Special Solana (with CEO Anatoly Yakovenko)

In this special episode of "Acquired," hosts Ben Gilbert and David Rosenthal discuss the burgeoning blockchain space with Anatoly Yakovenko, founder and CEO of Solana Labs. They delve into the limitations of Ethereum, such as slow transaction speeds and high gas fees, which have spurred interest in alternative blockchains like Solana. Yakovenko highlights Solana's innovative proof-of-history concept, which enables a higher transaction throughput, aiming to create a decentralized, censorship-resistant network capable of supporting up to a billion users without intermediaries. The episode also touches on the competitive yet symbiotic relationship between Solana and Ethereum, as well as the importance of community-driven development in the blockchain ecosystem. Yakovenko's vision for Solana is not just a technical feat but a step towards a more interconnected and efficient global financial system.

• The episode features hosts Ben Gilbert and David Rosenthal discussing blockchain technology, with a focus on Ethereum's limitations.
• They introduce Anatoly Yakovenko, the founder and CEO of Solana Labs, and mention Solana's significant fundraising and market cap.
• The episode is set to explore Solana as an alternative to Ethereum, addressing scalability and cost issues.

"Welcome to this special episode of acquired, the podcast about great technology companies and the stories and playbooks behind them."

This quote introduces the podcast episode and sets the stage for the discussion on blockchain technology and Solana.

• Ethereum is described as slow and expensive, particularly in the context of DeFi and NFTs.
• The Ethereum community has plans to address these issues, but alternatives like Solana are being considered.
• High transaction fees (gas fees) are highlighted as a significant problem for Ethereum users.

"But a big outstanding point at the end of the episode was with all this excitement around DeFi and NFTs and decentralized mean, this decentralized world computer has gotten really slow and really expensive."

This quote summarizes the main problem with Ethereum that the episode aims to discuss: scalability and cost issues.

• Solana is presented as a credible alternative blockchain for building applications.
• Solana Labs, led by Anatoly Yakovenko, spearheads Solana's development.
• The company's recent fundraising and market cap are emphasized, indicating strong investor interest and growth.

"Well, one credible alternative blockchain that David and I have been particularly interested in is Solana."

This quote introduces Solana as a key topic of the episode and as a potential solution to Ethereum's problems.

• The Acquired Slack community is mentioned as a place for listeners to engage and discuss crypto.
• A community member, Austin Federa, is thanked for his role in the community and for facilitating the introduction to Anatoly Yakovenko.

"And if you like this episode, you will love the community discussing crypto in our digital assets channel."

This quote encourages listener participation in the Acquired community for further discussions on the topic.

• The episode is sponsored by Pilot, a company providing accounting, tax, and bookkeeping services.
• The importance of focusing on core business activities and outsourcing non-core functions like accounting is discussed.

"Startups should focus on what makes their beer taste better."

This quote emphasizes the philosophy of focusing on core competencies and outsourcing other tasks, with Pilot being an example of a service provider that can take on those outsourced tasks.

• The hosts clarify that the show is for entertainment and informational purposes, not investment advice.
• They disclose their holdings in Solana and remind listeners to conduct independent research.

"This is not investment advice... the show is for entertainment and informational purposes only."

This quote serves as a disclaimer, ensuring listeners understand the nature of the podcast content and their responsibility for their investment decisions.

• Anatoly shares his journey starting Solana during the 2017-2018 crypto boom and subsequent crash.
• He discusses the challenges of fundraising during a bear market and the support from the crypto community.
• The commitment and expertise of the team at Solana are highlighted, with experienced engineers from Qualcomm joining the project.

"The project was started kind of end of 2017, start of 2018, and that was really like that right peak of that last boom cycle."

This quote provides context for the timing of Solana's inception and the market conditions at the time.

• Anatoly explains the concept of proof of work and its importance in verifying the security and consistency of a blockchain.
• He contrasts proof of work with proof of stake, which relies on the value of the native token to verify the chain's consistency.
• The discussion touches on the philosophical aspects of crypto and the challenges of establishing trust in a virtual system.

"Systems based on proof of work have this wonderful property that when you receive all of the data, you can verify its thermodynamic security from its starting point to its final point..."

This quote explains the fundamental principle behind proof of work and its role in ensuring the integrity of a blockchain.

• Trust establishment is a fundamental problem in network communication.
• The "first root of trust" is akin to a root certificate authority like Verisign for browsers.
• Establishing initial trust is "weakly subjective" rather than "strongly objective."

I have to find its first root of trust. Kind of like my browser has verisign as its root of trust, and then everything's derived from that. And that first establishing a trust is this hard problem of me asking the world, hey, am I talking to the right network? Am I in the right network? And that first thing is not strongly objective, it's weakly subjective.

The quote explains the challenge of establishing the initial trust anchor in a network, which is a subjective process that forms the basis for subsequent trust relationships within the network.

• Solana's design is based on the "trust on first use" security model.
• The goal is to optimize network communication for speed by focusing on a censorship-resistant messaging network.
• Solana aims to ensure fair access and synchronization for all network participants.

So, Solana, our design is like, to me, this was obvious okay, verify router certificate. This is how the Internet is built. Trust and first use is a standard security model.

Anatoly Yakovenko describes Solana's design as being similar to the internet's trust model, where initial trust is established and then used as a foundation for ongoing communication.

• Censorship resistance is about ensuring equal access to network resources and communication.
• Solana's approach is compared to Nasdaq's equal-length ethernet cables, which ensure fair access to market data.

That's censorship resistance.

The quote emphasizes the importance of equal opportunity for all participants in a network, drawing a parallel with financial systems where fairness in data access is critical.

• Statsig is a feature management and experimentation platform.
• It enables product teams to make data-driven decisions and observe the impact of features on business metrics in real time.
• Statsig is used by a variety of companies to manage and test product features, including AI.

Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing and see the impact every feature is having on the core business metrics.

This quote introduces Statsig as a tool that assists product teams in deploying features efficiently and understanding their impact through experimentation and data analysis.

• The settlement layer is the final state of a transaction, ensuring security and ownership changes.
• The execution layer is where complex financial activities occur, like trading and contract execution.
• Solana focuses on the execution layer, aiming to overcome the speed and information synchronization limitations of existing networks.

Yes, the settlement I can't name you a single company in the world of the settlement. They were briefly in the spotlight during this game stocks thing, but basically this is what is the final state of the trade is when they look at the list of who owns what and they change the values around.

Anatoly Yakovenko describes the settlement layer as the conclusive phase of a transaction where ownership is officially transferred, highlighting its significance and relation to security.

• Solana is not primarily focused on being a store of value but on being a fast, byzantine fault-tolerant system for information synchronization.
• The design of Solana is influenced by the need for a large, independent set of participants to prevent collusion (Nakamoto coefficient).
• Solana aims to handle a high volume of transactions and messages to closely reflect real market prices.

What we set out to build with Solana was, I think we just never thought of Solana as replacing digital gold sovereign money or anything like that value necessarily. It was how do we build a byzantine, fault tolerant system that can synchronize information globally as fast as it can?

Anatoly Yakovenko explains that Solana's primary objective is to create a robust network capable of rapidly synchronizing information on a global scale, rather than focusing on being a digital store of value.

• Bitcoin and Ethereum have low transaction limits, which restricts their ability to serve as global settlement layers.
• Ethereum's current transaction limit is insufficient to support a billion users.
• Solana was created to scale significantly beyond Bitcoin and Ethereum's transaction capabilities.

So what's cool is that seven transactions per second is what the bitcoin theoretical limit is... Ethereum is trying to do something more sophisticated... My understanding of what Ethereum is today, depending on gas costs, is some around eleven to maybe 20 transactions per second.

Anatoly Yakovenko discusses the transaction limits of Bitcoin and Ethereum, emphasizing the need for a more scalable solution to accommodate a larger user base.

• Solana's design is influenced by radio communication principles and the need to avoid signal interference.
• The concept of "proof of history" in Solana is analogous to synchronizing clocks in radio towers to prevent overlapping signals.
• Solana's approach to blockchain technology is rooted in physics and the challenges of reliable communication.

This problem exists in bitcoin. And proof of work, because these systems have these agents called block producers. And proof of work is this puzzle that you solve to be allowed to produce a block.

Anatoly Yakovenko relates Solana's underlying technology to the issues faced in radio communication and proof of work blockchain systems, highlighting the innovative approach Solana takes to solve these problems.

• Anatoly discusses the idea of a mathematical arrow of time in blockchain.
• He explains the shift from real-time systems to a more scheduled system.
• The scheduled system is more efficient because it reduces synchronization overhead.

"I have a mathematical arrow of time. I know that that's good enough for something."

This quote highlights Anatoly's realization of the importance of having a mathematical representation of time to improve blockchain systems. It is a foundational idea that led to the development of Solana's unique approach to blockchain technology.

• Solana's blockchain operates on a scheduled system rather than a turn-based or real-time system.
• This system pre-schedules turns, reducing the need for constant synchronization.
• Solana's network has a high throughput, benchmarked at 50,000 transactions per second (tps) with peaks over 65,000 tps.

"It went from even a turn based game to a scheduled game that you have a certain amount of time to take your turn, and if you don't take it, it's passed to somebody else."

Anatoly describes the transition from a turn-based system to a scheduled system, which is a key factor in Solana's higher speed compared to other proof of stake networks. This shift allows for more efficient processing of transactions.

• Benchmarking performance can be misleading as it often represents ideal conditions.
• Real-world applications, like Serum's central limit order book, require more complex transactions.
• The actual hardware limits of the network determine the maximum throughput potential.

"Benchmarking is a game. So you can think of it as when TSMC claims three nanometer process, that's the smallest unit that they can make."

Anatoly likens benchmarking to a game, emphasizing that the figures often represent the best-case scenario, not necessarily the everyday performance. This analogy helps explain the complexity of accurately measuring a blockchain system's capabilities.

• Solana's network demands high-quality internet connections due to its design, which maximizes parallel data synchronization.
• The network's capacity could theoretically support 700,000 transactions per second, depending on the bandwidth.

"Exactly. And that's because this is maximizing the amount of information that anybody can synchronize on over as many parallel kind of like bits as we can."

Anatoly explains that Solana's design aims to maximize the amount of information that can be synchronized, which requires robust internet connections for all nodes in the network.

• Solana's network capacity far exceeds the transaction volume of Visa and the message volume of Twitter.
• The network is designed to cater to machine-driven transactions rather than human activities.

"All of Twitter is 5000 messages per second."

The comparison with Twitter's message volume illustrates the vast capacity of Solana's network and its ability to handle a significantly higher volume of transactions.

• Solana aims to eliminate intermediaries in financial transactions.
• The network supports direct connections between value creators, such as artists and fans, without intermediaries.
• The goal is to create a more efficient and fair financial system by removing unnecessary costs and fraud.

"That's really what the stuff is all about. How do we eliminate all of that?"

Anatoly discusses the overarching goal of Solana to remove intermediaries and overhead from financial transactions, creating a more direct and efficient system.

• Applications like Audius are building decentralized platforms on Solana.
• Audius connects artists directly to fans, avoiding traditional web 2.0 business models.
• Decentralization in music and other industries can lead to more equitable systems for creators and consumers.

"It's really like, here's a platform to connect artists to fans directly without any intermediaries."

Anatoly describes how Audius exemplifies the use of Solana's blockchain to facilitate direct connections between artists and their fans, bypassing traditional centralized platforms.

• The Solana token (SOL) represents voting power and authority within the network.
• The distribution of SOL is designed to prevent a central authority from controlling the network.
• The network's goal is to maximize censorship resistance and decentralization.

"Which is effectively like, what this token represents is the weight in the network in terms of how much vote you have, how much power to censor you have."

Anatoly explains the purpose of the Solana token in the network's governance, emphasizing its role in maintaining a decentralized and censorship-resistant system.

• Solana uses a proof of stake system to determine authority within the network.
• The more SOL one holds, the greater their influence over network decisions.
• The aim is to expand the network's authority base to increase censorship resistance.

"And we want to grow that set to be as large as possible. Again, thinking from this nuclear strike detector, center resistant."

Anatoly discusses the objective of growing the network's authority base to ensure a robust and resilient system, drawing an analogy to a nuclear strike detector to illustrate the importance of decentralization.

• The evolution from web 2.0 to web 3.0 offers the potential for a truly decentralized internet.
• Solana's technology could enable a world where direct peer-to-peer connections are the norm.
• The shift to blockchain and decentralization could result in systems that align more closely with the original vision of the internet.

"That's kind of a science fiction thing that we're building right in uh, I'm."

Anatoly reflects on the ambitious and futuristic vision of Solana's network, likening it to science fiction concepts of a highly connected and unrestricted world.

• Network adoption is critical, regardless of the quality of the technology.
• Validators were the first group of users and were enthusiastic about the technology.
• The focus was on offering unique value to motivate users to engage with the technology.

"None of that matters if you don't get adoption of the network, right? Like, you can have the most beautiful thing, but you got to have people using this."

This quote emphasizes the necessity of network adoption for the success of any technological platform, highlighting that without users, even the most sophisticated technology is futile.

• Validators are seen as the initial customers or users who are positive and willing to experiment with new technology.
• They were willing to undertake complex tasks, such as installing machines in data centers.
• The community of builders was driven by the offer of something unique and compelling.

"So the validators were really like the first group of customers or users, and they're just super positive people that just want to play around with cool tech."

Anatoly Yakovenko describes validators as the first and enthusiastic adopters of their technology, highlighting their importance in the early stages of network growth.

• The idea of maximizing censorship resistance was a key selling point for the technology.
• This concept was appealing and motivated people to try out the technology.

"And this idea of maximizing censorship, resistance, it's just cool. People kind of think it's cool, go try it."

Anatoly Yakovenko explains how the concept of censorship resistance intrigued people and encouraged them to engage with the technology, which helped in building a community of users.

• Despite skepticism during the crypto winter, they pursued the vision of running something like Nasdaq on their platform.
• Serum's central limit order book was a use case that exemplified this vision.
• The goal was to become a global price discovery engine, akin to Google being the world's information library.

"But I fundamentally believe that if the system is possible, if we can be a world's price discovery engine, then that's, like, the Google will be the world's information library, like, kind of style of dream."

Anatoly Yakovenko shares his vision for the platform, likening it to Google's role in information management but for price discovery, indicating a transformative ambition.

• After launching, the team demonstrated their technology to FTX, which showed interest in the platform's capabilities.
• The potential of decentralized finance to capture a significant portion of global finance was a compelling opportunity for FTX.

"And I demoed this to Sam, and he was like, okay, everyone else needs to see this."

The quote reveals a pivotal moment when FTX recognized the potential of the technology after a demonstration, leading to a partnership.

• The open network allows for trading of various assets, not limited to blockchain assets.
• The platform's speed and openness could lead to natural adoption due to its advantages.

"Because this is an open network. The tokens can represent whatever the settlement layer tells the chain that it's representing. Could be stocks, could be something like dollars, like out of USDC."

Anatoly Yakovenko explains how the open network can represent a variety of assets, underscoring the flexibility and potential reach of the platform.

• The network offers cost advantages by eliminating fees typically charged by intermediaries like Visa and Nasdaq.
• The initial network of validators was small but dedicated, persisting through early failures.

"If you don't have to pay Nasdaq, I think earns like 10 billion a year. Where does that money come from? Yeah, comes from the people."

Anatoly Yakovenko discusses the financial benefits of using their network, which avoids the high fees charged by traditional financial intermediaries.

• Early validators contributed significantly by identifying critical bugs and some even started their own security firms.
• Their commitment created value for the entire community and was crucial for the platform's development.

"And some of those folks were so early and we had bug bounties that they were finding these really hard to find critical bugs that they're now founding their own security firms."

This quote highlights how the early involvement of validators led to the discovery of critical bugs and spurred the creation of new businesses in the security field.

• Ethereum and Solana are viewed as non-threatening competitors due to the nature of open-source communities.
• Competition is seen as beneficial, driving innovation and improvements across platforms.
• The focus is on building for a super connected world, not on the technical details.

"We can kill Ethereum just as easily as Ethereum can kill us. Meaning it's impossible."

Anatoly Yakovenko acknowledges the impossibility of one open-source community eliminating another, emphasizing the resilience and collaborative nature of such communities.

• Self-custody of keys is essential for direct connections in the crypto world, without intermediaries.
• The estimated number of people self-custodying keys is around 30 million, which is considered a generous estimate.

"You can't directly connect to an artist and audience without your own self custody, right? You're not in this interconnected world."

Anatoly Yakovenko stresses the importance of self-custody for genuine participation in the decentralized ecosystem, highlighting the difference between self-custody and reliance on intermediaries.

• Solana aims to provide a platform for a super connected world of 1 billion users without intermediaries.
• The team's commitment is to support developers with a massive vision, regardless of the details or commercial aspects.

"Because we guarantee this super connected world for 1 billion users without shards, without intermediaries."

Anatoly Yakovenko pitches Solana to developers by promising a scalable, interconnected platform capable of supporting a vast user base without the complexity of shards or intermediaries.

• The dream is to have a large, grassroots community of engineers and validators.
• The goal is to compete with centralized systems like Google's Android, but through a decentralized, community-driven approach.

"So if we succeed, it's like this amazing set of engineers that are just working and building really cool shit and amazing set of validators that are building really cool hardware to make this stuff run as fast as possible."

Anatoly Yakovenko envisions the Solana ecosystem as a decentralized network of passionate engineers and validators collaborating to create innovative technology, contrasting with centralized corporate structures.

• The discussion concludes with optimism for Solana's potential to revolutionize blockchain technology.
• Information about Solana and its community can be found on their website and Twitter.

"Solana.com is where you can find all the information and like, Solana's Twitter handle, like, go follow it on Twitter and follow me if you want to hear me talk about consensus and censorship resistance."

Anatoly Yakovenko directs listeners to Solana's online resources for more information, highlighting the platform's focus on consensus and censorship resistance.