According to a research memo seen by Business Insider on Jan 11th, Bank of America analyst Alkesh Shah believes that the Solana’s ease of use, low transaction fees and scalability could make it posed to steal market share from DeFi giant Ethereum.
Solana’s “ability to provide high throughput, low cost and ease of use creates a blockchain optimized for consumer use cases like micropayments, DeFi, NFTs, decentralized networks (Web3), and gaming,” Shah wrote. This means that “Solana could become the Visa of the digital asset ecosystem.”
Solana, an alternative blockchain to the Ethereum network is known for its lightning-fast speeds which can process up to 65,000 Transactions Per Second (TPS). Visa can currently handle about 24,000 TPS, and Ethereum only handles 12 TPS on its mainnet — although with layer 2 blockchains like Polygon that number increases.
Ethereum also expects to address speed and scalability issues with Ethereum 2.0, which will be rolled out sometime later this year.
“Ethereum prioritizes decentralization and security, but at the expense of scalability, which has led to periods of network congestion and transaction fees that are occasionally larger than the value of the transaction being sent,” Shah continued. “Solana prioritizes scalability, but a relatively less decentralized and secure blockchain has tradeoffs, illustrated by several network performance issues since inception.”
What Shah means by “network performance issues” is that in 2021 the Solana network had three outage issues when the system was down.
That said, Solana has completed over 50 billion transactions since March of 2020, and the price of SOL, the native cryptocurrency, has risen by more than 30,000% since May 2020. The Solana blockchain has also been used to mint nearly 6 million NFTs.
Solana achieves its speed and scalability by combining a Proof of History blockchain with a Proof of Stake consensus mechanism. Shah noted that these “innovations allow for the processing of an industry-leading ~65,000 transactions per second with average transaction fees of $0.00025, while remaining relatively decentralized and secure.”
For now, Ethereum remains dominant as the No. 2 cryptocurrency with a market capitalization of nearly $375 billion based on data from Bitcoin.com markets at the time of writing, while Solana has fallen to 7th, with a market cap of $43 billion.
Time will tell which blockchain reigns supreme. But the memo from Shah sheds some light on who Bank of America is betting on.