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Ethereum and Solana are networks hoping to expand the uses of decentralized finance (Defi.) They both are looking to allow users to create projects on the blockchain. These projects can be used in a variety of scenarios, from finance to art. However, the 2 chains operate differently, and it is important to understand their differences when making investment decisions.
Smart Contracts Explained
Smart contracts are programs that run on the blockchain. They use unique coding languages to create conditionals that automate tasks on the blockchain. A conditional is typically an “if” statement that automatically does something when a certain event occurs. An example of a conditional is “If I am away from the office, send an email saying I will get back to you soon.” This conditional looks for a certain event (away from the office), and then automatically takes an action (sends an email) when the event happens.
When applied to a blockchain, smart contracts can be a valuable tool. They can be beneficial in industries ranging from insurance to supply chain.
Both Ethereum and Solana offer smart contract capabilities on their networks. Virtually anyone can create a smart contract and upload it onto the network. However, the 2 networks have different ways of verifying interactions with smart contracts and transactions on the chain.
Proof of Work vs. Proof of History
As of right now, Ethereum uses a proof-of-work (PoW) consensus model to verify transactions. A PoW model means that users can contribute computing power to the network in order to determine which transactions are legitimate.
Users earn rewards for verifying transactions. The major drawback of PoW is the energy consumption. The Ethereum network uses massive amounts of energy to verify transactions. Because of this, they are switching to a proof-of-stake (PoS) system in 2022 that will use much less energy.
Solana uses a proof-of-history model to verify interactions with smart contracts. This method of verification is much different than more typical consensus models. The verification system works by automatically storing all the data of transactions in chronological order using a verifiable delay function (VDF) to ensure data is in the correct order.
Once the data is sorted, it can be distributed for verification. This process makes verification much faster than other forms. A good analogy would be that of a puzzle: imagine trying to put together a jigsaw puzzle with all the pieces numbered on the back. These hints already make the puzzle easier to solve. Then imagine splitting the solving of the numbered puzzle between several people; division of work makes the process even faster. However, it is extremely hard to become a validator, or one of the people working on the puzzle, as it has strict requirements.
Ethereum vs. Solana Market Capitalization
As of right now, ETH is trading around $1,600 per token. It has a market capitalization of over $198 billion and a total circulating supply of over 121 million tokens.
Solana is currently trading around $41 per token with a market capitalization around $14 billion. It has a supply of just over 346 million tokens.
Both Solana and Ethereum are down significantly from their all time highs. At its peak in November 2021, Ethereum reached $4,811 per token with a market cap of over $560 billion. On the other hand, in the same month, Solana reached over $250 per token with a market cap of over $77 billion.
Use Cases of ETH vs. SOL
While Ethereum and Solana both provide services using DeFi and smart contracts, they tend to value different forms of adoption. Solana focuses on scalability while Ethereum values security. Due to the amount of miners on Ethereum's proof of work blockchain alongside the demand for network power, transactions on Ethereum can be expensive. Conversely, Solana's proof of stake network offers cheap and fast transactions, but less infrastructure and security on its blockchain.
One major use of Solana revolves around micropayments. Perhaps the most prominent projects on the Solana network is Audius (AUDIO). Audius was originally implemented on the Ethereum network, but developers realized Solana’s network better suited their needs. This is because Solana offers far lower transaction fees and a much higher transaction throughput.
Audius is a music streaming platform that hopes to connect fans and creators. Fans can pay their favorite creators directly with AUDIO. Audius is also hoping to give much more revenue to creators than other large music streaming services. As of August 2022, the platform supports over 6 million monthly users and features artists such as Skrillex and MadeinTYO.
Ethereum attempts to have an impact in different areas from security to sustainability. Because Ethereum has a much larger network, it bolsters the computing power to support larger projects. One example of this is within the government; some countries have tested using Ethereum's blockchain to verify ownership of land deeds and other government-issued documents.
Perhaps the biggest way it is hoping to make an impact is with voting. With recent debates surrounding the security and efficiency of voting, Ethereum could offer a powerful solution. Ethereum could use non-fungible tokens (NFTs) to verify someone’s identity, and then use smart contracts to store the records of votes on a tamper-proof ledger. This process could help solve some of the debate surrounding voting.
Where to Buy Solana and Ethereum
Ethereum and Solana are both leading projects in the crypto sphere, and many crypto brokerages are well aware. The tokens are offered on a variety of exchanges. However, a few brokerages stand out due to ease of use, efficiency and a focus on education.
Gemini, eToro, Webull and SoFi Technologies Inc. (NASDAQ: SOFI) are great options for those looking to purchase ETH or SOL. Opening an account usually requires a phone number or email and at least 1 form of identification, but the process only takes a few minutes.
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What Has More Room to Grow: SOL or ETH?
Solana and Ethereum are both looking to have major impacts in the crypto world and beyond. Because Ethereum was created years before Solana, it is a larger platform that is better suited to provide a variety of use cases, such as NFTs, DeFi and digital identity. While Solana may be able to catch up, Ethereum currently has the fastest growing network in terms of both applications and developers.
In terms of market capitalization, Solana has more room to grow. Its market cap is almost a 10th of Ethereum’s. If Solana begins to support larger projects and investors move theory money to SOL, it could grow much more rapidly than ETH.
Current Cryptocurrency Prices
Just before the beginning of the 2021-2022 NBA season, Coinbase (NASDAQ:COIN) announced a partnership with the NBA. Coinbase is looking to leverage the deal to expand outreach into the NBA’s audience. This comes after deals have been made with other crypto companies, such as Crypto.com’s $100 million deal with F1 racing.
This is big news for crypto as it opens the gates for a new audience to learn more about cryptocurrency. As cryptocurrencies enter the mainstream, prices are certainly affected. Check out the chart below for real-time cryptocurrency prices.
So, What’s Better: Solana or Ethereum?
Simply put, Solana is better for low transaction fees and speedy transfers, while Ethereum is better for security and decentralization. However, Ethereum currently has much more adoption and use cases. Solana was created in 2020, so it is still a fairly new project. If it can catch up to Ethereum in terms of network capabilities, then users and investors may shift their attention to Solana.
Frequently Asked Questions
How do Solana and Ethereum differ in terms of scalability?
In terms of scalability, Solana is able to handle 2,700 transactions per second (tps) while Ethereum is only able to handle about 30. However, Ethereum’s TPS is subject to change upon the implementation of Eth2.0.
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About Caden Pok
Caden has been involved with crypto since 2018, when he began investing, trading, and mining tokens. He took part in undergraduate research studying cryptoeconomics at the University of Michigan, where he will graduate Phi Beta Kappa with a bachelor’s in economics in 2025. He is experienced with DeFi technology and multiple blockchains, currently investing in Ethereum and Bitcoin.