There is a natural law of crypto investment: You can have a portfolio entirely made up of layer one networks, do nothing for a decade, and be filthy rich. An investor needn’t understand the inner workings of a blockchain but it is prudent to at least be able to identify core parts of the network, at least as a conversation starter at parties or at most to justify holding through a 75% dip.
Proof of Work was revolutionary but a lot of people missed that boat. Ethereum Virtual Machine sparked the DeFi craze and now Solana has entered the canon with their Proof of History.
Proof of History is a means of implementing time for a trustless network to synchronize nodes. It uses the SHA-256 hashing algorithm to create a rhythmic clock where blocks are created as a relative measure of time, since the output of the algorithm cannot be efficiently predicted and requires a passage of time to produce, the network can safely assume time has passed with each block.
Traditional Proof of Work blockchains use energy expenditure as the measurement of time where transactions are included in a block that the network refers to as a point in time. It is deliberately slow to ensure multiple new valid blocks aren’t produced at the same time. A lot of work has gone into denying the double spend and this is the nature of crypto: applying physical constraints to software to ensure security in a hostile environment.
Proof-of-work needs to be slow but trustless finance doesn’t need to be. Bitcoin’s primitive nature allows it to function as physical cash but modern global markets cannot be designed around cash and is akin to transporting physical precious cargo from bank to bank via rickshaw. Though rickshaw finance (RiFi) did exist and has built nations, it is not for the information age. Proof-of-Stake isn’t enough either.
DeFi requires speed and a reliable ordering of global events, an endeavor Proof of History undertakes. If validators can agree upon the ordering of events that have occurred in the past rather than agree upon a single point in time to finalize transactions, then blocks no longer need to be measured in memory space but in periods, where a span of time can theoretically be broken down infinitely within itself. The staking protocol simply adds a security layer to the network; rewards the productive and punishes the malicious into bankruptcy.
So who polices this madness? Who ensures the chaotic mess of transactions occurring thousands of times per second is reliable and able to verify that the reader has purchased and does own their malaised ape? The Solana Validator does. Validators provide an accurate accounting of events by appending data using the hash as a way to prove that time has passed and the event occurred after and before certain points (hashes) in time. Observing validators pay a voting fee to confirm this accounting. Everyone gets a turn to submit a block and be rewarded.
Validators don’t produce blocks in the traditional way as block production’s main function is to provide a global accounting of the passage of time. Using Proof-of-Stake rules, a lead validator has to organize transactions sent to them and append them to one of the hashes while the observing validators vote and confirm this accounting of events. Solana requires >66% of validator consensus to confirm a block.
Though proof-of-history is a revolutionary way to organize a blockchain, it is not a consensus mechanism itself. Solana is still a Proof of Stake network at its core but with the slight difference of having no official minimum stake. While validators require enough SOL staked to process voting fees which are approximately 1 SOL per day. The real initial investment is in the hardware as it requires a machine and network connection able to handle the transactions it will be bombarded with. This investment should decrease over time as Moore’s Law plays out where hardware becomes faster and cheaper.
Solana has recently been struggling with network congestion as bots take advantage of Solana’s low cost of transactions and sudden increase in popularity. To those who missed Ethereum’s early days, using Solana is what low gas ETH’s days were like. DeFi was magic and could be used to compound any size of investment into free money, but as it grew in popularity the nature of ETH’s gas system made it too expensive to spam or even use the network; Smaugian economists tell us it is a feature of Ethereum.
Strategies that require high-frequency trades such as selling NFT mints (almost instantly after mint) in the secondary market, volatile markets that create massive demand for arbitrage/liquidation, or flash loans incentivize automated transactions that can be spammed at an extremely high volume and low cost. Solana is designed to handle all those interactions, but the problem arises when bots duplicate and send these transactions en masses to a validator. These transactions flood the network and are ostensibly DDoS attacks, a problem as old as computing itself.
As with any blockchain, validators are designed to carry a fork for a small amount of time until there is a consensus achieved between validators on the true and honest chain of blocks on which to operate. Despite all that there is not enough RAM in the world to satiate a bot’s effortless greed, so validators crash, or the service providers cut off the validators from their infrastructure. Until consensus drops below 66% of validators and block production slows to a halt. The network is down and that is a travesty.
On April 30, 2022, Solana saw its network halt for seven hours. Validators “received 6 million transactions per second surpassing 100 Gpbs of traffic at individual nodes”, bleeding validators dry of their RAM causing them to crash and block production/voting to cease. The degenerates needed their Smelly Cat Happy Hour Society NFTs, and they had to have them badly; the token is non-fungible, but the transactions are not it seems.
It is important to note that the major problem for a network crash isn’t the crash itself but the events following as validators scramble to restart, asses the chain of events and achieve a consensus on where the network left off. The last Solana outage saw a downtime of seventeen hours. An optimistic approach to these events would see a ten-hour improvement on validator restart.
Solana has indicated a few changes in future software updates to give both developers and users some options on how to interact with the network. These changes would essentially allow the Solana developers to help control the flow of connections, provide extra rules on the Proof of Stake consensus and give users a fee market for urgent transactions.
The network is built on a custom UDP protocol that compliments permissionless connection but lacks any sort of connection regulation. The team has opted to use the relatively new QUIC protocol to handle connections. QUIC is a Google invention built on top of UDP that will enable the team more options to “adapt and optimize data ingestion” as opposed to UDP’s spray and pray approach.
The network will no longer adhere to laissez-faire transaction handling, and they will embrace their Proof of Stake mechanism with the addition of stake-weighted quality of service. Leader bandwidth is finite and accepting transactions indiscriminately is no longer tenable according to the Solana team. They are opting for weighted transaction priority; simply put, more staked SOL entitles a validator to more access to the leader validator.
The official post-mortem of the outage is clear: Fees are coming to Solana. Though in this writer’s opinion gas style fees are a band-aid solution but it appears Solana has conceded. Interacting with the write state of the network requires a market to indicate urgency in a transaction. There are differences between how Ethereum handles a fee market and how Solana does it: Ethereum’s market is a bloody fight for scarce block space whereas Solana’s market allows a user to tip on specific state changes and not the entire block. End of an era.
When the only tool around is a token, every solution is a fee. having said that, crypto is essentially fee shuffling to incentivize desired behavior. Maybe it is just that simple in this crypto handling game, maybe it’s the wrong direction. There have been worse setbacks on with other protocols. The Solana team appears dedicated and has created a great protocol, Anatoly is stunning and brave and has earned the trust of the crypto market. It is worth waiting to see how the Solana story ends. On to the next outage!