Can Solana help you retire early?

Since its launch in April 2020, Solana (SUN 0.82%) has generated a monster return of 1200%. This performance easily crushes it S&P 500 and Nasdaq Composite Index. It even trumps the increases Bitcoin and Ethereum (ETH 3.42%)the two most valuable cryptocurrencies, in the same time period.

But can Solana continue its rapid rise in the years ahead and help you retire early? Let’s take a closer look.

An overview of Solana

Like Ethereum, Solana allows the development and functioning of smart contracts, which opens up the network to create various decentralized applications, such as decentralized financial protocols and platforms for non-fungible tokens. At its peak at the height of the crypto asset boom in November 2021, Solana had more than $10 billion in total value locked on the blockchain. This is the amount deposited in different apps.

Solana runs a proof-of-stake consensus mechanism. But what makes it really stand out is something called proof-of-history, which eliminates the need to add timestamps to blocks, thereby reducing the data load. This innovative feature is why Solana can process an incredible 50,000 transactions per second (TPS). It is no wonder that Solana is often called a “Ethereum killer” because of its ability to disrupt the leading programmable blockchain.

Solana also has some potential real-world use cases. Last February, Solana Labs, the organization tasked with driving the strategic direction of the network, introduced Solana Pay, which allows a merchant and customer to transact directly without intermediaries, with immediate settlement and virtually no fees. It also allows the merchant to build deeper connections with customers by adding loyalty programs and other features.

And Solana announced an Android smartphone called Saga. The goal is to get more people to use the Solana platform by making it easier to get them on board and access Web3 services. Delivery of the phone will start early next year.

Time will tell if these innovations will work as intended and bring more users and activity to Solana. But it’s a positive sign to see a cryptocurrency project actually working on building real products and services.

Should you invest in SOL?

Despite all the positive qualities of Solana that I outlined above, there are some important risks to consider. It has experienced major network outages in the past (three in 2022), instances where users could not access the blockchain. Anatoly Yakovenko, Solana’s co-founder, says a solution is on the way.

Digital wallets where users store SOL have also been hacked in the past. In August, more than $5 million was stolen from about 8,000 Solana wallets. This issue was certainly a huge blow to the confidence and trust people have in Solana specifically and crypto more broadly.

Another thing investors should consider is Solana’s ties to Sam Bankman-Fried, former head of failed crypto exchange FTX. He was a strong supporter of Solana. And his trading firm, Alameda Research, which also collapsed, was a major investor. If the bankrupt firm is forced to sell its SOL holdings, the price of the token will clearly take a hit. However, the damage may already be done, as the price of Solana has fallen 62% since November 1 (as of this writing). But this may only be a short-term risk that has minimal impact on Solana’s long-term viability.

Solana has certainly delivered monumental returns since its public launch, likely making some early investors rich beyond their wildest dreams. But looking ahead, it is difficult to predict what the potential return will be. If Solana gets used for payments, which is probably the biggest possible opportunity, the network could continue to increase in value over the long term.

Investor who believe in Solana’s prospects, even after taking risk and uncertainty into account, should look to add a small allocation (1% of a portfolio). If successful, the overall return could be boosted. If it doesn’t, however, a 1% loss will have minimal impact.