KEY POINTS.

• While Bitcoin still leads in terms of market capitalization, Ethereum and Solana are innovating at a much faster pace.
• Ethereum already offers more utility than Bitcoin. After the merger, it will have a much better blockchain to drive growth.
• Solana has become an innovative powerhouse, launching everything from a new payment network to a new mobile cryptocurrency platform.

Bitcoin is still the No. 1 cryptocurrency, but for how much longer? Both Ethereum and Solana are rapidly gaining ground. Although Bitcoin (BTC 1.72%) is still the number 1 cryptocurrency in the world based on market capitalization, there are many reasons to think that other cryptocurrencies may surpass it. Before this year’s cryptocurrency market retreat, the common view was that Bitcoin was a hedge against inflation and a long-term store of value. Some even called it “digital gold.” But these assumptions are now very much in doubt.

So which cryptocurrencies could undermine Bitcoin from the top of the cryptocurrency rankings? At the moment, the two best prospects are Ethereum (ETH -0.28 percent) and Solana (SOL 3.23 percent). Both cryptocurrencies offer greater utility than Bitcoin and both are leaders in blockchain innovation, with promising growth prospects.

Ethereum

Ethereum stands out as a leader in innovation. The best-known developments of recent years-including smart contracts, decentralized applications (dApps), and non-fungible tokens (NFTs)-have originated on the Ethereum blockchain.

By almost all metrics, Ethereum is the dominant force in the blockchain industry. For example, Ethereum is the top player in the NFT market, with an estimated 80 percent share. In areas such as decentralized finance (DeFi), blockchain games and the metaverse, Ethereum outperforms every other blockchain in the world.

And with The Merge, a broad upgrade of the system, Ethereum will become stronger and stronger. The current complaint about Ethereum is that it is too slow and too expensive. This is largely because it relies on a proof-of-work consensus mechanism. With The Merge, Ethereum will switch to a proof-of-stake consensus mechanism, reducing transaction fees and increasing transaction processing speed. Eventually, when Ethereum 2.0 is complete, it should be able to handle 100,000 transactions per second. In contrast, Bitcoin for now can only process 5-10 transactions per second.

Solana

The path to market dominance is more complicated for Solana because it is a direct rival to Ethereum. Both are tier 1 blockchains that offer users the same functionality and utilities. Ethereum has smart contracts and so does Solana. Ethereum allows the creation of NFTs, and the same is true for Solana. The selling point is that Solana can do everything Ethereum does, only faster and cheaper. Solana is already able to process 65,000 transactions per second, and transaction fees are close to zero.

While Ethereum has been mired in all the technical steps required to become a proof-of-stake blockchain, Solana has been in the midst of innovation. Solana has launched everything from a new payment network for merchants (Solana Pay) to an entirely new mobile cryptocurrency platform (Solana Mobile). In 2023, Solana plans to launch Saga, the first ever “cryptophone.”

At the same time, Solana is making serious inroads into both the blockchain game and Web3. More than any other cryptocurrency, Solana is taking steps to build a recognizable brand for early adopters of cryptocurrency. When you can overlay this brand experience on top of a superfast, super-cheap blockchain, it is a very powerful value proposition.

How quickly could Ethereum or Solana undermine Bitcoin? This may be an inaccurate analogy, but one can think of what is happening in the cryptocurrency sector as what happened in the technology sector a generation ago. Until the 1980s, IBM was the biggest name in the tech industry, then Microsoft and Apple came along. The rest, as they say, is history.

In many ways, Bitcoin is the cryptographic IBM of today, Ethereum is the new Microsoft, and Solana is the new Apple. There is certainly room for all three to coexist. The only real question is who will sit at the top. Large institutional investors may prefer Bitcoin, while ordinary investors may prefer Ethereum and Solana.

Currently, Ethereum is about half of Bitcoin in terms of market cap and Solana is only 3 percent. So a lot would have to change for either of them to overtake Bitcoin. But again, let’s look at what happened with IBM, Microsoft, and Apple in the technology sector. Microsoft was launched in 1975 and took almost two decades to overtake IBM in terms of market capitalization. Then, after that event, it took another two decades for Apple to surpass Microsoft in market capitalization. So, obviously, this is not going to happen overnight, and there will be many twists and turns along the way.

But Ethereum and Solana now offer too many utilities to be ignored. Moreover, they are both leaders in innovation, making them two long-term bets if you believe in the future of the cryptocurrency industry. If you can handle cryptocurrency volatility, you can put these two cryptocurrencies in your portfolio and hold them forever.