Supported by a non-profit Stellar Development Foundation, Stellar is an open source and decentralized protocol for a digital currency that allows cross border transactions between any pair of currencies. It was recently announced that on the Monday of June 10th changes would be made on its protocol by upgrading the network to protocol 11. For developers and businesses using Stellar, the three main changes they would enjoy are Better transaction pricing, improved network capacity and the introduction of buy offers.
The Stellar Development Foundation (SDF) which is committed to the development of Stellar, noted that the network collapsed because “new nodes took on too much consensus responsibility too soon.” Last month a group of researchers from Korea Advanced Institute of Science And Technology conducted research on Stellar and came to the conclusion that it is “significantly centralized.”
The Three Major Changes On The New Stellar Protocol 11 Upgrade
A. Better Transaction Pricing
“Surge pricing is a situation that occurs when a company raises prices of its offering or services following an increase in demand.”
Transaction fees were fixed and you had to pay the fee you specified. If the fee happened to be too low, one ran the risk of being squashed by surge pricing. It used a fixed-fee model which encouraged overpayment for transactions. As a result of this, users chose higher fees than necessary to ensure their transactions made it onto the ledger. Developers, on the other hand, had to guess future fees when creating smart contracts and pre-signed transactions. In short, this fixed-fee model encouraged transaction overpayments from people.
Changes on Protocol 11
The introduction of VCG auction eventually replaced the idea of fixed fees. A user is charged the lowest possible fee but chooses the maximum fee they are willing to pay. A user will pay the absolute minimum when network activity is light. When network activity is heavy, a user only pays the amount they specify and nothing more. One can choose the highest fee they are comfortable with and feel safe knowing that they’ll only pay when required.
B. Improved Network Capacity
Stellar’s network capacity is determined by validators who vote on ledger limits as part of SCP (Secure Copy Protocol). When the Stellar network reaches capacity is when surge pricing kicks in.
In previous protocols on Stellar, validators were using an inexact matrix in voting on the number of transactions per ledger which made striking a balance virtually impossible. On Stellar, an operation is a single command that changes the ledger. A transaction is collective operations containing anywhere from 1 to a limit of 100 operations.
In an attempt to prevent Stellar network from drowning, the biggest-case scenario was accounted for and they set the transaction/ledger limit at 50 translating to a max of 5000 operations per ledger. But since most transactions only contain a single operation, 50 operations/ledger was closer to the effective limit.
Changes on the Protocol 11
Validators will now be able to vote on an operations-per-ledger limit which means they can tackle the network activity with competence rather than assuming and setting conservative limits. It has even been reported that minutes after the vote to upgrade to Protocol 11, validators will cast a second vote and are expected to set the ledger limit to 1000. There will be a dramatic increase in the network’s throughput.
C. Introduction of Buy Offers
Protocol 11 introduces a new operation that allows users as well as financial institutions to express buy offers more accurately than before. Placing an order on Stellar’s decentralized exchange was done by a single operation –ManageOffer- which accounts on the Stellar network and can make offers to buy or sell assets.
IN the new protocol upgrade, submitting of actual buy offers is done by help of the new operation ManageBuyOffer. Now one can specify the amount of asset they are willing to buy as well as the amount they are willing to pay for it. Whether placing a buy or sell offer, the units specified by the user for the price are consistent with typical market usage and as a result of this, Stellar order books work the same as other order books in the market.
Developers are encouraged to join Stellars protocols and offer ideas that will be passed through an arduous review process to make sure that the design of upcoming changes is up to our standards of security, usability, and performance.