A Solana Critique; Lies, Fraud & Dangerous Trade-Offs
Solana has sacrificed decentralization for security and scalability in its underlying design. Last year in 2022; the Solana blockchain went down at least nine times; as a consequence of their own design decisions.
There are also many examples of lies and fraud that have plagued the project since its birth, exposing a clear and repeated pattern of bad behavior.
Birthed in Fraud
Starting with a blatant fraud at the birth of the Solana project: In early April 2020, the Solana team stated that the total circulating supply was 8.2M. However, in reality, the total circulating supply was actually above 20M, betraying the promises of the original investment terms.
However, as people grew more suspicious, questions & critiques started to pile up over the following weeks. Official moderators kept insisting in response that there was no extra circulating supply.
Especially as Solana failed to update their Binance & Coinmarketcap info pages. It was also especially difficult to verify these claims as there were no explorers capable of checking what was really happening. When the Solana team was confronted by this, they simply claimed it was up to the community to build out this functionality:
By the end of the month, a 3rd party found an unlocked Solana wallet containing 13M tokens. It was only once the Solana team was fully exposed to these lies that they decided to release a medium article basically admitting to the fraud:
Explaining that 11M tokens were loaned out to a “market maker”. While promising to get these coins back & burn them within 30 days, this promise was made on numerous occasions in the following weeks.
At this point, the Solana team guaranteed that they would not release any new coins into the market without announcing it beforehand, repeatedly making this promise across multiple official channels.
However, on May 23rd, the Solana team announced that they were only able to retrieve 3.3M coins out of the 11.3M they had loaned out. Deciding to instead release 8M new SOL tokens into circulation to meet their commitment to burn without any announcement beforehand.
The total circulating supply was now 16M, double the supply promised in April. After this, they just moved on as if nothing ever happened.
Not even publishing this release on any of their own official announcement channels. This can all be publicly verified. From Telegram to subtly reading between the lines of their own Medium article releases.
In this example, there is clear evidence that the Solana team knowingly lied, which is most often extremely difficult to prove; as it requires proof of the liar possessing contrary information. In this case, it is obvious; of course, they knew they loaned out more than 50% of the circulating supply.
Faking Usage Numbers
There is also a long & repeated history of deceptive practices around the figures used to evaluate cryptocurrencies, such as TVL (Total Value Locked) and TPS (Transactions Per Second).
Fake TPS
By January 2021, it had been exposed that the TPS for Solana was massively inflated as Solana counts consensus coordination messages as if they are TXs. This caused an apparent 100x increase in TPS, and this is still true to this day, which means that the majority of TPS shown by most block explorers is still “fake”. The below chart shows the ratio of real vs “fake” transactions; the tiny purple part of the bar represents real transaction volume:
The crazy thing here is that there is no good reason for this design choice, as the problem with this design is that validators still have to process these TXs. Validators have to pay the TX fee for these consensus TXs, unlike almost all other blockchains. this results in validation being far more expensive than it needs to be, as it unnecessarily centralizes the network.
Estimates are upwards of 6M USD in order to run a validator profitably, a huge barrier to entry. The strange thing about this specific design choice is that there is no trade-off. Unlike PoH & Turbine, which does trade decentralization for scalability. Counting consensus mechanisms as TXs gives no objective advantages. All that I can think of is that it does make Solana appear as if it has a higher TPS than it really has. If that is why this design choice was made, that would be extremely deceptive & crooked behavior.
Caught Lying About TPS
On September 4th, 2021, Solana was experiencing a large amount of TX failures. This was because a large number TX’s were all of a sudden hitting the network; I consider this to be a DDoS attack if the intent can be proven, though I have debated this definition with Anatoly.
The official Solana Twitter account; @SolanaStatus, claimed the network was brought down by doing 400k TPS. This was an objectively false claim designed to make Solana look better than it really is:
Either way, this did eventually lead to the network continuously forking. After this started occurring, the core team decided to “restart” the network based on their own snapshot, revealing the extreme degree of centralization present in Solana.
This claim of achieving over 400k TPS over this time period was categorically false. This is because if TXs do not make it into the blockchain; they cannot be counted toward the TPS limit. As TPS is a measure of network capacity; BTC can even handle higher loads on its mem-pool. TXs were only in Solana’s equivalent of a mem-pool (Gulf Stream) which does not count toward TPS. Evidence was & still is all on-chain, as the blocks clearly show a far lower TPS compared to the 400K Solana claimed:
Fake TVL
On the 5th of August 2022: A bombshell Coindesk article exposed that the majority of Solana TVL was fake. This was later confirmed to be an “open secret” within Solana. As two developers pretended to be 10+ devs & counted the same TVL over & over, this accounted for more than 70% of Solana’s $10B TVL at its peak.
Master of Anons: How a Crypto Developer Faked a DeFi Ecosystem
Join the most important conversation in crypto and Web3 taking place in Austin, Texas, April 26-28. Danny is CoinDesk's…
www.coindesk.com
Dangerous Design Trade-Offs
In my view, Solana is not innovative at all; there are some interesting features here & there, but its core design was defined by making reckless trade-offs in fundamental design while pretending as if that is innovative. Most VCs just did not understand the engineering trade-offs & the inherent risks this involves. Dangerous design decisions are not the same as innovation; deceptive marketing actively blurs this line for many investors.
Specifically, Proof of History & Turbine: A consequence of PoH is deterministic block creation. Before Solana, almost all blockchains used non-deterministic block creation, as it adds to security & censorship resistance, as you cannot predict who will create the next block. Instead, in Solana, it is possible to predict & therefore attack the next block producers inline. For instance, attacking the next 100 validators inline instead of attacking the entire network. This attack also works regardless of scale, thereby severely reducing SOL security.
Solana security is not just reduced against DDoS attacks since this attack can be combined with a 51% attack, as an attacker would not need 51% stake to carry out a 51% attack Due to PoH, an attacker could DDoS next stakeholders inline & thereby gain control over the network. Combining Turbine with PoH leads to even more dire consequences:
Turbine divides the transaction memory pool into small groupings of validators. This means that with PoH, you can censor transactions by just attacking the specific validators in that grouping next in line.
Frequent Downtime
The Solana network has an atrocious history of crashes, downtime, and network outages. In 2022 alone, the network went down at least twelve times; this is completely unacceptable, especially considering that networks such as BTC and ETH have never gone down. It completely misses the point of a blockchain which is supposed to be far more reliable compared to centralized systems. This is why I have put together a short & incomplete history of Solana downtime:
Starting with the most recent “network outage” on February 25th, 2023. The network went down for at least nineteen hours; as this only occurred last week, the reason for this crash is still unknown. However, it is likely that the most recent update is responsible, as validators rolled back to the previous version in order to fix the problem.
It can be said that the reason why it took so long to bring the network back up is related to consensus mechanisms being counted as TXs, which I covered earlier in this thread. A consequence of this design choice is that it requires extremely centralized actions in order to bring the chain back up. Since consensus cannot be established without these consensus TXs and TXs cannot be sent without consensus. This all means that Solana has to get all of the main validators onto a single Discord in order to implement a snapshot of the blockchain provided by the Solana developers. This type of extreme centralization continues to be a theme for subsequent recoveries.
Solana also was down for more than 3hrs on the 1st of October 2022. All due to a single validator creating an invalid block. Causing validators to become stuck on the wrong chain & unable to switch back, halting the entire chain. Even more shocking is how the Solana network recovered from this failure “a decision was made to restart the cluster”. In other words, the chain was again reset in a centralized manner using checkpointing.
On June 1st, 2022, Solana went down again. This time for 4hrs+ before the chain was “restarted” by the team. This was caused by a TX bug, effectively stalling the entire chain, another consequence of Solana’s “leader-based design” in this example; it is again clear that its centralized design is clearly the culprit.
On September 14th, 2021, The Solana network went down for over 20hrs. Due to excessive memory use by nodes, it was a struggle just to bring the network back up.
I will not cover every time Solana went down, considering that Solana has failed so many times it is becoming hard to even keep count. Even with the few examples I provided, it is clear that Solana’s centralized design is clearly the culprit.
Dangerous Vulnerabilities
On the 2nd of August, more than 8000 user wallets were hacked due to an exploit involving some wallets sending unencrypted private keys online. This was not strictly the Solana’s team's fault, but it is endemic to Solana’s reckless culture; attracting even more risk.
As most blockchains do not suffer from such widespread failures. Due to high standards & best practices on how to implement public key cryptography. The fact is that some of Solana’s most used wallets are closed-source, as was the case in this particular hack.
This would be unimaginable in the ETH & BTC ecosystems. There are many examples of such reckless behavior. This issue from Solana’s own GitHub is a perfect example of this repeated pattern of bad behavior; as this issue remained open for over a year:
Solana Phone
Now Solana is launching a phone instead of focusing on their broken blockchain. This is not something that cryptocurrency needs or wants. Solana is exploiting these repeated failures to promote its new phone. Claiming their phone would have prevented many of these problems. This is a ridiculous narrative, as the gap that needs to be filled is one of software integration & not hardware. For a start, all modern phones already contain secure elements (hardware wallets), going all the way back to 2019. Just look at the Samsung Galaxy S10 as an example of this. Furthermore, anyone is free to develop on top of this hardware, at least in the case of Android. It is true that there has been a lack of development in this critical area.
Cryptocurrency does not need crypto native phones. It needs better software that can run securely on the phones we all already own. That is how we gain greater mass adoption, not by convincing the masses to buy a $1k phone, even if the Solana team has dollar signs in their eyes.
What many people might not know; is that the Solana team actually has multiple former employees from Andy Rubin’s phone company. Which released the ‘Essential phone,’ it sold poorly & was discontinued. For that matter, all crypto native phone companies to date have failed. I do not expect Saga to do any better. There is nothing intrinsically wrong with launching a new phone. However, Solana funding & engineering talent will be redirected for the release of this phone. This is what is unethical, considering the current state of the Solana blockchain.
Solana Is Not Innovative
The reality is that Solana is not innovative at all; it is just the first major blockchain to be so reckless in its fundamental design while pretending as if that is innovative. Most VCs just do not understand the engineering trade-offs & the inherent risks involved, as the Solana team has consistently displayed a pattern of bad behavior. Solana is likely purposefully tricking non-technical investors with technobabble, such as counting consensus mechanisms as TXs, which I covered in more depth earlier in this article.
I cannot find satisfactory reasons why you would design a blockchain in this way. Leading me to believe that this is a case of the Solana team consciously; prioritizing attracting ignorant investors over good blockchain design and carrying out a campaign of deception through obfuscation.
Solana’s design just leans into scalability in the context of the blockchain trilemma while pretending as if that is innovative. Earnest attempts at scaling through sharding and L2’s preserve decentralization. Just throwing hardware at the problem is not innovative at all. This is how Solana rose to prominence, by taking dangerous design shortcuts while doubling down on some very bad security assumptions.
A Pattern of Bad Behavior
It is important to consider the track record of Solana’s founders, having been repeatedly caught lying & committing fraud. Without any acknowledgment or rectification of past crimes, go ahead & buy it; just do not expect it to make any difference. It is shocking how many professional investors have fallen for these tricks. The VC support Solana gained says a lot about the maturity of the ecosystem. There is clearly still a severe lack of understanding of blockchain fundamentals which Solana has taken advantage of, as I would not touch Solana with a ten-foot pole.
Some might defend Solana by arguing that it is still being developed. However, this is true for all cryptocurrencies, which is what Solana should be compared against. In that sense, Solana dramatically falls short of being truly competitive in this market; we can do so much better.
All of this history adds up to display a consistent pattern of bad behavior:
- Solana was caught lying about circulating the supply
- Solana made false statements about TPS
- Solana is deceptively designed to falsely inflate usage
- Solana ecosystem was complicit in “faking” peak TVL numbers
- Solana made dangerous trade-offs in design, putting everyone at risk
I even confronted the founders on some of these issues, and all they did in response was double down on incredibly dangerous design assumptions:
Conclusion
I have been evaluating cryptocurrencies for more than a decade. We have to be forgiving of flaws but, as investors, also be critical. It would take a lot for Solana to recover from such an abysmal history, as Solana’s reputation continues to become more tarnished every time the network fails. By comparison, BTC & ETH have never gone down. From my perspective, Solana does not deserve our support at all.
I would praise SOL if it pivoted & fixed these flaws. The problem is that it would require changing the very attributes that were sold as “features” to investors. Human nature tends to double down on such mistakes. Especially considering the massive amount of money involved in such a giant ruse. Therefore the possibility of a redemption arc is extremely low, as I do not expect Solana to be able to pivot; instead, it continues to double down, sucking in more fools to keep the grift going for longer.
I am no stranger to cryptocurrency “scams”; it has become a prominent part of my work as a cryptocurrency researcher to keep up with all of the deception and manipulation taking place. I also see it as part of my duty as a critic to point out these flaws for the sake of cryptocurrency as a whole.
As I love this movement and all that it stands for, Solana goes against the core ethos of cryptocurrency. Damaging the reputation and adoption of cryptocurrency as a whole; this is why we have to push back against bad actors if we want this movement to succeed in good time, as cryptocurrency can save lives and set people free from the tyranny of centralization.
About the Author
Justin Bons is the founder and CIO of Cyber Capital; Justin discovered crypto assets in 2013 and immersed himself in this new technology. This led him to actively invest and research cryptocurrencies full-time in 2014 as a generalist with a specialization in the politics and decentralized governance of cryptocurrencies. Over time, with a critical mindset toward evaluating cryptocurrencies, including developing his own theories on blockchain governance as a major factor in the competitive evolution of cryptocurrencies. Through writing articles, giving lectures, and regularly participating in public debates surrounding cryptocurrencies, he gains insights to further hone the fundamental analysis-based investment strategy that remains his primary focus.
About Cyber Capital
Cyber Capital, Europe’s oldest cryptocurrency investment fund, is a fund manager that specializes in providing exposure to the crypto-asset markets as an alternative asset class. Cyber Capital is fully registered by the Dutch Authority for the Financial Markets under the AIFMD-light regime and the Dutch Central Bank.
Follow us on Medium and Twitter.
