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Solana logo displayed on a phone screen and representation of cryptocurrencies are seen in this illustration photo taken in Krakow, Poland on August 21, 2021.

Jakub Porzycki | NurPhoto | Getty Images

Solana was touted as the cryptocurrency that would challenge ether with an eco-friendlier approach, faster transaction speeds and more consistent costs.

Investors who made that bet had a miserable year. The token’s market cap collapsed from over $55 billion in January to barely above $3 billion at year-end.

Among Solana’s biggest problems in late 2022 was its close relationship to FTX founder Sam Bankman-Fried, who faces eight criminal fraud charges after his crypto exchange went bankrupt last month. The disgraced former crypto billionaire was one of Solana’s most public boosters, touting the advantages of the blockchain technology and investing over a half-billion dollars in Solana tokens.

“Sell me all you want,” Bankman-Fried told one skeptic in January 2021. “Then go f— off.”

Bankman-Fried’s companies held nearly $1.2 billion worth of the token and associated assets in June, according to documents reviewed by CoinDesk.

When FTX fell apart, investors bailed on Solana to the tune of about $8 billion. But in recent days, as the rest of the crypto world has been relatively quiet and prices stable, Solana has plummeted further.

Two of the biggest non-fungible token (NFT) projects built on Solana announced their migration off of Solana’s platform on Christmas Day. But the recent slides came after that news had already broken, making Solana’s recent slide something of a mystery.

In the last week, Solana has declined over 30%. Ether has held steady, shedding 1.7% in the same time period, while bitcoin has only dropped 1.2%. Among the 20 most-valuable cryptocurrencies tracked by CoinMarketCap, the next biggest loser over that stretch is Dogecoin, which has fallen 9%.

In just one hour of trading on Thursday, Solana slid 5.8%, bringing it to the lowest since early 2021, around the time that Bankman-Fried began to vocally offer his support for the project.

Solana has since come off the lows, with a market cap now crossing $3.5 billion. Its 24-hour trading volume is up over 200% on a relative basis.

During the crypto market’s heyday in 2021, Bankman-Fried was hardly alone in his bullishness.

Developers raved about Solana’s support for smart contracts, pieces of code that execute pre-programmed directives, as well as an innovative proof-of-history consensus mechanism.

Consensus mechanisms are how blockchain platforms assess the validity of an executed transaction, tracking who owns what and how well the system is working based on a consensus between multiple record-keeping computers called nodes.

Bitcoin uses a proof-of-work mechanism. Ethereum and rival Solana use proof-of-stake. Rather than relying on energy-intensive mining, proof-of-stake systems ask big users to offer up collateral, or stake, to become “validators.” Instead of solving for a cryptographic hash, as with bitcoin, proof-of-work validators verify transaction activity and maintain the blockchain’s “books,” in exchange for a proportional cut of transaction fees.

Solana’s supposed differentiating factor was augmenting proof-of-stake with proof-of-history — the ability to prove that a transaction happened at a particular moment.

Solana soared over the course of 2021, with a single token gaining 12,000% for the year and reaching $250 by November. Yet even before the collapse of FTX, Solana faced a series of public struggles, which challenged the protocol’s claim that it was a superior technology.

Much of Solana’s popularity was built around growing interest in NFTs. Serum, another exchange backed by Bankman-Fried, was built on Solana. When the calendar turned to 2022, Solana’s limitations started to become apparent.

Barely a month into the year, a network outage took Solana down for over 24 hours. Solana’s token fell from $141 to a low of a little over $94. In May, Solana experienced a seven-hour-long outage after NFT minting flooded validators and crashed the network.

A “record-breaking four million transactions [per second]” took out Solana and caused the price of its token to drop 7%, CoinTelegraph reported at the time, pushing it further into the red during the bruising onset of crypto winter.

Why Anatoly Yakovenko left traditional tech to co-found Solana

In June, another outage prompted a 12% drop. The hours of downtime came after validators stopped processing blocks, immobilizing Solana’s touted consensus mechanism and forcing a restart of the network.

The outages were concerning enough for a protocol that sought to upend ether’s dominance and assert itself as a stable, rapid platform. Solana was experiencing growing pains in public. The project was first built in 2020 and is a younger protocol than ether, which went live in 2015.

Technology challenges are to be expected. Unfortunately for Solana, something else was brewing in the Bahamas.

The SEC called it “brazen” fraud. Bankman-Fried’s use of customer money at FTX to fund everything from trading and lending at his hedge fund, Alameda Research, to his lavish lifestyle in the Caribbean roiled the crypto markets. Bankman-Fried was released on a $250 million bond last week while he awaits trial for fraud and other criminal charges in the Southern District of New York.

Solana since November 2022, the month that FTX failed and filed for bankruptcy protection.

Solana lost more than 70% in total value in the weeks following FTX’s November bankruptcy filing. Investors fled from anything associated with Bankman-Fried, with prices for FTT (FTX’s native token), Solana, and Serum plunging dramatically.

Solana founder Anatoly Yakovenko told Bloomberg that rather than focusing on price action, the public should remain focused on “having people build something awesome that’s decentralized.”

Yakovenko did not immediately respond to CNBC’s request for comment.

FTT has fared the worst, losing practically all its value. But Solana has seen a continued flight in recent days, reflecting ongoing concerns about FTX contagion and skepticism about the long-term viability of its own protocol.

Developer flight is the most pressing concern. Solana’s raison d’etre was to solve bitcoin and ether’s struggle “to scale beyond 15 transactions per second worldwide,” according to developer documentation. But active developers on the platform have dropped to 67 from an October 2021 high of 159, according to Token Terminal.

Multicoin Capital, a cryptocurrency investment firm, has maintained a bullish stance on Solana. Even after the implosion of FTX, Multicoin continued to strike an optimistic tone about the suddenly beleaguered blockchain.

“We recognized that SOL was likely to underperform in the near term given the affiliation with SBF
and FTX; however, since the crisis began we’ve decided to hold the position based on a variety of factors,” Multicoin wrote in a message to partners obtained by CNBC.

Multicoin, and other prominent crypto voices, maintain that the fallout from FTX underscores the need for a return to basics for the crypto industry: A transition away from juggernaut centralized exchanges in favor of decentralized finance (DeFi) and self-custody.

What is DeFi, and could it upend finance as we know it?

An uptick in daily activity at now peerless Binance might suggest that many crypto enthusiasts have yet to take that missive to heart.

It’s unsurprising that Yakovenko continues to believe in Solana. Yet even Vitalik Buterin, the man behind ethereum, voiced his support for Solana on Thursday. “Hard for me to tell from outside, but I hope the community gets its fair chance to thrive,” Buterin wrote on Twitter.

Chris Burniske, a partner at a Web3 venture capital firm Placeholder, said he was “still longing” Solana in a Dec. 29 Twitter thread.

Crypto saw mass adoption thanks to centralized platforms like FTX, Crypto.com, and Binance. FTX splashed millions of dollars on stadium deals and naming rights. Crypto.com invested heavily in prominent ad campaigns. Even Binance announced a sponsorship tie-in with the Grammys.

2023 may prove a seminal year for defi, as crypto-curious investors look for safer ways to garner returns and custody their assets. Bitcoin was born out of the 2008 financial crisis. Now the cryptocurrency industry faces a test of its own.

“Lehman was not the end of the banking industry. Enron was not the end of the energy industry.
And FTX won’t be the end of the crypto industry,” Multicoin told investors.

– CNBC’s Ari Levy and MacKenzie Sigalos contributed to this report.

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How Elon Musk’s plan to slash government agencies and regulation may benefit his empire

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How Elon Musk’s plan to slash government agencies and regulation may benefit his empire

Elon Musk’s business empire is sprawling. It includes electric vehicle maker Tesla, social media company X, artificial intelligence startup xAI, computer interface company Neuralink, tunneling venture Boring Company and aerospace firm SpaceX. 

Some of his ventures already benefit tremendously from federal contracts. SpaceX has received more than $19 billion from contracts with the federal government, according to research from FedScout. Under a second Trump presidency, more lucrative contracts could come its way. SpaceX is on track to take in billions of dollars annually from prime contracts with the federal government for years to come, according to FedScout CEO Geoff Orazem.

Musk, who has frequently blamed the government for stifling innovation, could also push for less regulation of his businesses. Earlier this month, Musk and former Republican presidential candidate Vivek Ramaswamy were tapped by Trump to lead a government efficiency group called the Department of Government Efficiency, or DOGE.

In a recent commentary piece in the Wall Street Journal, Musk and Ramaswamy wrote that DOGE will “pursue three major kinds of reform: regulatory rescissions, administrative reductions and cost savings.” They went on to say that many existing federal regulations were never passed by Congress and should therefore be nullified, which President-elect Trump could accomplish through executive action. Musk and Ramaswamy also championed the large-scale auditing of agencies, calling out the Pentagon for failing its seventh consecutive audit. 

“The number one way Elon Musk and his companies would benefit from a Trump administration is through deregulation and defanging, you know, giving fewer resources to federal agencies tasked with oversight of him and his businesses,” says CNBC technology reporter Lora Kolodny.

To learn how else Elon Musk and his companies may benefit from having the ear of the president-elect watch the video.

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Why X’s new terms of service are driving some users to leave Elon Musk’s platform

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Why X's new terms of service are driving some users to leave Elon Musk's platform

Elon Musk attends the America First Policy Institute gala at Mar-A-Lago in Palm Beach, Florida, Nov. 14, 2024.

Carlos Barria | Reuters

X’s new terms of service, which took effect Nov. 15, are driving some users off Elon Musk’s microblogging platform. 

The new terms include expansive permissions requiring users to allow the company to use their data to train X’s artificial intelligence models while also making users liable for as much as $15,000 in damages if they use the platform too much. 

The terms are prompting some longtime users of the service, both celebrities and everyday people, to post that they are taking their content to other platforms. 

“With the recent and upcoming changes to the terms of service — and the return of volatile figures — I find myself at a crossroads, facing a direction I can no longer fully support,” actress Gabrielle Union posted on X the same day the new terms took effect, while announcing she would be leaving the platform.

“I’m going to start winding down my Twitter account,” a user with the handle @mplsFietser said in a post. “The changes to the terms of service are the final nail in the coffin for me.”

It’s unclear just how many users have left X due specifically to the company’s new terms of service, but since the start of November, many social media users have flocked to Bluesky, a microblogging startup whose origins stem from Twitter, the former name for X. Some users with new Bluesky accounts have posted that they moved to the service due to Musk and his support for President-elect Donald Trump.

Bluesky’s U.S. mobile app downloads have skyrocketed 651% since the start of November, according to estimates from Sensor Tower. In the same period, X and Meta’s Threads are up 20% and 42%, respectively. 

X and Threads have much larger monthly user bases. Although Musk said in May that X has 600 million monthly users, market intelligence firm Sensor Tower estimates X had 318 million monthly users as of October. That same month, Meta said Threads had nearly 275 million monthly users. Bluesky told CNBC on Thursday it had reached 21 million total users this week.

Here are some of the noteworthy changes in X’s new service terms and how they compare with those of rivals Bluesky and Threads.

Artificial intelligence training

X has come under heightened scrutiny because of its new terms, which say that any content on the service can be used royalty-free to train the company’s artificial intelligence large language models, including its Grok chatbot.

“You agree that this license includes the right for us to (i) provide, promote, and improve the Services, including, for example, for use with and training of our machine learning and artificial intelligence models, whether generative or another type,” X’s terms say.

Additionally, any “user interactions, inputs and results” shared with Grok can be used for what it calls “training and fine-tuning purposes,” according to the Grok section of the X app and website. This specific function, though, can be turned off manually. 

X’s terms do not specify whether users’ private messages can be used to train its AI models, and the company did not respond to a request for comment.

“You should only provide Content that you are comfortable sharing with others,” read a portion of X’s terms of service agreement.

Though X’s new terms may be expansive, Meta’s policies aren’t that different. 

The maker of Threads uses “information shared on Meta’s Products and services” to get its training data, according to the company’s Privacy Center. This includes “posts or photos and their captions.” There is also no direct way for users outside of the European Union to opt out of Meta’s AI training. Meta keeps training data “for as long as we need it on a case-by-case basis to ensure an AI model is operating appropriately, safely and efficiently,” according to its Privacy Center. 

Under Meta’s policy, private messages with friends or family aren’t used to train AI unless one of the users in a chat chooses to share it with the models, which can include Meta AI and AI Studio.

Bluesky, which has seen a user growth surge since Election Day, doesn’t do any generative AI training. 

“We do not use any of your content to train generative AI, and have no intention of doing so,” Bluesky said in a post on its platform Friday, confirming the same to CNBC as well.

Liquidated damages

Bluesky CEO: Our platform is 'radically different' from anything else in social media

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The Pentagon’s battle inside the U.S. for control of a new Cyber Force

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The Pentagon's battle inside the U.S. for control of a new Cyber Force

A recent Chinese cyber-espionage attack inside the nation’s major telecom networks that may have reached as high as the communications of President-elect Donald Trump and Vice President-elect J.D. Vance was designated this week by one U.S. senator as “far and away the most serious telecom hack in our history.”

The U.S. has yet to figure out the full scope of what China accomplished, and whether or not its spies are still inside U.S. communication networks.

“The barn door is still wide open, or mostly open,” Senator Mark Warner of Virginia and chairman of the Senate Intelligence Committee told the New York Times on Thursday.

The revelations highlight the rising cyberthreats tied to geopolitics and nation-state actor rivals of the U.S., but inside the federal government, there’s disagreement on how to fight back, with some advocates calling for the creation of an independent federal U.S. Cyber Force. In September, the Department of Defense formally appealed to Congress, urging lawmakers to reject that approach.

Among one of the most prominent voices advocating for the new branch is the Foundation for Defense of Democracies, a national security think tank, but the issue extends far beyond any single group. In June, defense committees in both the House and Senate approved measures calling for independent evaluations of the feasibility to create a separate cyber branch, as part of the annual defense policy deliberations.

Drawing on insights from more than 75 active-duty and retired military officers experienced in cyber operations, the FDD’s 40-page report highlights what it says are chronic structural issues within the U.S. Cyber Command (CYBERCOM), including fragmented recruitment and training practices across the Army, Navy, Air Force, and Marines.

“America’s cyber force generation system is clearly broken,” the FDD wrote, citing comments made in 2023 by then-leader of U.S. Cyber Command, Army General Paul Nakasone, who took over the role in 2018 and described current U.S. military cyber organization as unsustainable: “All options are on the table, except the status quo,” Nakasone had said.

Concern with Congress and a changing White House

The FDD analysis points to “deep concerns” that have existed within Congress for a decade — among members of both parties — about the military being able to staff up to successfully defend cyberspace. Talent shortages, inconsistent training, and misaligned missions, are undermining CYBERCOM’s capacity to respond effectively to complex cyber threats, it says. Creating a dedicated branch, proponents argue, would better position the U.S. in cyberspace. The Pentagon, however, warns that such a move could disrupt coordination, increase fragmentation, and ultimately weaken U.S. cyber readiness.

As the Pentagon doubles down on its resistance to establishment of a separate U.S. Cyber Force, the incoming Trump administration could play a significant role in shaping whether America leans toward a centralized cyber strategy or reinforces the current integrated framework that emphasizes cross-branch coordination.

Known for his assertive national security measures, Trump’s 2018 National Cyber Strategy emphasized embedding cyber capabilities across all elements of national power and focusing on cross-departmental coordination and public-private partnerships rather than creating a standalone cyber entity. At that time, the Trump’s administration emphasized centralizing civilian cybersecurity efforts under the Department of Homeland Security while tasking the Department of Defense with addressing more complex, defense-specific cyber threats. Trump’s pick for Secretary of Homeland Security, South Dakota Governor Kristi Noem, has talked up her, and her state’s, focus on cybersecurity.

Former Trump officials believe that a second Trump administration will take an aggressive stance on national security, fill gaps at the Energy Department, and reduce regulatory burdens on the private sector. They anticipate a stronger focus on offensive cyber operations, tailored threat vulnerability protection, and greater coordination between state and local governments. Changes will be coming at the top of the Cybersecurity and Infrastructure Security Agency, which was created during Trump’s first term and where current director Jen Easterly has announced she will leave once Trump is inaugurated.

Cyber Command 2.0 and the U.S. military

John Cohen, executive director of the Program for Countering Hybrid Threats at the Center for Internet Security, is among those who share the Pentagon’s concerns. “We can no longer afford to operate in stovepipes,” Cohen said, warning that a separate cyber branch could worsen existing silos and further isolate cyber operations from other critical military efforts.

Cohen emphasized that adversaries like China and Russia employ cyber tactics as part of broader, integrated strategies that include economic, physical, and psychological components. To counter such threats, he argued, the U.S. needs a cohesive approach across its military branches. “Confronting that requires our military to adapt to the changing battlespace in a consistent way,” he said.

In 2018, CYBERCOM certified its Cyber Mission Force teams as fully staffed, but concerns have been expressed by the FDD and others that personnel were shifted between teams to meet staffing goals — a move they say masked deeper structural problems. Nakasone has called for a CYBERCOM 2.0, saying in comments early this year “How do we think about training differently? How do we think about personnel differently?” and adding that a major issue has been the approach to military staffing within the command.

Austin Berglas, a former head of the FBI’s cyber program in New York who worked on consolidation efforts inside the Bureau, believes a separate cyber force could enhance U.S. capabilities by centralizing resources and priorities. “When I first took over the [FBI] cyber program … the assets were scattered,” said Berglas, who is now the global head of professional services at supply chain cyber defense company BlueVoyant. Centralization brought focus and efficiency to the FBI’s cyber efforts, he said, and it’s a model he believes would benefit the military’s cyber efforts as well. “Cyber is a different beast,” Berglas said, emphasizing the need for specialized training, advancement, and resource allocation that isn’t diluted by competing military priorities.

Berglas also pointed to the ongoing “cyber arms race” with adversaries like China, Russia, Iran, and North Korea. He warned that without a dedicated force, the U.S. risks falling behind as these nations expand their offensive cyber capabilities and exploit vulnerabilities across critical infrastructure.

Nakasone said in his comments earlier this year that a lot has changed since 2013 when U.S. Cyber Command began building out its Cyber Mission Force to combat issues like counterterrorism and financial cybercrime coming from Iran. “Completely different world in which we live in today,” he said, citing the threats from China and Russia.

Brandon Wales, a former executive director of the CISA, said there is the need to bolster U.S. cyber capabilities, but he cautions against major structural changes during a period of heightened global threats.

“A reorganization of this scale is obviously going to be disruptive and will take time,” said Wales, who is now vice president of cybersecurity strategy at SentinelOne.

He cited China’s preparations for a potential conflict over Taiwan as a reason the U.S. military needs to maintain readiness. Rather than creating a new branch, Wales supports initiatives like Cyber Command 2.0 and its aim to enhance coordination and capabilities within the existing structure. “Large reorganizations should always be the last resort because of how disruptive they are,” he said.

Wales says it’s important to ensure any structural changes do not undermine integration across military branches and recognize that coordination across existing branches is critical to addressing the complex, multidomain threats posed by U.S. adversaries. “You should not always assume that centralization solves all of your problems,” he said. “We need to enhance our capabilities, both defensively and offensively. This isn’t about one solution; it’s about ensuring we can quickly see, stop, disrupt, and prevent threats from hitting our critical infrastructure and systems,” he added.

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