I have long been sympathetic to the Hive and Ethereum ecosystems. My current portfolio consists of digital assets of these two ecosystems. On the other hand, I also like Solana because I am interested in concrete infrastructures and results rather than promises. The user experience provided by Solana is excellent and has a vast ecosystem. So, are these enough for Solana to compete with Ethereum? Both coins have their advantages.
Speed, Scaling, and Transaction Fees
Solana was founded to become a blockchain fast enough to rival Nasdaq. It became the fastest blockchain thanks to powerful servers and parallel execution. When I used the Solana network, I found the user experience much better than others. Speed and low transaction fees make Solana attractive. While a swap transaction in Ethereum requires a transaction fee of around $10, this fee is half a cent in Solana. Ethereum Layer 2 has transaction fees of 10-20 cents. The Doncun upgrade, which is taking place on the Ethereum network, will reduce the transaction fee of Ethereum Layer 2s by at least an order of magnitude. Even in this case, Solana will continue to remain cheaper.
So, how does Solana achieve this superior performance? According to VanEck's October 26, 2023 report, Solana reflects one-fortieth of the expenditure for the system's operation to users as a transaction fee. The same report shows that Solana's annual income from transaction fees is $14.2 million. At the time, Solana was valued at approximately $14 billion. So, it was valued at around a thousand times the transaction fees. Solana will likely raise transaction fees once it reaches its target scale, as the situation seems unsustainable.
Solana offers its users speed and high processing capacity without needing Layer 2. In this criterion, Solana is superior.
Token Economy
Solana has a value of $43 billion, compared to Ethereum's $277 billion. Thanks to coin-burning transactions, Ethereum has zero inflation and provides a staking income of around three percent. Solana's inflation rate is 5.5%, and its staking return is 5%. Ethereum provides a 3% real return, similar to stocks.
Both cryptocurrencies are doing well in terms of the token economy. Ethereum looks better by this criterion.
Ecosystem and Adaptation
Ethereum is the most widely used smart contract blockchain. Since its history is more extended than Solana, it has a broader ecosystem. In terms of the number of developers, Ethereum is ahead.
Solana's application diversity is sufficient in the DEFI sector. However, Ethereum has a clear advantage regarding liquidity in this area. This superiority becomes even more evident when we take Layer 2s into account. Solana is fifth in the DEFI total value locked value ranking.
In the NFT industry, Solana has become the second network after Ethereum. Solana is essential in NFT trading thanks to its low transaction fees and speed.
There are no Solana games in the list of most played games. The recent interest in Solana has mainly stemmed from meme coins. Jupiter, an innovative DEFI application, was also influential in this interest.
Upcoming Milestones
Solana's latest validator client software, Firedancer, is still being tested. It is estimated that this validator client software of Solana, written in C++ programming language, will decrease Solana's processing time to less than one second.
Ethereum's Dancun upgrade, which is still in the testing phase, is expected to be completed in March. Thanks to this upgrade, the effectiveness of Layer 2 blockchains will increase. The change is expected to reduce Layer 2 transaction fees by ten times.
The Ethereum ETF is expected to be approved in May, as the first Ethereum ETF application deadline is May 8. If the SEC rejects this application and then accepts Blackrock's at the deadline, it won't be easy to explain. Blackrock has a 98% acceptance rate for ETF applications. In any case, Ethereum EFT will likely be approved this year.
TL;DR
Recently, the modular blockchain narrative has become popular. The modular blockchain approach allows data, execution, and consensus to be on separate blockchains. Thanks to solutions that provide Data Availability (DA), such as Celestia and Eigenlayer, Ethereum Layer 2 and Layer 3 are becoming more performant. Because DA solutions made using Ethereum for consensus/security only possible. That dramatically reduces the transaction fees of Layer 2 and Layer 3 blockchains.
In conclusion, my choice is for Ethereum. On the other hand, there is no obstacle to investing in both coins. There may be a correction in altcoins towards the middle of this year. Being in Ethereum during such a correction movement would be more advantageous. Confidence in the market is expected to increase significantly in 2025. It may be more rational to enter Solana in such a period.
As a result, I find the comments that Solana will catch up with Ethereum exaggerated. It would be a big surprise if such an event occurred in the short term because Rome was not founded in a day. If Solana takes new initiatives in the coming period, it can further strengthen its position in the market.
Thank you for reading.