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+digraph auth {
+    nodesep=0.5;
+    rankdir="RL";
+
+    C [label="Create (1,1)"];
+
+    BJ [label="Bob's Join (2,1)", color=red];
+    BJ2 [label="Bob's Join (2,2)", color=red];
+    BJ2 -> BJ [color=red, dir=none];
+
+    subgraph cluster_foo {
+        A1 [label="Alice's invite (4,1)", color=blue];
+        A2 [label="Alice's Join (4,2)", color=blue];
+        A3 [label="Alice's Join (4,3)", color=blue];
+        A3 -> A2 -> A1 [color=blue, dir=none];
+        color=none;
+    }
+
+    PL1 [label="Power Level (3,1)", color=darkgreen];
+    PL2 [label="Power Level (3,2)", color=darkgreen];
+    PL2 -> PL1 [color=darkgreen, dir=none];
+
+    {rank = same; C; BJ; PL1; A1;}
+
+    A1 -> C [color=grey];
+    A1 -> BJ [color=grey];
+    PL1 -> C [color=grey];
+    BJ2 -> PL1 [penwidth=2];
+
+    A3 -> PL2 [penwidth=2];
+    A1 -> PL1 -> BJ -> C [penwidth=2];
+}
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+# Auth Chain Difference Algorithm
+
+The auth chain difference algorithm is used by V2 state resolution, where a
+naive implementation can be a significant source of CPU and DB usage.
+
+### Definitions
+
+A *state set* is a set of state events; e.g. the input of a state resolution
+algorithm is a collection of state sets.
+
+The *auth chain* of a set of events are all the events' auth events and *their*
+auth events, recursively (i.e. the events reachable by walking the graph induced
+by an event's auth events links).
+
+The *auth chain difference* of a collection of state sets is the union minus the
+intersection of the sets of auth chains corresponding to the state sets, i.e an
+event is in the auth chain difference if it is reachable by walking the auth
+event graph from at least one of the state sets but not from *all* of the state
+sets.
+
+## Breadth First Walk Algorithm
+
+A way of calculating the auth chain difference without calculating the full auth
+chains for each state set is to do a parallel breadth first walk (ordered by
+depth) of each state set's auth chain. By tracking which events are reachable
+from each state set we can finish early if every pending event is reachable from
+every state set.
+
+This can work well for state sets that have a small auth chain difference, but
+can be very inefficient for larger differences. However, this algorithm is still
+used if we don't have a chain cover index for the room (e.g. because we're in
+the process of indexing it).
+
+## Chain Cover Index
+
+Synapse computes auth chain differences by pre-computing a "chain cover" index
+for the auth chain in a room, allowing efficient reachability queries like "is
+event A in the auth chain of event B". This is done by assigning every event a
+*chain ID* and *sequence number* (e.g. `(5,3)`), and having a map of *links*
+between chains (e.g. `(5,3) -> (2,4)`) such that A is reachable by B (i.e. `A`
+is in the auth chain of `B`) if and only if either:
+
+1. A and B have the same chain ID and `A`'s sequence number is less than `B`'s
+   sequence number; or
+2. there is a link `L` between `B`'s chain ID and `A`'s chain ID such that
+   `L.start_seq_no` <= `B.seq_no` and `A.seq_no` <= `L.end_seq_no`.
+
+There are actually two potential implementations, one where we store links from
+each chain to every other reachable chain (the transitive closure of the links
+graph), and one where we remove redundant links (the transitive reduction of the
+links graph) e.g. if we have chains `C3 -> C2 -> C1` then the link `C3 -> C1`
+would not be stored. Synapse uses the former implementations so that it doesn't
+need to recurse to test reachability between chains.
+
+### Example
+
+An example auth graph would look like the following, where chains have been
+formed based on type/state_key and are denoted by colour and are labelled with
+`(chain ID, sequence number)`. Links are denoted by the arrows (links in grey
+are those that would be remove in the second implementation described above).
+
+![Example](auth_chain_diff.dot.png)
+
+Note that we don't include all links between events and their auth events, as
+most of those links would be redundant. For example, all events point to the
+create event, but each chain only needs the one link from it's base to the
+create event.
+
+## Using the Index
+
+This index can be used to calculate the auth chain difference of the state sets
+by looking at the chain ID and sequence numbers reachable from each state set:
+
+1. For every state set lookup the chain ID/sequence numbers of each state event
+2. Use the index to find all chains and the maximum sequence number reachable
+   from each state set.
+3. The auth chain difference is then all events in each chain that have sequence
+   numbers between the maximum sequence number reachable from *any* state set and
+   the minimum reachable by *all* state sets (if any).
+
+Note that steps 2 is effectively calculating the auth chain for each state set
+(in terms of chain IDs and sequence numbers), and step 3 is calculating the
+difference between the union and intersection of the auth chains.
+
+### Worked Example
+
+For example, given the above graph, we can calculate the difference between
+state sets consisting of:
+
+1. `S1`: Alice's invite `(4,1)` and Bob's second join `(2,2)`; and
+2. `S2`: Alice's second join `(4,3)` and Bob's first join `(2,1)`.
+
+Using the index we see that the following auth chains are reachable from each
+state set:
+
+1. `S1`: `(1,1)`, `(2,2)`, `(3,1)` & `(4,1)`
+2. `S2`: `(1,1)`, `(2,1)`, `(3,2)` & `(4,3)`
+
+And so, for each the ranges that are in the auth chain difference:
+1. Chain 1: None, (since everything can reach the create event).
+2. Chain 2: The range `(1, 2]` (i.e. just `2`), as `1` is reachable by all state
+   sets and the maximum reachable is `2` (corresponding to Bob's second join).
+3. Chain 3: Similarly the range `(1, 2]` (corresponding to the second power
+   level).
+4. Chain 4: The range `(1, 3]` (corresponding to both of Alice's joins).
+
+So the final result is: Bob's second join `(2,2)`, the second power level
+`(3,2)` and both of Alice's joins `(4,2)` & `(4,3)`.