Category: Solana

Where would you mint an NFT?

On By mehranmuslimiblogIn Ethereum, NFTs, SolanaLeave a comment

Ethereum is the largest ecosystem of the DeFi (decentralized finance) sector, so it’s no surprise that this is where you’ll find the majority of NFTs being minted. Ethereum also takes the lead with a much bigger pool of buyers and sellers, which is why Ethereum-based OpenSea, a very popular NFT marketplace, is often the first stop for many NFT producers, because that’s where they potentially get more exposure and people willing to buy or place bids on their NFTs. 

Ethereum’s data architecture and security components are the reason why so many developers are building on top of its blockchain. But there are some ‘cons’ to the network. Rather frequently, the network suffers a major transaction backlog, which leads to an enormous spike in transaction fees, and this limits the number of users who can afford to mint NFTs. On the other hand, whilst paying elevated gas fees can be a crippling experience sometimes, the upside is there’s more money flowing in Ethereum, so the flipping ceiling is way higher.

The move to Solana

In response to this, NFT creators and collectors look to alternative blockchains with higher throughput, scalability, and lower gas fees. So far, Solana seems to be Ethereum’s most serious competitor, due to the fact that it’s a high-performance blockchain that leverages different cryptographic mechanisms to scale its network.

But it is still chasing Ethereum. Data from CryptoSlam shows that Ethereum has had a whopping selling volume of over $1.8 billion in the last 30 days, compared to $120 million from Solana-based marketplaces. Plus, the most popular NFT collections in the market exist on the Ethereum blockchain, i.e. Bored Apes and CryptoPunks.

But Solana takes the lead in terms of technology, functionality, and versatility. It uses a consensus mechanism called Proof-of-History, which leverages a set of protocols to execute transactions with high throughput. Its transaction fees are less than one dollar, and there appears to be some migration to Solana amongst NFT projects and collectors in order to benefit from the scalability and cheap transaction fees. It also appears that Solana is becoming the preferred blockchain for more general and utility-focused NFTs.

In conclusion, whilst Ethereum still has the major market share, Solana’s share is growing. In fact, Solana’s user base has been growing at a much faster pace since the beginning of 2022, and even JP Morgan believes it could overtake Ethereum in the long term.

Layer 1s versus Ethereum

On By mehranmuslimiblogIn apps, DeFi, Ethereum, Solana, UncategorizedLeave a comment

Last year, the networks that set out to compete with Ethereum for a slice of decentralized applications proved to be profitable. These blockchain networks, also known as ‘Layer 1s’, include Solana, Polygon, Avalanche, Polkadot and Cosmos amongst others.

These protocols are masters of decentralized computation, something that can power any type of software, but is “particularly apt for digital scarcity, property rights and provenance,” writes Lex Sokolin at Coindesk. And as last year showed, they proved to be increasingly profitable for investors. However, they only remain valuable if they are used by the developers who make apps.

They also require users. As Sokolin says, “if there are users in your platform, developers value that as a distribution channel in addition to a technology enabler.” He refers to this creating a viral loop “that can create positive network effects, which allow certain equilibria to hold, and others to collapse.” He adds, “So layer 1s do both – they provide the computational unit as well as the market context in which that computational unit is generated and executed.”

Yet Ethereum is still holding the biggest slice of the market. It is true that its dominance has declined. For example, in September 2020, Ethereum had 90% of the assets on the market, and today it has about 50%. How and why has that happened?

Let’s take Avalanche as an example. It is launching a $290 million incentive program to grow the applications built on its technology. Its market cap is around $30 billion, so this expenditure on platform growth and customer acquisition is only one percent of its cap. And last year, Polygon, targeted DeFi growth with a $100 million ecosystem fund, which worked for it, as you will find quite a number of DeFi projects on its blockchain.

Ethereum by contrast was boosted by Consensys, which “played the role of ecosystem fund in the early days, eventually generating sufficient building and adoption by the community.”

These ecosystem funds are a really important element in the rise of Layer 1 solutions. Success and sustainability comes from spending on marketing, growing your adoption against others, building in profitability and using profitability to grow your market share. Ultimately, it should have been easy for Ethereum to hold onto the lion’s share of the market, but it didn’t factor in investors’ appetite for. As Sokolin says, “there’s a lot more risk capital out there wanting to recreate a layer 1 investment return profile,” which is good news for those protocols.

Solana boosted by Bank of America

On By mehranmuslimiblogIn Blockchain, DeFi, Ethereum, NFTs, SolanaLeave a comment

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.