Looking for the next Ethereum? 2 cryptocurrencies to buy and keep right now
Ethereum was the first programmable blockchain, a platform where developers can create self-executing programs called smart contracts. Since its launch, this technology has evolved into decentralized applications (dApps) and decentralized financial platforms (DeFi), software that exists on a peer-to-peer network rather than centralized corporate servers.
DApps prevent censorship and protect user privacy, and DeFi products make financial services more efficient and accessible. Given this value proposition, it’s no surprise that both industries are growing in popularity. In fact, there are now over 3,800 dApps and $ 230 billion invested in DeFi products. And in both cases, Ethereum is largely the leader.
However, scalability issues have hampered the adoption of Ethereum-based products, causing transaction fees to increase by 250% over the past year. And while upgrading from Ethereum 2.0 will fix this issue, other programmable blockchains like Solana (CRYPTO: SOL) and Earth (CRYPTO: LUNA) are gaining ground. Not only that, but Solana and Terra have market values of $ 43 billion and $ 23 billion, respectively, a fraction of Ethereum’s $ 369 billion.
Here’s why both look like smart long-term investments.
While Ethereum is arguably the most mature dApp ecosystem, it currently only handles 30 transactions per second (TPS), while global payment networks like MasterCard routinely process over 2,800 TPS. In short, Ethereum lacks the throughput needed to enable mainstream adoption. Solana aims to solve this problem.
The network uses a unique hybrid consensus mechanism, combining proof of stake (PoS) and proof of history (PoH) to secure the blockchain. Generally speaking, PoS protocols require that every node (computer) confirm every transaction with every other node in order to reach consensus. But Solana’s addition of PoH allows transactions to be time stamped as they occur, creating a verifiable order of events. This means that each node can verify transactions independently, without waiting for consensus from all other nodes.
This makes Solana fast – very fast. The platform can theoretically handle 50,000 TPS and these transactions are finalized in less than a minute. In comparison, Ethereum transactions take six minutes to complete the finality (i.e. when data is irreversibly added to the blockchain), and the fees are significantly higher than the fees for the Solana blockchain. .
Unsurprisingly, Solana has become popular with dApp developers and DeFi investors. There are currently over 1,100 projects underway on the platform and $ 9.8 billion invested on the blockchain, making Solana the fifth largest DeFi ecosystem. And going forward, assuming that dApps and DeFi continue to gain traction – a likely scenario, given the value proposition – Solana is expected to see an increase in usage in the years to come, a trend that would increase the demand for the SOL token, pushing its price higher.
Terra aims to make e-commerce payments and financial services more efficient. To do this, the Terra blockchain offers various stablecoins – cryptocurrencies tied to the price of fiat currency – each powered by the LUNA token. For example, the TerraUSD token is designed to follow the US dollar and the TerraEUR token is designed to follow the Euro. That being said, the forces of supply and demand determine the price of a stable coin at any given time.
Here’s how it works: When increasing demand pushes the price of TerraUSD above $ 1, the network prompts token holders to convert LUNA to TerraUSD. This mechanism causes the supply of TerraUSD to increase and its price to decrease. The system works the same way in reverse. When the drop in demand drops the price below $ 1, the network prompts the token holders to convert TerraUSD to LUNA. This mechanism causes the supply of TerraUSD to decrease and its price to increase.
Terra is built on the Cosmos Hub, a blockchain technology powered by the tendermint consensus protocol, which itself is designed for speed and interoperability. Terra can theoretically scale up to 10,000 TPS and transactions are finalized in just six seconds. This makes Terra much more scalable than Ethereum in its current form.
Additionally, since Terra is built on blockchain technology, it does not depend on banks or other financial institutions. This means that network-powered payment platforms (e.g. the Chai mobile app) benefit from faster payment times and lower fees, while making cross-border transactions less complicated. But these benefits extend to other financial products as well. It should be noted in particular that the Anchor DeFi protocol allows investors to earn interest in exchange for providing stable liquidity, and the current payment for the TerraUSD loan is 19.5% APY – a phenomenal number compared to 0. .06% than you might expect from a savings account.
Here’s the big picture: As the Chai payment app, Anchor protocol, and other dApps and DeFi products on Terra become more popular, the demand for Terra stablecoins will increase. Therefore, since the LUNA token is designed to absorb the volatility of stable prices, the demand for LUNA will increase causing its price to rise. And investors have good reason to believe it will happen. Chai has already made a name for itself in South Korea, where more than 2.5 million people use the dApp. And more broadly, Terra is the second DeFi ecosystem behind Ethereum, with $ 15.5 billion invested on the platform. This is why this cryptocurrency looks like a smart long term investment.
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.