Solana, a blockchain that was once referred to as an “Ethereum Killer”, crashed twice over the weekend and ejected itself out of circulation to users for 20 hours.
According to reports, the blockchain’s problems started on Saturday morning with a “forking” event during which transaction history on validators – systems responsible for confirming transactions on its network – began going awry. The number of transactions processed by its blockchain crashed from 5,000 to 93 in just 15 minutes.
Developers attempted to restart the blockchain from a previous point on the blockchain but, apparently, they chose the wrong start. Meanwhile, transactions on the chain ground to a halt as user assets remained frozen. A subsequent effort by validators to restart the chain seems to have succeeded.
A Blockchain for Mass Adoption
On its Twitter handle, Solana advertises itself as a “blockchain for mass adoption.” Ethereum is notoriously slow and expensive. Therefore, mass adoption, or at least the sort advertised by Solana, requires it to be fast and efficient in processing transactions.
The blockchain’s problems over the weekend illustrate just how far it is from reaching that goal.
According to one Twitter thread, Solana’s problems occurred because consensus among its validators occurs online and their messages to each other, to reach agreement on a transaction’s validity, are categorized as transactions. [One of the theories for Saturday’s outage is that a “fat block” caused problems with its processing].
A possible solution is to move consensus transactions offline. But that would mean compromising on transparency – a characteristic that blockchains tout as a key capability. Solana already suffers from a centralization problem. The blockchain also has a list of problems in its brief history – numerous outages, the role of Solana Foundation in its operations, association with disgraced FTX CEO Sam Bankman-Fried (SBF), who was an ardent advocate of its token.
However, investors in its SOL token are not bothered. It dipped briefly after the outage was announced but seems to have retraced its steps soon afterwards. “There is very much a desire to see successful monolithic blockchain as part of the ecosystem,” Seth Ginns, managing partner at CoinFund, told CoinDesk this morning. A monolithic entity, well, is not exactly how blockchain was sold earlier.
Gensler Says All Cryptocurrencies, Except Bitcoin, Are Securities
The Securities and Exchange Commission (SEC) chief Gary Gensler stirred a hornet’s nest once again over the weekend by suggesting that cryptocurrencies, except for bitcoin, are securities.
“At the core, these [crypto] tokens are securities because there is a group in the middle and the public is anticipating profits based on that group,” he told New York magazine in an interview. He added that most crypto transactions fell under the SEC’s jurisdiction except spot transactions in bitcoin and actual purchase or sale of goods using cryptocurrencies. In other words, bitcoin and daily transactions using cryptocurrencies are kosher while everything else in crypto is fair game for his agency.
During the interview, he also provided an account of his meeting with disgraced FTX CEO Sam Bankman-Fried (SBF), who is facing a flood of charges for his role in orchestrating one of the biggest financial frauds in financial history.
The two met when SBF was greasing the regulatory wheels to seek approval for his acquisition of IEX – a stock exchange that FTX partnered with to create a market structure for digital assets. Gensler says he asked the FTX folks to take down their slide deck after the second slide and told them their exchange was “far too conflicted” in its various dealings to proceed with the transaction.
A Sharp Regulatory Whip
Gensler’s drumbeat to stake his agency’s claim on the crypto domain is not new. He has repeatedly asserted, before Congress and to the general press, that most cryptocurrencies are securities earlier. Those assertions have not amounted to much, in terms of action, in the past.
But this time around may be different. Authorities have cracked the sharp whip of regulation on many prominent cryptocurrency projects and exchanges.
Gensler’s latest pronouncement is backed by his agency’s recent cases. Consider the cases that they filed against Kraken – a cryptocurrency exchange that offered staking of crypto tokens as a service to retail customers – and Terraform Labs, the entity behind one of the most spectacular crypto crashes last year. Both were charged with offering an unregistered sale of securities, the former through its investment contract with customers and the latter through its stablecoin and native tokens.
The SEC’s insistence on applying securities laws to crypto means that its ecosystem should more such cases sooner rather than later. It could also result in an existential crisis for the dependencies that populate crypto’s ecosystem. For example, classifying Ethereum’s ether as a security could tip over into various products related to the cryptocurrency. It could mean an end to crypto staking, bump up the costs of trading it at various exchanges, and result in closure of various funds that hold the token.