1 Reason Every Investor Should Know About Solana (SOL)

Key Points

• Solana introduced a unique proof-of-history consensus mechanism.

• It incorporates timestamps in the transaction validation process to improve processing speeds.

• The blockchain currently processes about 3,500 transactions per second and is theoretically capable of 65,000.

• 10 stocks we like better than Solana ›

After lagging other top cryptocurrencies for most of the year, Solana (CRYPTO: SOL) has bounced back. It's up 35% over the last month (as of Sept. 19), while market leaders like Bitcoin and XRP have been nearly flat.

Solana is an important part of the crypto market, and not just because it's one of the 10 largest coins. It also has an innovative way of validating transactions that could make it a long-term winner.

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Solana's unique proof-of-history consensus mechanism

Like Ethereum and many other blockchains, Solana uses a system called proof of stake to validate transactions. Anyone can become a validator by staking (depositing) their crypto tokens. This is an energy-efficient validation method, because it chooses validators based on their staked tokens, but it doesn't guarantee fast transaction processing.

Solana also brings time into the equation through its proof-of-history mechanism. It incorporates cryptographic timestamps to record the order of transactions, even before they've been validated. Proof of history allows Solana to validate transactions much faster than most blockchains.

In terms of performance, Solana is currently processing about 3,400 transactions per second (tps), according to Token Terminal. Ethereum is at 21 tps. Solana's theoretical maximum is considered to be 65,000 tps. Solana's speed, along with transaction fees of under $0.01, make it an attractive choice for building and using decentralized applications (dApps).

Image source: Getty Images.

Ethereum is still the far more popular blockchain, with more value locked into its smart contracts and more developers. But Solana has been making progress -- last year, it was the top blockchain ecosystem for new developers. If you've been looking for altcoin investment opportunities, Solana is worth a look. However, as cryptocurrencies are highly volatile, it's best to take a cautious approach when deciding how much to invest.

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Lyle Daly has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.