Building things on blockchain leads inevitably to questions about the latest hotness, and there’s always the latest hotness. It’s been Solana (SOL) for a minute, but it’s been others before that. Questions about Ethereum (ETH) are a constant. ETH is like the grand ole dame everyone just expects you to be on if you aren’t jumping on the bandwagon of the latest hotness. “Bitcoin” Core (BTC) isn’t even in the conversation as it is unusable for anything practical. I get the question so often I think it’s valuable to just pen a preemptive response to point people to, and I can boil the answers down to a couple that apply to whatever chain you are asking about. The reason we aren’t on that chain is at least one and probably all of the following:
- It doesn’t work.
- It’s too expensive to transact on it.
- It’s likely built by scammers looking for the right moment to pull the rug, run away with the fiat currency, and leave users in the cold.
- It doesn’t have the blockchain properties that will give it staying power.
Solana is an example of 1 and 4 while Ethereum is an example of 1, 2, and 4. I won’t address point 3 specifically with either ETH or SOL, we’ll stick with the technical issues and leave the rest out for now, though I’ll address it briefly in generic terms. Afterwards we can dive into Solana and Ethereum, and touch on BTC just for completeness.
Let’s look first at point 3. It seems self-evident that the gold-rush mentality fostered by high valuations of some digital currencies has drawn an inordinate amount of scammers and snake oil salespeople into digital currency, and there are several examples of rug pulls that already happened as examples. Fraud and theft abound, yet people are so locked into the hope that this is how they “beat the system” and “get rich quick” that they keep pouring in money, in some cases their life savings and more, going into serious debt to “invest.” Meanwhile, early investors tell them to hold the line, all the problems will be solved “soon” just buy and never sell and somehow magically the only possible outcome is “number go up.” When number go down, don’t worry, number go up again soon. Don’t worry about why it’s valuable, look at this chart, see how much number go up and just put in more money, “BTFD” unless you want to stay poor!
How ‘digital gold’ hypothesis paves way for HODL narrative
Let’s take a moment to examine the fundamental hypothesis of BTC as “digital gold” that inspired the “HODL” narrative. The basic idea is that scarce things are valuable and since there will only be 21 million BTC that can ever exist this makes BTC like gold, and useful as a hedge against the inflation of the monetary supply because both have a finite supply and therefore increase in value as remaining supply dwindles. There are a few fundamental problems with this theory, the most obvious being that value is about more than supply, there is also demand to consider, which isn’t considered in the HODL narrative. Gold has a necessarily non-zero value because it is useful. Every smartphone contains some amount of precious metals, and there will always be someone who will buy gold at the right price for that utility, so the price of gold can never go to zero.
Take a second and ask yourself, why can’t the price of BTC go to zero? What is its demand based on? That demand is based on the idea that BTC is limited and therefore valuable. But why is it valuable? What is it for? It’s a hedge against inflation of course. Why? Because it’s valuable. So then it is valuable because it’s valuable? Well yes of course, just HODL, BTFD and be quiet.
This theory of BTC value is nonsensical on its face and the evidence indicates those pushing the HODL narrative know this. There must be some underlying utility or there is only circular logic to support the idea of its value, and if there is no underlying value then there really isn’t a reason it can’t go to zero as people realize there are better hedges against inflation and scarce resource investments that actually can’t go to zero. For both BTC and ETH we are continually promised solutions that will make it actually useful are either 9 or 18 months away and we’ve been told that for years already.
As all utility like transparency, scalability, and scripting was systematically removed from BTC, ETH gained in popularity, promising to be the chain you could actually do interesting things on. Transactions would be cheap and affordable, we were told, cheap enough to use it as a public shared data layer with provable integrity and history, which is the most interesting property of a blockchain to begin with.
A decade later, we’re still waiting
Ethereum is still inordinately expensive with no guarantee, even if you pay exorbitant gas fees to go to the head of the line, that your transaction will even go through. If this could be fixed, it would have been. Instead, we’re told to put our hopes in another set of fixes only 18 months away. At what point do we admit we’ve been fooled and accept the fixes aren’t coming and won’t work? All of this on top of the fact that if the Bitcoin of Satoshi Nakamoto’s original white paper existed, what he intended Bitcoin to be, there is no need for Ethereum to exist in the first place.
The intentional and unnecessary removal of utility from BTC and the failure of ETH to deliver on the promise of restoring it are the only reasons for the proliferation of altcoins. Aside from joke and meme coins, of course, and the ones only built to capitalize on FOMO and absorb money from the greedy who think they’ve found a shortcut to wealth, each altcoin keeps trying a slightly different way to make up for those failures, which brings us to SOL.
Solana tries to bring affordability and scalability to transactions and data by iterating on the consensus model of the original white paper, “Proof of Work” (PoW), so Solana tries to implement a combination of “Proof of Stake” (PoS) and “Proof of History” (PoH). I’ll briefly explain the theory behind each of these.
The white paper envisions a set of incentives that result in an accurate, unforgeable, immutable timestamped ledger, flowing from “Proof of Work” which essentially means that you have to burn electricity, an irreversible expense from solving complex math problems of varying complexity, to get things on the blockchain. If your changes are not accepted by the network, you burned that electricity for nothing, and so the incentive to be honest and a good citizen of the network is set. There are critiques of this model, but most if not all have been observably proven false by events in the meantime, and might be the subject of a further write-up but is beyond the scope of what we’re examining here.
The PoW model is expensive, and could grow more expensive as the network grows and more participants are solving the math problems, to keep the pace of solutions fairly constant, the network increases the difficulty of the puzzles, so more electricity must be burned. This increasing expense causes an arms race to solve the puzzles more efficiently, which over time stabilizes the cost and incentivizes finding cheaper energy sources—as a side benefit, ironically the more PoW proliferates the more we incentivize the development of renewable energy to win the arms race of puzzle solving.
An idea that grew in popularity was that PoW was bad, too expensive, and would result in a specialization in mining (solving the puzzles) that would mean more centralization of mining operations, and somehow at the same time if transactions are too cheap, that’s also bad and would result in the chain growing too large, and what was needed was that ordinary people participating with a Raspberry Pi in their basement could be competitive at mining to “keep them honest.”
The rise of Proof of Stake as PoW alternative
Aside from the fact that even though BTC implemented many proposed “fixes” to keep regular users in the game, it is still utterly impractical even on BTC for a user to run a full node and has been for years already, as the chain is too large even with a 1MB block size and the difficulty of the puzzles is so high that it requires specialized hardware in abundance to be competitive. Regardless, we ended up with some alternate ideas on consensus mechanisms, the most popular of which is generally called Proof of Stake or PoS for short.
The idea is that consensus gets reached not by confirming mathematical proofs but by agreement of the nodes with votes based on how much of the resources of the network they own, based on the idea that these nodes have the most incentive to keep the network honest. Unlike PoW, where if you are a bad actor you lose the unrecoverable investment you put into the proofs that get rejected, in PoS the network itself punishes you by taking away some of your stake (but can also give it back).
In theory this is more of an incentive to be honest than only losing what went into your failed work, but in practice there are many more ways this process can go wrong, and no way to confirm with certainty that it even has. If enough nodes with enough stake cooperate to completely rewrite the chain and backdate it to some point in the past they can and there’s no mathematical way to prove which came first, and the rest of the network has no choice but to accept these changes or lose their own stake.
In this way those with the most resources make the rules and you end up with an oligarchy of those who manage to hoard the most stake. Contrast this with the need to put in the work and prove your block is the biggest and most accurate, while constantly signing off on and proving all past blocks of the chain in doing so, or end up taking a loss, not from people voting on you, but from the very nature of the laws of physics themselves.
Here comes Proof of History
Suffice to say PoS has some obvious problems and no system built on it has a set of incentives that will keep it honest and reliable in the long term. Along comes Solana with PoS plus Proof of History (PoH). As I understand it, and their documentation is severely lacking, the claim seems to be that adding PoH by signing with the output of a central clock solves the problem of not being able to prove historical order and allows the benefits of cryptographic certainty in ordering events without the overhead on all the nodes that PoW requires. This does allow links in the chain to be generated regularly, but the cost and overhead actually seem to be higher than PoW with no competitive mechanism to reduce it over time since the nodes and the cryptographic clock their PoH is based on are centrally controlled and always will be. The bottom line is that attempts to actually use it bring it down, and there have been multiple outages lasting full days where all the billions of dollars tied up in it are inaccessible. It is safe to say this idea of PoH at this point does not work to make the chain scalable and reliable, nor is it public or decentralized in the sense that the original Bitcoin white paper envisions.
When I tell you I have no interest in using any of those chains or their altcoins or layer 2 solutions, that wouldn’t be true except for one fact you might not already know: The reason I’m not searching for the least objectionable chain on which to build is that I don’t have to. A chain now exists that follows the original white paper, has all the functionality of all the other chains and more, except it is fast, has scaled to millions of transactions a day, has resisted sustained attack, and is very affordable to use with instant and safe transactions, all using the essential Proof of Work consensus mechanism and an unbroken chain of signatures back to the beginning of the chain. In fact, this chain already regularly processes more transactions per 24 hours than all other chains in existence combined and has drawn an ecosystem of hundreds of companies building solutions on it.
There is much more to say but in the interest of brevity I won’t tell you about how those wanting to stay true to Satoshi’s vision were marginalized and mostly forced out of the development process. I won’t tell you about how at the same time it was popularly believed that ultimately miners controlled what changes would be implemented, many controversial changes got rolled out over serious miner objections resulting in several hard forks of the code base and the blockchain itself with the developer group that managed to wrest control away from Satoshi keeping the BTC Core repositories, name, and BTC symbol even as it became almost the opposite of what Satoshi envisioned.
Instead, what I’ll tell you is that solutions aren’t 18 months away. They exist now. They work now. Our company has released two products, an NFT platform and a pet game, that together have generated millions of transactions and at least a quarter of a million user owned NFTs in the first month and a half that they’ve been released. Even 1/100th of what we’ve put on chain would have bankrupted us on ETH and left no provable and immutable history of provenance on almost any other chain, but instead we’re already making money on digital goods, even while paying all our users transaction fees.
So here’s your tl;dr executive summary: We’re not on other chains because they don’t work, and we’re already on the one that does. You can join us; you just have to see what’s right in front of all our eyes. The ledger is public.
This is a guest contribution by Greg Bledsoe, a longtime engineer, consultant, executive, and a builder of startupy things. Find him now building the world’s premiere utility based NFT platform at [email protected]
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