My Second Favorite Crypto

Today, we dip our paws into the mailbag and pull out two Ask El Jefe letters in response to this cryptocurrency dispatch I sent a few weeks ago, specifically about a crypto known as Solana.

I will say right now that of all the cryptocurrencies that exist these days—well over 10,000, Solana is my favorite along with bitcoin. Bitcoin, as I regularly say, is emerging as a reserve currency similar to gold… and Solana is emerging as the most-important crypto for daily spending needs, which I will explain in due course.

First, our questions:
“Solana is what I’ve been seeing rise to the top, but banks are implementing Ethereum. Can you do a Field Notes comparing these or what your ratio of owning each would be? Thanks!” -Tara S.
“I will consider Solana… the worrying thing is I might buy some and put it into a Wallet and then never be able to find my way back to it… IT is too complex for the likes of me! Maybe give a quick paragraph on the fool-proof guide to not losing your crypto?”—Jane P.
Let’s start with Solana vs. Ethereum. Both are fine crypto projects with vast global appeal. Ethereum is #2 behind bitcoin in terms of its market size. Solana is #5 (I’m disregarding two stablecoins that are really just doppelgängers for the dollar).

Solana, as I noted above, is rapidly emerging as the most important blockchain for daily spending. And a quick note: There is not one single blockchain on which all cryptocurrencies operate. Numerous blockchains exist: Solana, bitcoin, Ethereum, Polkadot, Cardano, Hyperliquid, and on and on. And then various other crypto teams build out their projects to operate on one or more particular blockchains.

Each blockchain, in turn, has its pros and cons.

For the most part, what users care about most are safety/security of the blockchain, the cost of transactions on that blockchain, and the speed at which a blockchain can process and finalize transactions.

Ethereum is built for security, but its speed is slow and its transaction costs are relatively high. The ETH blockchain can process about 27 transactions per second, while the average transaction costs about $0.20, depending on what that transaction is.

Solana, conversely, is built for speed and cost efficiency. That’s not to say Solana scoffs at security; its blockchain is robust and has never been broken, but ETH is considered to be a more security-focused blockchain.

Solana operates at roughly 4,000 transactions per second and at a cost of just $0.002 per transaction, meaning the cost of a typical ETH transaction would cover about 100 Solana transactions. (Note: An upgrade to the Solana network, when fully implemented, will see transaction speeds of as much as a million per second.)

Ethereum’s slower speed and higher costs don’t mean much when you’re a big institutional investor buying and selling big crypto positions for a portfolio, or if you’re a deep-pocketed investor putting a bunch of money to work in some decentralized finance opportunity.

But… if you’re a consumer and you pop into Fred & Ethyl’s Gas-n-Go for a fill-up and a slushie, and then over to the Piggly Wiggly to buy some milk and Twinkies, and then you’re using your debit card to pay for Fido’s dog-wash and haircut… you care very much about transaction speed and cost.

You want your transactions to cost bupkus and you want them to settle quickly so that you can be on your way without waiting. That’s the daily-spend world where Solana excels. The cost is nothing and the transactions are finalized in seconds, or even milliseconds.

While ETH’s costs are not necessarily egregious, consumers aren’t going to pay $0.20, or even $0.10 extra for every single transaction in their lives. Nickels and dimes quickly add up to real dollars over time.

Moreover, finality on the ETH blockchain is roughly 15 minutes. Not a consumer in the known universe is gonna hang out at the gas station or the supermarket checkout line waiting that long for a transaction to finalize. No merchant would ever sign up for that.

So Solana is going to be the blockchain on which our daily spending happens because customers will tap their card and go just as fast or even faster than today’s point-of-sale machines allow, and at a cheaper cost. Plus, on the blockchain, merchants get paid instantly; they don’t want two or three days or more for credit and debit card sales to hit their bank account.

Beyond that, Solana is also rapidly emerging as an important blockchain for money transfer and real-world investing.

Citigroup announced in February that it successfully used the Solana blockchain to complete the full lifecycle of a “bill of exchange,” which is typically used in global trade. Meaning: Citi, a global banking giant, has proven that trade-finance can move entirely on Solana in a faster, cheaper, and more efficient, paperless fashion.

Meanwhile, financial giants including PayPal, Mastercard, Visa, Shopify, and so many others are building out on Solana because the network is so fast and so cheap.  Franklin Templeton moved a large, tokenized money market fund onto Solana, while State Street is reportedly planning to launch its own tokenized money-market fund on Solana. Visa is already using Solana to settle payments in US Dollar Coin, a stablecoin that basically replicates the dollar on the blockchain.

The point is that the financial world broadly is moving to Solana, and soon enough, credit and debit card transactions as well as global money transfers will all happen on the Solana blockchain.

Ethereum remains the 800-pound gorilla in decentralized finance, where transaction speed and cost are less important. But it will likely never be a player in daily spend, which is where mainstream growth is going to happen. (Note: Solana is an increasingly larger player in decentralized finance, as well.)

In conclusion, there’s no definitive “ratio” I can tell you to strictly follow. I generally adhere to the principle of allotting around 40% of my crypto holdings in the big projects, such as bitcoin, Etherum, Solana and Chainlink. and weighing it more heavily toward SOL and BTC.

As for Jane’s question about losing your wallet…

The solution is really simple: Write down everything.

I bet I’ve collected 75 wallets over the last seven years. They’re spread across all kinds of blockchains and crypto exchanges, and each one of them has a “seed phrase” necessary for rebuilding your wallet in the event you break your computer or lose your phone or whatever.

I just recently had to rebuild my entire computer when a virus attacked my memory module—wiped it completely clean. Frustrating yes, but not a worry when it came to my crypto wallets (I just looked; there are 16 crypto wallets on my computer browser).

All I had to do was download a new copy of the wallet extension onto my browser and set it up as though I already had an existing wallet. That entailed me typing in my particular seed phrase for each wallet… and poof! All my crypto was right where it should have been.

That’s the key: Just keep multiple copies of your seed phrase in a highly secure place—hidden in your home and in a bank safe-deposit box—and you’re good to go.

And truthfully, if you own crypto through a crypto exchange like Coinbase or Kraken, then you don’t even need to worry about wallets or forgetting where they are or losing the seed phrase.

Centralized crypto exchanges like the two I just mentioned function very similar to an online stock brokerage account. You log in with your ID and password, and you see your holdings. So long as you remember the name of the crypto exchange you’re using, there’s no need for a wallet. Just don’t forget your ID and password… so maybe write those down as well and keep them some place safe.