I wrote on Ethereum (CRYPTO: ETH) and Solana (CRYPTO: SOL) the other day, and I said, “There’s blood in the water and Solana is a great white shark.” Solana came out of nowhere last year and had shocking returns for early investors. His play grew by almost 11,000%. And it is not the only one. avalanche (CRYPTO: AVAX) jumped 3,000%. Phantom (CRYPTO: FTM) – what is so new Coinbase does not yet offer the coin – increased 14,000% for the year.
I think the rise of these new cipher names suggests the old guard might be in trouble. And yet the Ethereum coin has had a great year for a megacap, surpassing 400% in 2021. Ethereum may be a big orc, but it doesn’t seem to be bleeding much. And what’s fascinating is that when we compare Ethereum to Bitcoin (CRYPTO: BTC), we observe exactly the same phenomenon. Ethereum has been killing Bitcoin for years! I thought it would be close. Not close at all. So let’s take a look at some crypto charts.
Ethereum coin is up 34,000%
Here’s a five-year chart for Ethereum and Bitcoin. This is from January 3, 2017. Bitcoin is up 4000% during this time. So if you invested in Bitcoin five years ago you have made 40 times your money. It’s an incredible comeback, right? Now look at Mount Ethereum.
If you invested in Ethereum five years ago, you made a 34,000% return. It is a bagger of 340, for children who play at home. If you invested $ 3,000 in the coin, you are now a millionaire. Meanwhile, if you bought a stock index fund, you doubled your money. You now have $ 6,000. (It’s not horrible. At this rate, you will be a millionaire in 45 years).
What’s remarkable is how quickly it all happened. You can see why Ethereum holders are confident. (If your investment increased in value 340 times, would you be worried?) On the other hand, if you don’t own Ethereum, this chart might actually make you a little nervous. It’s already gone this far – I’m afraid I didn’t miss it. (And, in fact, I didn’t buy any Ethereum coins).
2021 brought a new wave of crypto
Last year was a remarkable crypto year. Solana investors made 110 times their money. Ghost investors have made 140 times their money. If you invested $ 3,000 each in these two coins last January, you are not yet a millionaire. But you’re pretty close. Your $ 6,000 is now worth $ 750,000. So let’s look at a one-year chart. We will be measuring Bitcoin, Ethereum, and Solana.
The Solana chart is so impressive that you might miss how amazing Ethereum has had a year. It has increased by 400%. A $ 3,000 investment in Ethereum in January is now worth $ 15,000. And of course, if you bought Ethereum a few years ago, you’ve made a lot of money.
Nonetheless, a $ 3,000 investment in Solana a year ago is now worth $ 330,000. You would be hard pressed to find a non-crypto investment so quickly.
Why is Solana rocking so hard? Besides, why has Ethereum trampled Bitcoin for years? What is the cause of this demand for alternatives to Bitcoin (aka altcoins)?
The crypto universe needs a platform to sit on
Since the introduction of Ethereum, it has been the primary platform for crypto development. If you wanted to build a decentralized application (dApp), you would probably make sure that it was compatible with the Ethereum blockchain. So, for example, if you wanted to provide a way for people to put their crypto in and get paid interest, you would want to work with Ethereum. People are playing games on the blockchain. You can buy works of art, called non-fungible tokens (NFTs), on the blockchain. All of these things require transactions.
Bitcoin is way too slow for all of this. Bitcoin relies on proof of work to validate a transaction. It takes an average of 10 minutes to get the job done and add a block to the chain. And Bitcoin requires six confirmations before the transaction is finalized (i.e. five more blocks need to be added to the chain). Bitcoin’s final time is therefore around one hour. As far as transaction speed goes, it’s a bit crazy. Imagine swiping your credit card and having to wait an hour for the transaction to complete!
Ethereum is much faster than Bitcoin. Every second, 15 transactions take place on the Ethereum network. And the transaction is finalized in just over a minute. This is why the Ethereum coin has been trampling on Bitcoin for years. According to Coinbase, the Ethereum network settles billions of dollars in transactions each year, and $ 170 billion is stuck on the platform.
The problem is, Ethereum is not evolving. As more and more people try to transact on this blockchain, the wait times increase and the price to access the blockchain increases. Look at this shocking painting:
Over $ 300 at one time. If gasoline cost that much, I wouldn’t be driving my car. Solana, meanwhile, costs only a fraction of a penny. Thousands of transactions occur on the Solana network every second.
So, for me, a crypto newbie, investing in Solana seems like a no-brainer. And yes, I missed this huge win last year. But it’s OK. If my investment thesis is correct and we see a new blockchain platform emerge, this coin will be incredibly valuable. (I bought Fantom lately, for similar reasons).
These graphics give me a lot of confidence. We’ve seen Ethereum crush Bitcoin over the past five years, and we know why that has happened – a much more appealing network advantage. Now, as interest in crypto has exploded, the limits of Ethereum’s network are starting to show. This is why the crypto market is getting excited about Solana. And why I want to own it.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.