In-depth Exploration of the SCP

The Stellar Consensus Protocol (SCP) stands as the backbone of the Stellar network, ensuring secure and efficient operations. It’s a revolutionary approach to achieving consensus in a decentralized financial network. The SCP is based on the concept of Federated Byzantine Agreement (FBA), which focuses on the idea of decentralized control where nodes voluntarily select which other participants they trust for reliable information. If you want to learn more about The Byzantine Problems: What Is The Byzantine Generals Problem

An extract of our article: “The Byzantine Generals Problem, also known as the Two Generals’ Problem, was proposed in Leslie Lambert’s paper on the fault tolerance of distributed peer-to-peer network communication in 1982. In the communication of the distributed system, some local problems may cause the computer to send error messages and destroy the system’s consistency. Therefore, the Byzantine Generals Problem is essentially a problem of consensus in point-to-point communication.”

How SCP Differs from Proof of Work and Proof of Stake

SCP diverges significantly from the Proof of Work (PoW) and Proof of Stake (PoS) mechanisms. PoW, used by networks like Bitcoin, demands extensive computational efforts to solve complex mathematical problems for validating transactions and creating new blocks. In contrast, PoS, employed by networks such as Ethereum 2.0, requires validators to hold and sometimes lock up a certain amount of cryptocurrency to participate in the process.

SCP eliminates the need for energy-intensive mining by allowing nodes to reach consensus through a process of selecting trustworthy partners—quorum slices—and does not require validators to lock up capital as a stake. This shift not only reduces the environmental impact but also democratizes participation in the network’s security.

Benefits of SCP in Terms of Speed and Reliability

The benefits of SCP are evident in its speed and reliability. Transactions on the Stellar network are confirmed in a matter of seconds, a stark contrast to the minutes or even hours it can take on PoW or PoS systems. Moreover, SCP’s design inherently protects against double-spend attacks and ensures that the network can continue operating smoothly even if some nodes fail or act maliciously.

SCP prioritizes two out of three fundamental properties in consensus mechanisms: fault tolerance and safety. It’s designed to maintain operation despite some nodes’ failures and ensures that the network’s nodes agree on transaction outcomes to avoid conflicting states. While this can sometimes delay consensus when nodes struggle to reach agreement, it greatly reduces the chances of systemic failures.

SCP Components

• Quorum Sets and Slices: Every node on the Stellar network defines its own set of trusted nodes, known as a quorum set. Within this set, nodes must agree on transaction sets, forming quorum slices that reflect parts of the network in agreement.
• Federated Voting: SCP utilizes federated voting to reach consensus, which progresses through several stages: nodes vote on transaction sets, accept the votes of others as they come to trust them, and finally confirm the transaction set to be applied.
• Nomination and Ballot Protocols: These two stages of SCP ensure that nodes propose transaction sets and then, through a series of ballots, confirm them to be added to the ledger.
  SCP is an innovative solution to the classic problems faced by decentralized networks. It provides the Stellar network with a way to process transactions rapidly and securely, without the intensive computational cost associated with other consensus mechanisms. This design reflects a balance between inclusivity and security, making Stellar an attractive platform for financial applications that require both quick settlement times and robust security measures.

Stellar Network Layers

Overview of the Stellar Stack

Source: https://developers.stellar.org/docs/fundamentals-and-concepts/stellar-stack

The Stellar network architecture is comprised of various layers that work in harmony to provide a comprehensive financial infrastructure. These layers are designed to ensure the network remains resilient to failures, open to everyone, and operates swiftly and cost-effectively, addressing real-world financial scenarios.

The Roles and Interactions Between Different Network Layers

• Stellar Core: This is the foundational layer of the Stellar network, comprising nodes that maintain the distributed ledger and execute the consensus process. Stellar Core updates the ledger every 5-7 seconds, demonstrating the network’s remarkable efficiency.
• Horizon API: Serving as a bridge between Stellar Core and various applications, Horizon is a client-facing HTTP API server. It provides an accessible interface for submitting transactions to the network and querying historical data. While it is possible to connect directly to the Stellar Core, using Horizon simplifies these interactions, making it more practical for client applications.
• Soroban RPC and CLI: Soroban introduces smart contract capabilities to the Stellar ecosystem. The Soroban RPC (Remote Procedure Call) server acts as a mediator for applications to interact with these smart contracts. The CLI (Command Line Interface) offers developers a direct way to build, deploy, and interact with smart contracts using command-line tools.
• Software Development Kits (SDKs): These kits facilitate the development process by providing programmers with libraries to interact with Horizon and Soroban RPC in various programming languages. They abstract some of the complexities involved in directly dealing with the network protocols.
• DeFi Protocols: Standing for Decentralized Finance, these protocols enable the creation of financial services that operate autonomously on the blockchain, like lending platforms and decentralized exchanges. They can be integrated into applications to leverage the financial infrastructure provided by Stellar without central intermediaries.

Networks within Stellar

• Mainnet: The primary public network where actual financial transactions occur.
• Testnet: A sandbox environment maintained by the Stellar Development Foundation (SDF) for developers to test their applications without using real funds.
• Futurenet: A network for testing cutting-edge features and developments in the Stellar ecosystem.
  Each layer of the Stellar stack is designed with specific roles that contribute to the overall functionality of the network, ensuring that it remains a robust and versatile platform for building a wide range of financial applications.

The design of Stellar’s network layers, and the interaction between them, provides a resilient and flexible foundation upon which a diverse array of financial services can be built and operated, from everyday payments to complex DeFi applications. This layered architecture not only ensures operational efficiency and reliability but also supports innovation, allowing developers to focus on creating solutions that cater to their specific use cases.

Operations within Stellar

Common Operations and How They Are Used

Operations in Stellar represent specific actions that can alter the state of the ledger. Each operation is a command that dictates a change, and these are submitted to the network in groups called transactions. These transactions are atomic; they either all succeed or all fail. Operations can range from creating accounts to managing offers in the Stellar Decentralized Exchange (SDEX).

Transaction Building and Processing

Transactions in Stellar are built by bundling one or more operations with additional information, such as the source account and sequence number. They are signed with the source account’s secret key to ensure authenticity and then submitted to the Stellar network for processing. If all operations within a transaction are valid and the account has enough balance to cover the fees and the operations themselves, the transaction is confirmed and applied to the ledger.

Create Account Operation

This operation is used to create and fund a new Stellar account. It requires a starting balance and creates a new entry in the ledger for the account.

Payment Operation

The payment operation allows accounts to send an amount of a specific asset to a destination account. It’s a fundamental part of transferring value on the Stellar network.

Path Payment Operations

Path payment operations allow for payments to be made using different assets; the network finds the best path between the asset sent and the asset received. There are strict send and strict receive versions of path payments, which guarantee either the amount sent or the amount received, respectively.

Manage Offer Operations

These operations are used to create, update, or delete offers in the Stellar Decentralized Exchange. There are separate operations for managing buy and sell offers, as well as creating passive offers that do not immediately take a matching offer.

Set Options Operation

This operation is utilized to configure various settings for an account, such as setting the inflation destination, managing signers, or setting flags that can alter the account’s permissions.

Change Trust Operation

This operation creates, updates, or deletes a trustline, which is Stellar’s way of allowing an account to hold and transact with assets issued by other accounts.

Account Merge Operation

The account merge operation transfers the balance of one account to another and removes the source account from the ledger.

Manage Data Operation

Accounts can attach data entries to themselves, which are essentially key-value pairs. The manage data operation sets, modifies, or deletes these data entries.

Stellar Data Structures

Ledgers: How They Are Maintained and Updated

A ledger in Stellar is the equivalent of a block in other blockchain technologies and captures the state of the network at a given point in time. It contains all the balances, orders, and other data like smart contract information. Ledgers are linked chronologically and each new ledger version is the result of applying a set of transactions to the prior version. The ledger header is a summary of the ledger, holding metadata such as the ledger version, the previous ledger hash, and the transaction set result hash.

Accounts: Creation, Management, and Types

Accounts are the primary data structure in Stellar, representing users of the system. An account is created through a “Create Account” operation and must have a minimum balance of XLM, which is determined by the base reserve requirement multiplied by the number of subentries the account has. An account has various properties like a unique identifier (Account ID), balances for different assets, signers, and thresholds for low, medium, and high security.

Assets: Native and Custom Asset Issuance on Stellar

Assets on the Stellar network can represent fiat currencies, cryptocurrencies, or any other form of value. Each asset is identified by an asset code and the issuer’s account. Issuing an asset is done through a payment operation from the issuer to another account. Assets are controlled by the issuing accounts, which can set authorization flags and link to metadata about the asset. Assets issued on Stellar can also be used within smart contracts via the Stellar Asset Contract.

Operations and Transactions: Types and How They Change State

Operations are the individual instructions that can be included in a transaction. They range from payments to managing offers on the decentralized exchange to account configuration changes. Transactions bundle these operations and submit them to the network to be applied to the ledger. Transactions are atomic; if any operation within a transaction fails, the entire transaction fails.

Smart Contracts: Capabilities and Limitations within Stellar

Stellar introduced smart contracts through the Soroban platform. Smart contracts on Stellar are pieces of code that can execute operations on the blockchain. They are composed of Wasm bytecode and stored in CONTRACT_DATA ledger entries. Smart contracts can have their own storage entries on the ledger, which can be temporary or persistent, and have different costs and lifetimes associated with them.

Each of these data structures and components plays a critical role in Stellar’s ability to provide a scalable and flexible financial infrastructure. The network’s design around these elements allows for a wide range of financial operations, from simple payments to complex financial instruments and smart contracts.

Advanced Stellar Features

Lifecycle of a Transaction from Submission to Confirmation

Here’s a summary of the Stellar transaction lifecycle:

1. Creation: A transaction is initiated by a user who specifies the source account, sequence number, operations, fee, and any necessary preconditions.
2. Signing: The transaction envelope is formed by signing the transaction with the required keys. This may involve multiple signers for more complex setups.
3. Submission: The transaction envelope is submitted to the Stellar network using Horizon or directly to Stellar Core.
4. Propagation: Upon validation, Stellar Core propagates the transaction to all connected servers, ensuring its reach across the network.
5. Candidate Transaction Set Preparation: During ledger close, each validator gathers valid transactions from the recent period and assembles a candidate transaction set. If necessary, transactions are prioritized based on fee for inclusion.
6. Transaction Set Nomination: Each validator nominates their candidate transaction set to the network.
7. Stellar Consensus Protocol (SCP) Resolution: SCP resolves any discrepancies between candidate transaction sets, determining the final transaction set, ledger close time, and any protocol upgrades.
8. Transaction Apply Order Determination: The transaction apply order is calculated, shuffling the set to introduce uncertainty and maintain sequence number ordering within accounts.
9. Fee Collection: Fees for all transactions are collected simultaneously.
10. Transaction Application: Each transaction is applied in the determined order, consuming account sequence numbers, rechecking validity, and executing operations.
11. Protocol Upgrades: If a protocol upgrade occurred, necessary upgrades are implemented, modifying ledger state and header parameters. This marks the end of the lifecycle, and the process begins anew.

Stellar Ecosystem Proposals (SEPs)

SEPs are proposals for improvements or features that enhance the interoperability and functionality of the Stellar network. They serve as standardized protocols that developers and organizations can implement to ensure compatibility and smooth interactions within the Stellar ecosystem.

SEPs cover various aspects of the Stellar network’s operations, from basic transaction protocols to more complex features like cross-border payments and account recovery. They are discussed, created, and updated in a collaborative manner, often with input from the wider Stellar community.

Notable SEPs include:

• SEP-0001: Stellar TOML files, which provide essential information about network participants.
• SEP-0006: Deposit and withdrawal API, simplifying the process of depositing and withdrawing assets.
• SEP-0010: Authentication, which offers a method for clients to authenticate users.
• SEP-0012: KYC API, standardizing the exchange of Know Your Customer information.
• SEP-0024: Interactive deposits and withdrawals, enhancing user experience for non-API interactions.
• SEP-0031: Cross-border payment API, defining protocols for financial institutions to interact.
  These SEPs are crucial for ensuring a seamless and standardized approach to common Stellar network use cases, significantly contributing to the network’s evolution and the integration of new services and features.