Solana boosted by Bank of America

Alkesh Shah, a digital asset strategist at Bank of America, is sweet on Solana. This week in a research note he claimed that Solana, widely seen as a competitor to Ethereum, could become the “Visa of the digital asset ecosystem.”

Solana only launched in 2020, and since then has become the fifth largest cryptocurrency with a market cap of $47 billion. Its impressive growth spurt has outperformed that of Ethereum, and it has been used to settle over 50 billion transactions. It has also minted some 5.7 million NFTs.

Despite this performance, it still has its critics, and they argue that the speed at which it settles transactions comes at the cost of decentralization and reliability. Shah doesn’t buy this. He believes the benefits outweigh the drawbacks: Its 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.”

In his note, Shah also pointed out that he believes Solana will take market share from Ethereum, simply because it offers lower fees, is easier to use and has greater scalability. He told Business Insider, “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.”

Ultimately he thinks Solana may take over the transaction settlement side of the market, while Ethereum focuses on “high-value transaction and identity, storage and supply chain use cases.”

But perhaps the most surprising element of Shah’s note is the comparison of Solana with Visa. Visa processes an average of 1,700 transactions per second (TPS), although if pushed to the max it could do 24,000 TPS. By contrast Solana has an upper limit of 65,000 TPS. Ethereum handles about 12 TPS. The difference is striking.

However, as Solana followers will know, the network has suffered a number of problems recently, something that Shah acknowledges. Already in 2022 there have been withdrawal issues on both Binance and Coinbase and an alleged DDoS attack on 5th January, something the network denies. And in December of last year there was a DDoS attack, as well as reports of network congestion. This does not seem to have deterred investors this week. After several rough days, Solana (SOL) has bounced back to $151, an increase of 8.56% from a 52-week low of $130, although it has some way to go before it reaches its former ATH of $260.  But if Shah is right, and Solana becomes the “Visa of the digital asset ecosystem” who knows how high its price may go.

A Real Estate Boom in the Metaverse is Coming

If Irina Karagyaur is correct, 2022 will see the beginning of a gold rush in virtual land, especially as a “more efficient and scalable future for the intersection of blockchain and real estate is being built as we speak – and it’s not solely confined to the Ethereum blockchain.”

As I’ve mentioned in previous articles, the future of NFTs is a multi-chain one. This solves the limitations of the Ethereum blockchain and enhances its usage, and we will see “unimaginable opportunities” in every corner of commerce. Alternative chains, such as Solana, Tezos, Polkadot, Kusama, Cardano and many others make more diverse use cases possible and they answer issues such as scalability, network congestion and the ability to truly fractionalize ownership, so that NFTs become usable and transferable in the Metaverse. It may also mean that NFTs are able to “break out of the confines of traditional digital collectibles,” and be part of the ‘real world’. But while NFTs have been until now primarily focused on collectible memes, art, sports and luxury goods, Karagyaur argues that the potential for real estate to be modernized and made more efficient on the blockchain is powerful, inevitable even.

Buying and selling real estate is a time-consuming business, as well as an expensive one. But with virtual real estate in open metaverses, it will be possible to use peer-to-peer transactions alongside smart contracts that automate and speed up every part of the process. For example, property asset transactions, can be executed in minutes instead of weeks or months.

Furthermore, Karagyaur points out, “virtual real estate can unlock liquidity via decentralized global markets that enable tradable assets and allow for metaverse assets to be used as extractable collateral to fuel innovative methods of lending in decentralized finance (DeFi). Potentially, owners of digital homes may be able to use them as collateral for loans, and it may be possible for owners of a valuable piece of virtual land to exchange it for a property or land in the real world.

Most importantly, Karagyaur claims that Ethereum’s network, whicle it is the dominant smart contract blockchain, will not be enough to host all this activity. This is why the talk about multi-chain development is so important. As she says, “Although Ethereum layer 2 solutions (add-ons that help the network process more transactions) work well, new blockchains have seen exponential growth and promise fertile new ground,” and there is plenty of room for the creative builders that are looking beyond Ethereum.

Some well-known names, such as Snoop Dogg, are already investing millions of dollars in virtual real estate, and Fortune magazine calls it “a multi-trillion dollar opportunity”. For the younger generation it is possible that their first property purchase will be in the Metaverse, an idea that the Boomer generation may struggle to comprehend. Of course, there is a lot of work to be done before we get to that point, and there are some who believe it is a ‘pie in the sky’ notion, some criticising it as ‘novelty’ driven by hype and speculation, whilst others argue that buying and selling real estate requires legal due diligence, and they can’t see how that might be possible in a virtual world. And of course there is the real estate sector itself, which may not be too keen on seeing their old-fashioned but profitable business model turned on its head. Still, as Karagyaur says, “real estate NFTs promise the ability to democratize property ownership, a space that has historically excluded a majority of the world.” It’s just a potential market at the moment, and building it will take time, but it’s not too difficult to imagine the day when it’s a reality.

What is ETH2 doing on Coinbase?

Coinbase users might be somewhat confused to find there appears to be a new ‘coin’ listed on its crypto price index called ETH2. It is listed as having the same price as ETH, so what is it and why is it there?

According to Yash Gola at Cointelegraph, this ETH2 is a “mirrored version” of ETH, and he believes Coinbase has added it ahead of a key Ethereum network upgrade that is to happen on 10th December. One Twitter user questioned if Coinbase is promoting it as a new coin, but it can’t be that, because the exchange has no data for it regarding Trading Activity, Popularity Score, or Typical Hold Time. Instead, Gola answers, it’s function is to “track the ETH market data until at least mid-2022.”

He comments, “ETH2 seems to have been posing as the native token of Ethereum’s ongoing upgrade, dubbed Ethereum 2.0,” which is expected to go fully live by June 2022. Although there may be an alternative reason for listing it, given that a fork called ‘Arrow Glacier’ is scheduled for implementation ahead of that, with the function of making it easier for developers to prepare for Ethereum 2.0.

The Arrow Glacier is intended to delay “an incentive hardcoded inside the Ethereum blockchain since its launch in 2015, which would make it difficult for people to mine ETH.” This ‘incentive’ is also being called a ‘difficulty bomb’, because if it were triggered, it would excessively slow down the Ethereum network while it remains a proof-of-work blockchain.

Tim Beiko, one of the core developers working on the Ethereum upgrade, noted that Arrow Glacier might be the last upgrade before Ethereum 2.0, aka ‘Serenity’ goes live next year. Ethereum 2.0 will enable the big transition from energy-intensive proof-of-work (PoW) to proof-of-stake (PoS). It will use ‘sharding’ which divides the network into various segments (called shards) and randomly assigns nodes to each shard. This will improve the speed and costs required to maintain the network. The Beacon Chain, which is the backbone of Ethereum 2.0, will validate the transactions on each shard, thus assisting the entire Ethereum 2.0 network in reaching consensus.

And then this is where ETH2 comes in. It is likely to serve as a staking token for validators on the new PoS network, so they receive block rewards. As Gola points out, “Beacon Chain’s deposit contract has received over 8.42 million ETH tokens from 55,300 unique depositors (validators) since its launch in December 2020.”

But ETH2 is not a new digital asset, it’s more like a placeholder for when Ethereum fully transitions. It is also possible, indeed very likely, that ETH2 may end up becoming a rebranded version of the original ETH, “without needing holders to swap one version for another.”

So now you know what ETH2 is on Coinbase!

Money in the Metaverse

Over the past year, DeFi and NFTs have been making the case for the potential of blockchain technology. Many of them used the Ethereum blockchain, known for its smart contracts, which are an essential part of the decentralised ecosystem. Indeed, as Edward Oosterbaan writes in Coindesk Insights, “scalability products that can increase performance in response to changes in processing demands are starting to unlock the vast potential Ethereum holds,” adding that Vitalik Buterin, a co-founder of Ethereum, has his eyes firmly set on decentralising social media, gaming and anything else that comes along.

Ethereum is the main place where crypto lending and trading takes place, for example, you’ll find Uniswap and Aave there, and the emergence of second-layer platforms that are built on top of Ethereum, such as Arbitrum and Optimism, “will drag down transaction fees and open Ethereum to decentralized social media platforms like Reddit.”

Ethereum’s native token ETH

The interesting part of this is that in all the use cases mentioned, users will need to own Ethereum’s native token ETH. Indeed, ETH is the key to unlocking this particular blockchain space, whether you want to launch new apps, use existing ones, or send tokens to different wallets. Furthermore, ETH “has become a unit of account and the most common pairing on decentralised exchanges (DEX).”

Oosterbaan believes “the definition of money will become much broader than its fiat limitation today,” especially if alternative base layer protocols, such as Solana and Avalanche, are successful. He says, “We are already seeing protocols raising capital, and investors measuring their portfolios against ETH instead of dollars, or even stablecoins, and that it could “potentially become a currency of the metaverse.”

Oosterbaan reflects that digital assets are a much better investment than fiat currencies at the moment, but more importantly, he points out, “the larger the Ethereum ecosystem grows, the better the currency ETH becomes.”

Currently there are more speculators in crypto than actual blockchain users, but that is changing thanks to Ethereum’s potential for use with DeFi, NFTs, validation, social media and more. Coinbase has already reported that it has seen a major shift, as more people make use of blockchain technology by taking their tokens off exchanges. This is a sign that people increasingly want to interact with applications on the Ethereum blockchain. It has also benefited the cheaper blockchain alternatives, such as Polygon.

Ultimately, as we move towards Web 3.0, the definition of money will become more fluid as the digital economy grows, and as Oosterbaan says, “This fits perfectly with the narrative of the metaverse, where the line between the digital world and real life becomes thinner and thinner.”