Tip the SKALE

10 min readJan 11, 2021

The key details of SKALE Network explained…

In under 15 minutes!

In 5 easy lessons, we will cover the key points about SKALE and what makes it a fast and secure layer 2 blockchain. We should define the shortcomings of the Ethereum blockchain, to understand why SKALE is the solution developers need.

The Problem

You may already understand that blockchains are simply a shared database of economic transactions. All transactions are verified by thousands of independent node operators (people running servers) for security. This is part of how proof of work consensus is structured in Ethereum. Some of us may not know there is a bottleneck having to process these transactions. All nodes have to verify every new incoming transaction, leaving little room for optimization. Users who want to get their transactions to the front of the queue must pay a higher transaction fee than everyone else. Issues like ETH Gas Wars are born from the current gas fee market structure, where the cost is constantly fluctuating with changes in network traffic. This inefficiency causes the network to slow down due to pending transactions with lower gas fees paid. This is terrible for dApp developers. Without a predictable cost to pay for transactions, devs have to pay very high transaction fees to maintain a great user experience.

The Solution

The solution to lower transaction load is to eliminate the need for all nodes to verify all transactions. Splitting up transaction verification can optimize resources. There are multiple ways this can be done, for example, the sharding design of ETH2. However, ETH2 is years from completion, and developers need scaling solutions that are fast and cost-effective today! This is where Vitalik Buterin’s vision for a “Rollup Centric Ethereum” comes into play for the ecosystem. Layer 2 solutions aim to make transactions fast, cost-effective, and secure without compromising decentralization and composability. Executing smart contract code can be very expensive since $ETH is charged for every line of code. A layer 2 solution may reduce this burden, but they usually come with trade-offs. More on this later in Lesson 2 What is a Layer 2 vs. Elastic Side Chains.

Lesson 1:

SKALE- A network of dApp Specific Blockchains

Before we get into the technicals of how SKALE works, we should get the high-level explanation out of the way.

SKALE gives dApp developers the ability to pay for their own personal Ethereum blockchain's speed and security. Unlike other side chains out there, SKALE increases speed and throughput without forcing dApps to share the nodes' performance on the same network. With SKALE’s technology, one node can validate for multiple different SKALE chains without compromising the speed they paid for. All nodes within each SKALE chain are randomly selected periodically and are interchangeable. A single SKALE node can participate in up to 128 small chains, 16 medium, or 1 large chain.

Built as the defacto Layer 2 solution for Ethereum, SKALE is an infrastructure with thousands of “elastic” EVM blockchains called SKALE chains or S-chains. SKALE nodes are the first of their kind; they can virtualize up to 128 sub-nodes within 1 full node. Each sub-node can verify transactions on a different S-chain. This unique architecture allows for each S-chain to be configurable according to the dApp developer's needs. A small S-chain can support 16 TPS and 4 GB of storage, similar to Etherem today, or with a large S-chain, your dApp can reach 2000 TPS and 512 GB of storage. Developers can now scale the size of their S-chain up or down, which is where the term “elastic” blockchain is derived. However, the most impressive part is every one of these thousands of chains is compatible with Ethereum Mainnet and each other, using BLS Rollups — which we will address in Lesson 2.

With SKALE’s Network infrastructure, developers can 100x the speed of their dApps with just 3 lines of code. dApp developers will pay a monthly subscription fee that stays relatively stable in $USD value based on the cost per $SKL token.

SKALE Network aims to bring a web-2 experience to the web-3 internet. Allowing developers to access the Ethereum blockchain without the sunk costs of paying unpredictable gas fees. The security risks of using a 3rd party node infrastructure like Infura to sync their blockchain data (a short video about the infura outage Nov 11. 2020). Instead of these current methods, dApp developers can deploy their own virtual Ethereum blockchain and keep track of their own data with a light client validating the transactions. This is SKALE. In the next lesson, we will compare and contrast to other Layer 2 solutions.

Lesson 2:

What Is A Layer 2 vs. Elastic Side Chain

If blockchains are a shared database, L2 creates a 5G highway for L1 transactions and computations to be executed faster than the base layer. The problem is there are many ways to implement an L2 solution. SKALE has taken a novel approach to decentralization with their solution. To appreciate the differences, we will take a brief look at the other L2 options available.

To keep things light, you can watch this video of Jack O’Holleran explaining how SKALE compares to other solutions. For more detail on each solution, feel free to click the following links:

Different Layer 1 Blockchain (I.e., Solana)
EVM interoperable Side Chain (I.e., xDai)
ZK + Optimistic rollups
State Channels
Plasma

For a quick read about some of the pros and cons of different layer 2 solutions, see this article from Token Terminal. The diagram below shows the key categories of Ethereum scaling solutions.

While these L2 solutions are quite viable options, there is a reason SKALE is the best option for optimal decentralization as well as scalability and security. The other L2 solutions make some compromises to access scalability. Usually, that compromise is decentralization. SKALE’s unique node infrastructure improves decentralization by allowing each sub-node to validate multiple chains (as described in Lesson 1). Rather than having 1 node validate 1 chain, SKALE’s elastic side chain network has unlocked this restriction with such a clever design.

Most of these implementations on their own have centralization issues, or the user experience is lacking in some areas, like in the case of ZK Rollups with smart contract limitations. SKALE Network is fundamentally different since elastic chains are special to SKALE’s Node architecture. The ability to run thousands of Elastic Side Chains and allow them to communicate asynchronously gives this solution the upper hand. SKALE users can subscribe/rent their own configurable side chain. The ability for elastic chains to be configurable and theoretically uncapped is what makes this system unique. A dApp developer can choose to upgrade their elastic side chain to match their needs, as seen based on the 3 tier subscription model in Lesson 1. With predictable Monthly transaction costs and fast transaction speeds, all build on a uniquely decentralized platform. SKALE is a solid answer to Ethereum’s scalability problem because it checks all these boxes.

For a deeper understanding of this network, check out this 1-hour interview of the CEO and CTO explaining more about elastic side chains.

Lesson 3:

What makes SKALE technology special?

This lesson will detail more of the unique aspects of the network. We have already established that SKALE is a network of elastic blockchains, but what makes them tick. Let's go over the 4 main aspects of SKALE technology to understand this better. See the following 2-minute Video explaining everything we discussed in Lessons 1 & 2, where the following 4 key points are mentioned.

· Virtual Sub nodes

· Pooled security with Random node selection

·Uncapped potential for nodes

· BLS Rollups

We discussed in Lesson 1 that all S-Chains in the network are validated by sub-nodes selected from full nodes in the network. Validators can run multiple full nodes. Simultaneously, the S-chains are run on all or a subset of each node’s storage and computation capacity.

The sub-node architecture allows for a pooled security model where all nodes validate S-chains in the network at random, within frequent intervals. Random node selection provides scale with the unique ability to maintain decentralization by adding more nodes to the overall network without sacrificing transaction speed, typically seen in traditional blockchains. The added effect is collusion resistance due to the randomness and frequent rotation. It becomes impossible for malicious actors to coordinate an attack.

The nature of SKALE’s architecture allows for a virtually uncapped number of nodes to be added to the network. Without an upper limit to the number of nodes, the SKALE network can grow infinitely. This key point is advertised on their home page, “…designed to run on an uncapped number of independent nodes.”

BLS-Rollup is a cryptographically secure way to scale transactions and smart contracts on the mainnet while maintaining Layer 1 security and storing user funds. Compared to other rollup solutions such as ZK and Optimistic, we must note BLS is the only rollup that does not require any user monitoring, wait periods, or dispute resolution. This makes it a better and more user-friendly layer 2 solution.

A quote from the end of Stan Kladko’s BLS Post.

“BLS-ROLLUP can be very successfully used for money transfers and large purchases. Since it is based on the mainnet, it still suffers from the slow finalization of the mainnet. Users need to wait for 5+ minutes to deem a transaction on the mainnet successful. It is OK if you are buying a car, but not OK if you’re buying coffee. If you want to buy coffee, you should use a sidechain.”

Here is a great video of CTO Stan Kladko explaining the differences between all three types of rollups and why they chose BLS rollups. I recommend watching the whole video if you wish to get a full picture of how SKALE works compared to other Layer 2 Rollups

(here is another video clip of Stan summarizing the benefits of BLS Rollups.

Lesson 4:

SKALE Governance and $SKL

(basic token info)

Now that we have a full understanding of SKALE as a Layer 2 blockchain. We can now be focused on SKALE as a community with governance. Like many third-generation blockchains, SKALE has a governance system centered around its token as voting rights. As the network grows, the core team intends to introduce a governance system with token-weighted voting. Giving the token holders a means to influence code changes and upgrade proposals in proportion to the amount of $SKL they have staked in the network. (See a video of Jack O’holleran describing an example of a governance vote here)

The governance system is a future endeavor to be carried out once the network reaches maturity. Until then, community members and the core network contributors will propose and reach a rough consensus on protocol changes.

The $SKL token is an ERC-777 standard token. The SKALE team created this standard to allow for staking tokens without sending them to a staking smart contract. The ERC-777 standard is backward compatible with ERC-20 and thus can be traded on Uniswap and any other dApp that supports ERC-20 tokens.

For more information about the $SKL token, see this page on Tokenomics.

Quick Facts About $SKL

Inflation is set at 9.3% first year.
The total supply of SKL at genesis is 4.14 billion.
The maximum supply of SKL is 7 billion.
Estimated reward rate between 9.9% — 29.71% based on participation and staking duration.

Lesson 5:

SKALE Validators (Staking and Delegating)

We have spent enough time discussing SKALE nodes, but what is a “validator”? essentially, validators are SKALE node operators. In the SKALE Network, each validator must deposit a minimum staking requirement (MSR) to qualify for validating blocks. Proof of Stake is the core technology behind SKALE’s consensus mechanism. Validators enact SKALE consensus with all of their nodes running asynchronous messaging. Here are some of SKALE’s ABBA consensus structure characteristics, as stated in their consensus paper.

Network model: P assumes asynchronous network messaging.
Byzantine nodes: P assumes less than one-third of Byzantine nodes.
Initial vote: P assumes that each node makes an initial vote yes(1) or no(0)
Consensus vote: P terminates with a consensus vote of either yes or no, where if the consensus vote is yes, it is guaranteed that at least one honest node voted yes.

A key thing for validators to know is the current MSR, which at the time of writing the MSR amount is 20m SKL tokens. As network congestion increases with the demand for more SKALE chains, the MSR will adjust to make it cheaper for validators to spin up more nodes.

With a Proof of Stake consensus model, $SKL tokens are awarded to token holders who want to participate in staking passively (click for staking guide). As we recall from Lesson 1, there is a monthly subscription fee for users. The same effect is in place for validators and delegators. They must lock up their tokens for 2, 3, 6, or 12 months to enjoy the rewards paid out each month.

Conclusion

There are many aspects to the SKALE Network worth learning more about; we have briefly gone over 5 noteworthy points. However, the key takeaway is that SKALE has a strong basis for decentralization and unmatched potential for scaling its security. To learn more about this exceptional Layer 2 Blockchain, join their discord and follow Twitter to ask questions and keep up with developments.