This is a Kaspa (KAS) progress review in response to IIGG's review which highlighted articles calling Kaspa a scam, legal concerns and missing transactions in its transaction history.

In summary, while fraud cannot be ruled out completely, I side with the Kaspa community that there was no fraud, and I also believe that most other chains, including Bitcoin and Solana have had more serious issues in the months after their launch.

So first lets address the two concerns.

The legal concern comes from a very porly written article and has zero foundation in my opinion. It states that Kaspa as an entity is not doing KYC and AML, without elaborating further. Kaspa is not an entity. It's a decentralized cryptocurrency like Bitcoin and therefore will not do any KYC or AML, and neither does any other cryptocurrency. So I don't take this article seriously.

The missing transaction hystory is more substantial. There's well written arguments and lots of documented discussions between the accusers, Kaspa team members and the community.

Here's a summary of the issue: Kaspa launched as a fair launch around November 2021. There's two block explorers which start showing data around May 2022. So there is about 6 months of transaction data missing. The accusation is that Kaspa's team likely colluded with an attacker to steal KAS tokens during that period from accounts they thought were inactive. To provide evidence, the accusers say there was at least one person who reports missing funds in a wallet. Although that person didn't seem to accuse anyone of wrongdoing.

This problem exists in the first place because unlike Bitcoin, which stores all transactions forever, Kaspa prunes its transaction data. Kaspa can process hundreds of times more transactions per second than BTC, so keeping all that data forever would create an insanely huge file. That's why Kaspa only keeps all transactions from the last 3 days. After that, most transactions are pruned (deleted). However, different nodes still keep randomly different sections of the chain, so that you can theoretically assemble the whole transaction history by piecing it all together (at least that's how I think it works).

There is apparently an "archival" mode, which would have allowed for all transactions to be stored and some team members say it was a mistake not to run the chain in archival mode during the beginning. However, I also side with Kaspa on this argument and to explain why I want to tell you a bit more about the founding history of Kaspa.

Kaspa was founded around 2017 and they've secured an $8M dollar investment from Polychain Capital. Their business model was to launch Kaspa as a fairlaunch and make money by developing and selling optical asics mining equipment. By 2021 however, their funds were running out and they agreed that their asics centred business model wouldn't work out anymore due to changing market conditions. So they essentially closed down the project. But because they've already gathered a substantial community, they've decided to still launch the project as a fairlaunch anyways. The founding team, investors and their substantial community at the time mined KAS fairly during the first months, during which the team and investors accumulated about 3% of the max supply.

Now, the accusation is that the team actually stole funds during this time from inactive accounts and intentionally obfuscated transactions to hide it. To put this in perspective however, I think you should checkout the comment from the attached image. I think it's much more likely that the team was exhausted at this point and that no one actually believed that the project will take off. So it's very unlikely that someone would go through the trouble of finding a hack to steal tokens and redesigning the algorithm to hide transaction, when they could just as well mine a ton of tokens. At that time you could also buy millions of KAS for a few hundred dollars... why go through the pain of stealing them?

It's unfortunate that the transactions during that period weren't stored in archival mode. However, there is an effort to retrieve them, which is difficult because they need to find individual nodes, get whichever random transactions were kept by them and then piece them together in the puzzle of transactions. On top of this, the company running the chain has dissolved just a few months after the fair launch, because the money ran out and no one thought this will go anywhere. So there is no central management to follow up with this initiative. Everything that's happened since the fair launch was core devs or the community volunteering. IMO it's one of the closest we get to the founderless Bitcoin.

To summarize this argument, there's a chance that the accusation is true. But I think it's unlikely because you could have just bought a ton of KAS for cheap during that time rather than trying to steal them from inactive accounts, which would have probably been more costly in terms of the time and effort needed to do it.

The last argument is that the Kaspa chain is actually corrupted and not secure because of those initial missing transactions. I don't have the technical prowess to explain this.. But as far as I understand, one of Kaspa's innovation is that you can prove transactions by blocks relating to each other through the blockDAG protocol and the UTXO model. This means we don't have to store all transactions forever to prove transactions, which allows for much higher efficiency. So while having some missing trasnactions would be a problem for Bitcoin, it isn't a problem for Kaspa as it has a different technology to verify transactions. (I would be very happy if someone can explain this more elegantly.

The last two things I want to mention here:

  1. If the team sees this post, it would be great to know where we can follow the effort to retrieving the missing transactions. I've seen statements that a lot of progress is being made, but I don't know where to follow. This would be great because completing the retrieval would put this issue to rest.

  2. I like one argument made by this YouTube channel

He says that the Kaspa founder Yonatan Sompolinsky and his technology is mentioned by the Ethereum, Cardano and many other whitepapers. He's a person who has been contributing to the industry for nearly a decade. He's then raised $8M in funding to develop his technologies into his own chain, which was planned to be a community driven fair launch for years. The money ran out, so they decided to wind down the company and basically hand over the project to the community, believing that they've missed the opportunity to launch their layer 1 in time. Do you really believe that this team decided to then go through all this effort to steal some tokens which were pretty much worthless at the time?

If this is the only fud on Kaspa (KAS), then I'm pretty unfazed by it. I love the community focused and decentralized approach and continue to be a strong supporter. During this research I've also formed a deeper understanding of the technology and will write more about it in a technology review very soon.

I'm rating Kaspa (KAS) progress 4 stars because the community is doing an exceptional job at promoting and marketing this project and the issues about the missing transaction data during the first 6 months are minor, as I explain above. However, I would like to understand better who's working on the project, whether it's the community or core devs, and what their roadmap is. I'd like to understand how the chain aims to increase its TPS and I look forward to the time when the first layer 2 solutions will start building on Kaspa. Show Less

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