VISA processed 165 billion transactions, while Solana managed just over 50 billion. Solana only entered the NFT market in August but now accounts for more than 6 million digital objects created using this technology.

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Solana is a relatively young project that still has some teething problems to work out. The network was taken down several times by DDoS attacks on one of its decentralised exchanges, with the Solana Labs management team admitting that it had problems on multiple occasions. The viability of Solana and its potential to take further market share from Ethereum will largely depend on the project development team's ability to solve these problems at the earliest possible opportunity.

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