Although Solana (CRYPTO: SOL) currently sits 67% below its all-time high, which was set in November 2021, this cryptocurrency has still skyrocketed 2,700% in the last three years. That gain crushes the rise of the Nasdaq Composite Index.
The impressive price performance highlights how successful it’s been to speculate on this digital token in the past, despite its volatility. Bullish supporters are hoping for this to continue in the years ahead.
However, price changes might mask the fact that Solana has potential in the payments market, a lucrative area of the financial services sector. Could this innovative crypto possibly even be the PayPal (NASDAQ: PYPL) of the future? Let’s take a closer look.
About two years ago, Solana Pay was introduced. Launched by Solana Labs, the governing body of this network, Solana Pay allows merchants and consumers to transact directly with one another without the need for an intermediary. There’s instant settlement and near-zero fees because transactions are completed on the blockchain.
The reason Solana is set up to be a potential disruptor in the payments industry is because of its incredibly fast throughput, with a theoretical capacity to process 50,000 transactions per second (TPS). For comparison’s sake, Visa‘s payments network can able to handle about 65,000 transactions per second.
Solana Pay would allow for deeper connections among all parties in the transaction. Instead of a receipt, a customer could receive a non-fungible token (NFT) with embedded features for future use.
For example, a record shop could give its customers an NFT that notifies them when there’s a sale going on or a live band performing. The NFT could be their ticket to the event. Adding customer-loyalty programs is also possible.
Solana Pay had a major win when it was integrated with Shopify. This lets the e-commerce platform’s merchants integrate with this innovative payments service.
It’s not hard to figure out why Solana wants to be successful in payments. PayPal is set to generate $4.6 billion of free cash flow this year. And both Visa and Mastercard are some of the most profitable enterprises in the world. This means there’s financial upside should Solana Pay gain greater adoption.
Not so fast
But it’s a long way from reaching PayPal. As of Sept. 30, PayPal had 428 million active accounts, a figure that includes 35 million merchants. And the company handled annualized total payment volume of $1.6 trillion in the third quarter last year, indicative of its vast scale. PayPal services are also offered in more than 200 countries.
Founded more than two decades ago, PayPal has a first-mover advantage in the online payment market, allowing the business to develop a core competency in facilitating commerce. This has made the PayPal name a trusted brand.
With Solana, there are always technical and security risks. Its network has had outages in the past. And when it comes to consumers and their crypto holdings, there’s always a possibility of hacks wiping them out.
So despite it’s extremely low fees and instant settlement times, Solana Pay has to be compelling enough for both merchants and consumers to want to switch from their current payment methods, which already work seamlessly. I don’t see this happening anytime soon.
For what it’s worth, though, Solana Pay is something to pay close attention to in the years ahead. It just might be this crypto’s killer use case.
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard, PayPal, Shopify, Solana, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard, short January 2025 $380 calls on Mastercard, and short March 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
Solana Is Up Almost 2,700% in the Past 3 Years. Is It the PayPal of the Future? was originally published by The Motley Fool