Since Ethereum (ETH -0.43%) was created in 2015 it has radically altered the cryptocurrency landscape. Thanks to an innovation known as smart contracts, developers could create blockchain-based applications that automatically run and transfer value when certain criteria are met.
Initially, Ethereum was the only smart-contract-capable blockchain, but in recent years this has changed. New blockchains have come into existence that not only offer smart contract functionality, but also a slew of other features hoping to build off of Ethereum.
One of those blockchains is Solana (SOL 0.87%), a blazingly fast smart contract blockchain that has a considerable user base and is the 10th most valuable cryptocurrency by market cap. Many believe Solana could eventually outdo Ethereum as the premier smart contract blockchain, but those hopes might be greatly inflated.
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A looming problem
First, let’s address the elephant in the room: Solana’s multiple outages. Over the past year, Solana has experienced at least six network outages, including the most recent one in February where the blockchain was down for more than 18 hours, disrupting a number of exchanges and apps running on the network.
In contrast, Ethereum has a proven track record of stability and reliability. Ethereum’s network has been operating smoothly for years, even with the increasing demand for decentralized applications and smart contracts.
The undisputed DeFi champ
Another key factor to consider when comparing Ethereum and Solana is the total value locked (TVL) metric. TVL is an important measure of the adoption and usage of a blockchain in the world of decentralized finance (DeFi). Since DeFi functionality is one of the primary use cases for both Ethereum and Solana, evaluating TVL can be an easy way to compare the two.
Ethereum utterly dominates the decentralized finance (DeFi) market with a TVL of more than $31 billion, compared to Solana’s TVL of just over $292 million. That means Ethereum supports 100 times more value in DeFi than Solana. Clearly, the competition isn’t even close and demonstrates the greater adoption and usage of Ethereum’s network in the DeFi market. From this perspective, Ethereum is a much more attractive investment option for those looking to tap into the growing DeFi niche.
Speed isn’t everything
Fans of Solana often say that it has some of the fastest transaction speeds. While this is true, it distorts the purpose of a blockchain. One of the primary reasons blockchain technology is so profound is because it allows users to transfer value in a decentralized and secure fashion. While Solana prioritizes speed, it sacrifices higher levels of decentralization and security found in Ethereum.
Although many are quick to point out that Ethereum moves at a snail’s pace compared to Solana, they also fail to realize that there is serious progress being made to narrow this gap thanks to new solutions known as Layer 2s.
Through the use of Layer 2 solutions such as Optimism, Polygon, and Arbitrum, Ethereum is transformed into a lightning-fast network, while also maintaining its decentralized and secure nature. As these solutions continue to be developed and adopted, Ethereum’s competitive advantage over Solana will likely become even more apparent.
The big picture
So, what does this mean for investors looking to pick between Solana and Ethereum? Although Solana may seem like a tempting option with its impressive speed, the lack of value it supports in DeFi and the sacrifices in decentralization and security make it a riskier investment, especially considering it still remains down more than 90% from its all time high.
Ethereum, on the other hand, has a proven track record and a solid foundation in the decentralized finance market. Its market dominance, along with the development of Layer 2 solutions, makes it a safer and more promising investment for those looking for long-term growth.
RJ Fulton has positions in Ethereum, Polygon, and Solana. The Motley Fool has positions in and recommends Ethereum, Polygon, and Solana. The Motley Fool has a disclosure policy.