Stellar is a blockchain payments network focused on peer-to-peer transactions with the goal of creating a more inclusive financial system.
Stellar is a blockchain payments network focused on peer-to-peer transactions with the goal of creating a more inclusive financial system.
To that end, Stellar aims to be at the forefront of using blockchain in nations where the majority of the population remains unbanked and creating novel settlement and remittance solutions.
One of Stellar’s main advantages is its flexibility in moving between various types of currencies. In cases where the payment sender and receiver are operating with different currencies, the network automatically converts the transaction first into lumens (XLM), the native token of the Stellar network, then into the destination currency. For example, if a party was sending USD to Germany, Stellar would adjust the amount from USD -> XLM -> EUR in the recipient’s wallet.
Rather than operating on a proof of work or proof of stake mechanism, Stellar employs its own unique Stellar Consensus Protocol (SCP) settlement protocol, where established nodes on the network choose other trustworthy participants and communicate with them to validate transactions.
Who created Stellar?
Stellar was created in 2014 by Jed McCaleb, a serial entrepreneur in the crypto space. After first founding the now-defunct Mt. Gox exchange, and then co-founding and developing the code for Ripple (XRP), McCaleb started the Stellar Development Foundation (SDF). This non-profit organization would oversee the development and expansion of the Stellar network.
The SDF received a $3 million loan from the payment company Stripe, which consisted of its first and only funding round. In 2015, 100 billion XLM were released, with 52% encompassing various airdrops, 46% going to the founders and foundation, and 2% to Stripe.
Partnership with MoneyGram
In order to fulfill their mission of bringing low-cost remittances to the world, Stellar announced their partnership with MoneyGram in 2021. With this integration, users can send cross-border stablecoin payments on Stellar that can then be easily cashed out at MoneyGram physical locations. This partnership melds the blockchain with the real world, allowing for the advantages of Stellar’s fast, cheap network to be used in traditional settings—and solidifying Stellar’s vision of being a network that any financial system can run on.
How does Stellar Lumens work?
The Stellar Consensus Protocol
The Stellar Consensus Protocol (SCP) is modified from the Federated Byzantine Agreement (FBA) consensus mechanism, which uses agreements between trusted nodes to validate transactions.
Key features of the FBA include:
- Decentralized control – Anyone can be a validator on the network.
- Low latency – Consensus is reached rapidly.
- Flexible trust – Nodes get to decide what other nodes they trust. A set of trusted nodes is called a quorum set.
- Asymptotic security – Digital signatures (cryptographic output used to verify the authenticity of data) and hash functions (used to transform a string of letters and numbers into an encrypted output of fixed length) are used to protect the network.
The SCP differs from the FBA in that there is no financial incentive for running a node on Stellar, which the team argues helps keep the network decentralized. Those who run nodes have a general interest in securing the network and making sure it runs well.
Of note, there is no XLM involved with creating a node on Stellar as users simply need to set up a relatively low demand set of software called Stellar Core that they can download on their computer.
Anchors
Stellar allows financial institutions to create anchors on the network that allow on- and off-ramping of government currencies.
This creates an interoperable framework in which a bank in one country can make a deposit into Stellar using their framework and send it to their chosen recipient, where it can be off-ramped by another anchor.
In doing so, Stellar creates a global financial system that can freely collaborate and exchange various currencies simply and flexibly.
Stellar vs Ripple
When Jed McCaleb created Stellar, the network used the same settlement protocol as Ripple before transitioning to the proprietary SCP.
Though the networks are similar in the sense that they both enable rapid, low-fee transactions, Stellar operates on a fully unique code base that allows developers to create financial products on top of it. Ripple, on the other hand, only acts as a payments network.
Additionally, Stellar was founded as a non-profit with the goal of bringing decentralized banking to the world, while Ripple operates as a private company focusing on integrating their network into existing financial institutions. While both protocols are useful, they hold different motivations.
What are the benefits of the XLM token?
Lumens (XLM) are used to pay Stellar’s network fees. Fees are calculated based on the number of operations in a single transaction, with consideration of network traffic. With an average fee of 0.00001 XLM, Stellar exists as a very low-cost blockchain solution.
Importantly, to maintain status as an active user on Stellar, users must keep a minimum wallet balance of 1 XLM.
Lastly, the total supply of XLM is fixed, meaning that there only ever will be 50 billion tokens in circulation.
Stellar essentials
- Stellar is a blockchain payment network overseen by a non-profit foundation with the mission of expanding financial access for people across the globe.
- Founded by Jed McCaleb in 2014, Stellar utilizes a proprietary code base that allows for fast and cheap transactions.
- With its partnership with MoneyGram and constant innovations being built on the network, Stellar is positioning itself to revolutionize the payment industry, making financial services more flexible and accessible to anyone.
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