SKALE NETWORK 101 — UNDERSTANDING THE SKALE ECOSYSTEM

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Introduction

However, even as blockchain is currently being touted as one of the most sought-after technologies of this modern generation, it still isn’t devoid of its bottlenecks. In recent years, the problem of low performance, poor usability, and high maintenance cost, among others, have been associated with most blockchains. As expected, these problems appear to be directly impacting the adoption level of this disruptive technology (blockchain) across mainstream sectors in our world today.

Ideally, blockchains are designed to be architecturally decentralized, similar to the Internet. In recent times, however, most blockchain-based systems have faced stumbling blocks regarding scalability, privacy, security, etc.

Interestingly, while several new methods have been proposed to mitigate these challenges, they appear to be quick fixes rather than sustainable solutions to these problems.

CHAPTER 1: The Emergence of Sidechains

What are Sidechains?

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A sidechain (also called a child-chain) is a secondary blockchain connected to the main blockchain with a two-way peg to enable easy interaction between chains. In most cases, sidechains may be designed to have their consensus protocol, which could be completely different from the mainchain’s protocol. In essence, a sidechain can add new functionalities and ultimately improve how a blockchain is utilized.

To better explain what Sidechains are, I would love to adopt a simple description used in an article published on Hackernoon in 2018.

Think of the main chain as a highway where vehicles can travel, and sidechains as a series of roads built adjacent to the highway (cars can go faster here), and they can link to the highway when necessary. — Hackernoon, 2018.

In basic terms, sidechains are often designed to operate as stand-alone blockchains that work in a complementary fashion with another blockchain to provide enhanced functionality and lower costs. Their functionality is usually engineered to cover transactions, smart contract execution, and storage. Sidechains add value by enabling lower cost and higher throughput transactions compared to the slower, more expensive, but generally more secure Layer 1 chains.

While many might refer to sidechains as hardforks, it is essential to note that although they appear to share certain similarities, they are different and operate with diverse concepts. Unlike with hardforks, where modifications tend to affect the main blockchain, with a sidechain directly, the original chain remains unaffected. Also, in some cases, sidechains can offer a specialized platform to carry out specific tasks.

For a basic understanding, it is essential to note that sidechains operate as separate and independent blockchain ledgers attached to the main blockchain ledger through a pegging mechanism that allows assets to be interchangeable and transferrable between both ledgers.

Limitations associated with existing Sidechains

  1. High level of complexity: Since the concept behind sidechains involves building independent blockchains, they often tend to be unsynchronized with the mainchain, even though they are connected to it. In most cases, this might cause problems when performing some transactions for which tight synchronization is intended. A great example is when the two chains, the sidechain, and the mainchain, support different types of assets and thus cause or face potential compatibility problems during the transfer of assets.
  2. Security Vulnerability: Sidechains are solely responsible for their security, so they often tend to maintain a high level of security. Although most sidechains are often considered very secure, recent research has proven that many existing sidechains today might be prone to some security vulnerabilities. In recent years, there have been several reports of hackers discovering loopholes in some side chains and exploiting them. For example, an attacker might transfer some assets from the mainchain to a sidechain but right after can do a reorganization action before the corresponding assets in the sidechain are released and ready to be used. This then causes the assets in the mainchain to be unlocked and restored to their original state while the corresponding assets in the sidechain are released already and still available. This abuse scenario is called double-spending.

CHAPTER 2: General Overview of the SKALE Network

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SKALE Network is a Layer-2 scaling solution built for the Ethereum blockchain, primarily for scaling smart contracts. Unlike every other existing Layer-2 scaling solution, SKALE has been uniquely engineered to enable the creation of app-specific sidechains, which are secured by validator sets owned by the SKALE Network itself.

In essence, SKALE Network is an open-source, decentralized elastic blockchain network uniquely designed to scale Web3 applications on the Ethereum blockchain. For a better understanding, think of SKALE chains as configurable, application-specific blockchains that exist one layer above the Ethereum blockchain. Developers get to rent SKALE chains, each of which acts as a private Ethereum-compatible smart contract platform with faster block times and the ability to process more transactions per second.

Aside from the fact that SKALE provides superior functionalities compared to any other pre-existing sidechain mechanism, SKALE chains also run full-state smart contracts, support decentralized storage, execute layer-2 scaling, and run machine learning algorithms using the Ethereum Virtual Machine. In combination with Ethereum, SKALE Network is poised to enable Web3 applications to compete with traditional applications on a cost and performance basis.

Key Features of the SKALE Network

  1. Byzantine Fault Tolerant:
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When a network is said to be fault tolerant, this simply means that it has been designed in such a way it would continue running even in the event of failure of one or more of its nodes. Byzantine failures are currently considered the most difficult forms of failures to tackle in a system because, when they occur in a network, it is usually difficult to notice because the failed node can generate arbitrary data, some of which can make it appear like a functioning node. In most instances, this means that Byzantine failures always confuse failure detection systems, which makes fault tolerance pretty difficult.

However, the SKALE network has been uniquely engineered to detect and easily correct Byzantine failures. The network maintains this level of fault tolerance by ensuring that the number of bad nodes does not exceed one-third of the total number of nodes in the system.

2. Asynchronous Protocol

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The SKALE Network uses a model similar to the Internet, referred to as the asynchronous protocol. This protocol takes the latencies of every node in the network into full consideration. This helps to enable the network to run smoothly because messages sent by nodes within the network can take an indefinite period to deliver.

By leveraging this asynchronous timing model, SKALE can ensure that virtualized subnodes work efficiently even when the messages needed to execute actions do not deliver on time. It is worth noting that this essential feature helps to prevent congestion on the network.

3. Threshold Signatures

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SKALE network leverages BLS threshold signatures to enable efficient communication between chains and support randomness in node allocation. Threshold signatures are currently a big deal in the blockchain space as they help maintain true decentralization, fairness, and an efficient consensus algorithm, ultimately improving a network's security.

Threshold Signatures are decentralized multi-party signature protocol that includes distributed key generation, signature, and verification algorithms, which are integral when developing an efficient blockchain network.

Other Features of the SKALE Network

  • Zero to Near-Zero Gas Fees: It is no news to any blockchain-savvy person that the problem of exorbitant gas fees is one of the major bottlenecks rocking the Ethereum blockchain. The SKALE Network, however, is poised to address this with its disruptive technology as every transaction conducted within the network has been engineered to always tend to zero — regardless of the size of the SKALE chain on which the transaction is being conducted — as long as the chain is below a specific resource threshold. This zero to near-zero gas fee structure significantly benefits building and operating decentralized applications. This would go a long way in helping to fast-track user adoption and enable developers to build out profitable use cases without having to bother about the friction imposed by blockchain gas fees. SKALE’s ability to address this major bottleneck proves they are building successful decentralized solutions and promoting higher adoption rates on the Ethereum blockchain.
  • Virtualized Subnodes: Virtualized subnodes are the name given to every subnode running within the SKALE Network. Each Elastic Sidechain in the SKALE Network comprises a collection of randomly appointed virtualized subnodes, which run the SKALE daemon and SKALE consensus. Interestingly, what makes virtualized subnodes superior to nodes being run on other protocols, is that they are not restricted to a one-to-one mapping between participating nodes in the network.
  • Random Node Selection/Frequent Node Rotation: On the SKALE Network, Validator nodes are assigned to elastic sidechains through a random process facilitated by a mainnet contract. The SKALE Network runs on a frequent node rotation process which helps to provide added security to the chain consensus. Nodes operating within the network are removed and added from one or more chains based on a non-deterministic scheduled. This process is usually determined by the mainnet contracts and random assignment algorithms.
  • Containerized Validator Nodes: Every virtualized subnode running on the SKALE Network are activated through an innovative containerized architecture that provides top-notch performances and optionality for decentralized application developers. The performance and flexibility achieved by the network are similar but much superior to those seen on traditional centralized cloud and micro-service systems. These containers are subdivided into several main components integrated via a dockerized Linux OS.
  • Consensus via Asynchronous Binary Byzantine Agreement (ABBA): The consensus model on which SKALE Network runs is a variant of the Asynchronous Binary Byzantine Agreement (ABBA) protocol. This unique protocol facilitates block creation and commitment for each elastic sidechain on the network. One notable benefit of the ABBA protocol is that it is designed to exhibit robustness when subnodes on the network are experiencing downtimes. More information on the protocol can be viewed here.
  • Ethereum Interoperability: The SKALE Network has been designed to be fully interoperable with the Ethereum blockchain. This way, its security and execution layer is tied closely to the Ethereum network. Also, every smart contract that maintains node operation executes on the Ethereum mainnet. In addition, the validator stakes and user subscriptions are also maintained and controlled by smart contracts running within the Ethereum mainnet.
  • BLS Rollup: Trying to wrap your head around the concept behind BLS Rollup might seem tricky, but it is important to understand how this concept work, as this would help provide you with more understanding as you read through this course. The core idea of BLS rollup revolves around making transactions smaller because making transactions smaller makes blockchain faster. BLS Rollups leverage a cryptographic algorithm called “aggregated BLS signatures” to shrink ETH transaction sizes. A roll-up can generally be described as a solution where transactions are published on the chain, but its computation and results storage is done differently to save gas. The SKALE Network supports BLS Rollups through each of its existing sidechains to help improve transaction throughput and lower gas costs on the Ethereum mainnet.
  • Node Monitoring Service: The NMS (Node Monitoring Service) is responsible for tracking the performance of every node running on the SKALE network in real-time. Tracking of performance among nodes on the SKALE Network is measured in uptime and latency through a regular process that tracks each peer node and logs these measurements to a local database. It is important to note that these metrics will be averaged and submitted to the SKALE Manager, which will then determine each node's payout.

SKALE Network: A Revolutionary Sidechain Technology

However, unlike traditional sidechains, Elastic sidechains have the critical advantage of being configurable so that developers can enjoy a wide range of other benefits on the chain, including storage, lightning speed, and additional security guarantees, to mention a few. What makes this even more intriguing is that the developers can adjust each of these distinctive features to fit their business requirements and optimize cost.

What problem does SKALE intend to solve in the Blockchain Industry?

The Ethereum blockchain, for instance, was designed only to support approximately 30 transactions per second. Even with the recent launch of Ethereum 2.0, which is expected to provide improved scalability, there is no assurance that the full implementation of this upgrade would fully solve the scalability problem or every other problem faced on the Ethereum blockchain.

To increase the adoption of Ethereum-based applications, there is an urgent need for the blockchain industry to provide scaling solutions regarding transaction throughput and user experience. Scaling the user experience means providing solutions for transaction throughput on the network, latency, connectivity to wallets, cost-effectiveness, seamless interactions between chains, and a wide range of other vital activities.

The SKALE Network provides integral solutions to blockchain scaling, which goes beyond addressing the existing scalability problems and putting security, cross-chain interoperability, and transaction speed into full consideration. With the SKALE network being an open-source network of flexible sidechains, users can now enjoy high-throughput and low-latency transactions without suffering the high transaction costs found in most existing public magnets.

What makes the SKALE network even more fascinating is its ability to offer expanded storage capabilities and direct interaction with the Ethereum mainnet. These are made possible due to an efficient and scalable transaction validation and security model.

Another major problem that the SKALE network intends to solve is user experience. SKALE intends to provide users with the necessary infrastructures, including near-zero gas costs, faster commit times, and increased transaction throughput required to get the best experience. All in all, SKALE is not just poised to provide the perfect scaling solution for the Ethereum blockchain but is interested in fast-tracking its mainstream adoption because the answers to every one of the problems above would not just benefit the developers alone but also the users, and this would go a long way in helping to remove the friction to mass adoption.

The SKALE Protocol

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The SKALE Network runs on the Proof of Stake (PoS) consensus and utilizes a work token. This makes setting up Nodes and staking on the network as simple as possible. The Proof-of-Stake system helps to encourage proper behavior amongst participants on the SKALE Network. The Proof of Stake consensus mechanism allows each node to stake a predetermined amount of SKALE tokens. It must abide by the network rules to avoid being penalized (token slashing).

Some of the activities that could attract penalties on the network include:

  • Failure to properly participate in each assigned chain’s consensus.
  • Failure to maintain uptime and latency standards enforced by ten network-agreed-upon SLAs.

CHAPTER 3: Components of the SKALE Network

SKALE Node

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The SKALE network consists of a large set of nodes that are run by validators on the network. The basic function of these nodes is to validate every transaction that is being conducted on each sidechain. However, it is important to note that every node running on the SKALE network must meet certain standards before becoming eligible for work.

The SKALE Manager is in charge of scrutinizing prospective nodes who intend to join the network. Firstly, before a node is deemed fit to join the network, it needs to run the SKALE daemon, which evaluates if it possesses every necessary network hardware requirement. After completing this stage, the SKALE daemon will then grant such node permission to submit a request to join the network to the SKALE Manager. The request submitted to the SKALE Manager would include the required network deposit and node metadata. After these details are registered in Ethereum main chain by the SKALE Manager, the node will be added to the network as a full or fractional node.

One important thing to note is the difference between a full node and a fractional node. The major difference between them is how their resources are utilized. While Full nodes usually get all of their resources utilized for one elastic sidechain, the fractional node's resources are used fractionally for multiple elastic sidechains.

SKALE Manager

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The SKALE Manager is an integral part of the SKALE network because it is a major entry point to all other smart contracts in the SKALE ecosystem. This smart contract manages the implementation of all actions carried out within the network, including The creation or destruction of Elastic Sidechains, the creation or destruction of Nodes, withdrawals, and bounty issuance, to mention a few.

Node Creation/Destruction:

As earlier mentioned, a node must meet several hardware requirements for it to be deemed fit to run in the SKALE network. If every criterion is met by the prospective node, it would be allowed to submit a request to join the network to the SKALE Manager. The prospective node must then submit a standard network deposit in the form of staked SKALE tokens alongside vital node information such as a human-readable name, IP address, and public key. The SKALE Manager would then relay this request to the Ethereum blockchain, after which the prospective node will be added to the system as either a full node or a fractional node.

However, it is worth noting that although both the full nodes and fractional perform similar functions on the network, their major difference is that the Full nodes will have all their resources utilized for a single SKALE-Chain. In contrast, fractional nodes will participate in multiple SKALE-Chains, in a process also referred to as multi-tenancy.

After a node is created, it will have a validator group of 21 other nodes randomly assigned to it at specific intervals. The network leverages the hash of the current Ethereum block number with the node’s name as the source of randomness.

On the other hand, the process of Node Destruction is divided into two phases. A node who intends to exit the network is first expected to notify the SKALE manager of their exit and wait for a finalization period to allow other nodes to be appointed to their current SKALE chains. After this process has been confirmed and proper auditing is done, the node will no longer be active and be allowed to withdraw from the network.

It is important to note that users who remove their node immediately from the network without any finalization period run the risk of losing their node’s initial deposit.

Sidechain Creation/ Destruction:

For creating an Elastic Sidechain, users must select their chain’s configuration and submit payment to the SKALE Manager. This would enable them to secure the necessary network resources required to maintain their elastic sidechain for the duration of time that they wish.

Also, users are usually given the option of selecting Elastic Sidechains with various specifications to determine what would be suitable for them business-wise. The fascinating thing about creating an elastic sidechain on the SKALE network is that, as the network continues to evolve, it will eventually allow users to specify the number of virtualized subnodes, number of signers, and size of the virtualized subnodes which will comprise their Elastic Sidechains.

The Node DEstruction process is quite similar to the Node creation process. In this process, a creation request has been received by the SKALE Manager, which would automatically prompt the creation of a new Elastic Sidechain. However, suppose the available resources in the network are insufficient to support the creation of the desired Elastic Sidechain. In that case, the transaction will be canceled, and the user who placed such a request would be notified.

Elastic Sidechain destruction would only occur if a user’s rental deposit for network resources gets exhausted or the user intends to delete their Elastic Sidechain. However, in the case of exhaustion of network resources, the creator of the sidechain in question will be notified of their chain’s pending deletion and will be allowed to add additional time to the chain’s lifetime if they intend to continue utilizing the sidechain.

Once an Elastic Sidechain’s rental deposit gets exhausted, the SKALE Manager would puts it up for destruction. The destruction process will automatically transfer any crypto assets originating from Ethereum to their owners on the mainnet, remove all subnodes from the Elastic Sidechain, reset their storage and memory, and remove the Elastic Sidechain from the SKALE Manager before the destruction process can be said to be completely finalized.

Bounty Issuance:

Bounties are issued to nodes in the network at regular intervals and are calculated based on two key factors: a node’s average latency and downtime across all SKALE chains. The SKALE tokens minted for the stipulated period are divided equally amongst all nodes participating in the network.

At the end of each reward period, the maximum amount of SKALE tokens that a node can receive in an ideal situation is dependent on the number of inflationary SKALE tokens for that time period divided by the total network resources utilized for that period. Also, for every token not issued to nodes due to poor uptime/latency, it will be issued to the N.O.D.E. Foundation.

CHAPTER 4: SKALE TOKENOMICS

Below is a detailed description of some of the privileges which the SKALE hybrid token (with the ticker SKL) provides holders with on the network:

  • Payments: Users of the SKALE network will need this token to pay for several utilities, including subscription access to the elastic blockchain for their various decentralized applications.
  • Staking: The SKALE token gives holders the right to stake on the network. This allows them to earn incentives for improving network security.
  • Governance: With SKALE being a community-driven network, holders of the SKALE token will receive voting power through their tokens. Meaning token holders can vote for certain changes on the network.

A detailed overview of the SKALE (SKL) network token economics is highlighted below to provide more insight into the SKALE hybrid token.

SKL Token Information

Token Contract Address: 0x00c83aecc790e8a4453e5dd3b0b4b3680501a7a7

Total Supply: 4,140,000,000 SKL

Token Standard: ERC-777

Public Launch Allocation: 175,000,000 SKL

Public Launch Price: $0.03

For more information on SKALE Token Economics, visit here.

SKL Token Allocation

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  • Ecosystem Fund — 1.3%
  • Validators Reward — 33.0%
  • Delegation Allocation — 28.1% (Early supporters and public allocation)
  • Core Team Pool — 4.0%
  • SKALE Foundation — 10%
  • Protocol Development Fund — 7.7%
  • Broader Founding Team — 16.0%

For more information on SKALE Token Economics, visit here.

SKALE Token being an ERC-777 Token

The SKALE Network Token (SKL) is an ERC-777 standard token. Unlike the ERC-20, with the SKALE token, a delegator does not need to send the token to the delegation smart contract. Instead, it could share its secure delegation key with the staking provider while storing the tokens in any cold or hot wallet.

All-in-all, the SKL token being an ERC-777 token helps it provide much better security to the SKALE network upon staking and delegation, which makes it superior to other ERC-compliant tokens.

Skale Token on ConsenSys Activate

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The SKALE Network was officially launched on the ConsenSys Activate platform, and this choice resulted from several reasons. One such reason is that ConsenSys has a proven track record in dealing with the legal and regulatory ambiguity surrounding decentralized projects' utility token offerings.

It’s not news to any blockchain-savvy person that Activate offers a fully equipped token sale and delegation platform that ensures that token launches are done fairly and fully decentralized. The SKALE Network leveraged the KYC policy on Activate, which helped to properly scrutinize the identity of participants on the platform who partook in the SKALE Token sale.

About ConsenSys

ConsenSys currently serves millions of users from various regions worldwide, ranging from financial institutions to developers and retail users of the Ethereum blockchain. With Ethereum being the most trusted open-source blockchain, preferred by leading businesses worldwide because of its easy-to-use tooling, top-notch security, privacy, and a wide range of other features, Consensys is believed to be offering one of the most important and widely used infrastructures in the blockchain space.

A Brief Overview of SKALE Token Sale and Listings

The SKALE Network token (SKL) is listed on several top-tier exchanges and on several crypto market data aggregators, including Coinmarketcap, Blockfolio, and Coingecko, where the SKL price can also be monitored to keep SKL holders updated about the current happenings of the token.

CHAPTER 5: Staking on the SKALE Network

Staking is actively participating in the validation of transactions on a proof-of-stake (PoS) blockchain. This process involves locking your token in a wallet to improve not just improve the safety of the network but the general performance. As an appreciation for keeping the network secure, the network usually rewards Stakers with some incentives in tokens.

Generally, there are two ways to stake on a decentralized network.

  1. Staking can be done through the use of a validator to stake. In this method of staking, the token holder would get to decide on the validator he intends to stake on.
  2. The second method of staking is to operate and set up your staking validator, be in charge of operating the staking validator, and stake your tokens and those of other token holders if you choose to.

The rest of this chapter would provide a step-by-step guide on how to stake on the SKALE Network.

STEP 1: BECOMING A SKALE TOKEN HOLDER

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To start staking on the SKALE Network, you first need to own some SKL tokens. Early adopters could purchase SKALE tokens on Activate after registering and verifying their ID.

STEP 2: STAKING YOUR SKALE TOKENS

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Getting your SKALE tokens gets you closer to becoming an active participant in the SKALE network. Also, Stakers on the SKALE Network would need to get familiar with the Activate platform because it provides a seamless interface where they can conveniently claim, manage, and stake their tokens.

To participate and earn staking rewards for contributing to the SKALE Network’s security, you would be required to select a validator on which you intend to stake, input the amount you wish to stake and the staking duration, then use your connected web3 wallet to submit your staking request.

STEP 3: RECEIVE STAKING REWARDS

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Staking rewards are usually distributed to token holders throughout the specified delegation period and disbursed at the beginning of every calendar month.

The amount of staking rewards a staker could earn depends on several variables, including:

  1. The total number of tokens you staked.
  2. Duration of your delegation
  3. The rate of tokens minted by the protocol is available for distribution to all nodes in the network.
  4. Total number of tokens staked in the network
  5. The total number of tokens in the reward pool accrued from sidechain rental fees generated by Decentralized Applications (DApps) on the network.
  6. The percentage reward cut that your chosen validator chooses to charge for delegation.
  7. Your decision to compound and re-delegate rewards.
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It is worth noting that you can estimate your staking rewards by using the SKALE calculator.

STEP 4: WITHDRAWING YOUR SKALE TOKENS

For more information on how to stake on the SKALE Network, visit here.

For more information and resources about SKALE Network, visit:

SKALE official website

SKALE Official Blog

SKALE Telegram Community

SKALE Twitter

SKALE GitHub

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Research Writer ǀ Web3 Marketer ǀ Petroleum Engineering Graduate ǀ Part-time Journalist

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Ima-Abasi Pius Joseph

Research Writer ǀ Web3 Marketer ǀ Petroleum Engineering Graduate ǀ Part-time Journalist