With the rise of digital currencies, it has become necessary to set up a trading platform that handles both digital and fiat currencies. Stellar is an intermediary platform that allows you to trade almost any currency, including cryptocurrencies and USD, making money transfers simple and secure. Stellar works on a similar principle to the use of tokens. These tokens can then be traded; if necessary, users can also withdraw funds. This has made international money transfers faster and more convenient than traditional banks.
Stellar’s architecture works as a distributed ledger network that connects banks, payment systems, individuals, and other organizations. This architecture aims to facilitate low-value transactions and low-cost cross-border asset transfers.
This article will summarize all the key aspects of the Stellar blockchain platform.
What is Stellar?
Stellar (XLM) is a cryptocurrency and payment protocol designed to enable fast, low-cost, cross-border transactions. The platform was founded in 2014 by Jed McCaleb, co-founder of Ripple, and is developed by the non-profit Stellar Development Foundation. Stellar operates on a distributed ledger, also known as blockchain technology. The protocol uses a unique consensus method called the Stellar Consensus Protocol (SCP).
One of the unique features of Stellar is its ability to exchange and support different currencies, allowing for seamless transactions between different fiat currencies and cryptocurrencies. Additionally, users can create, issue, and manage their own digital assets.
Another important aspect of Stellar is its focus on financial inclusion, especially for individuals in developing countries and regions with limited access to traditional financial services. Stellar aims to help the unbanked and low-income earners access financial services, thereby increasing their economic opportunities.
How does the Stellar Blockchain work?
Stellar’s basic operation is similar to most decentralized payment technologies. It runs a network of decentralized servers with a distributed ledger that is updated every 2 to 5 seconds among all nodes. The most notable distinguishing factor between Stellar and Bitcoin is its consensus protocol.
Stellar’s consensus protocol, does not rely on the entire mining network to approve transactions. Instead, it uses a Federated Byzantine Agreement (FBA) consensus algorithm, which allows transactions to be processed faster. This is because it uses quorum slices (or portions of the network) to approve and validate transactions.
Each node in the Stellar network selects a set of other trusted nodes. When a transaction is approved by all nodes in this set, it is considered approved. The shortened process has made Stellar’s network extremely fast, and is said to handle up to 1,000 network operations per second.
History of Stellar
Stellar is operated by the Stellar Development Foundation, a non-profit organization founded by Jed McCaleb. The Stellar project received initial funding from payments startup Stripe and donations from other organizations. Stellar also covers its operating costs by accepting tax-deductible public donations.
In 2018, Stellar signed a deal with TransferTo to make cross-border payments to over 70 countries. Stellar also became the first distributed ledger technology to receive Shariah compliance certification for payments and asset tokenization, and was selected by IBM as a partner for a dual-linked stablecoin project.
Stellar Decentralized System and Components
The Stellar system operates peer-to-peer and is not centrally managed. Stellar is a decentralized system and the components of this decentralized system are as follows:
- Ledger System
Stellar’s architecture uses an open ledger system. Transactions are stored on the blockchain, which acts as an open and transparent ledger system. All users can view the ledger, allowing them to see every transaction.
- Stellar Consensus Protocol
Consensus is the basis for all decisions made on the Stellar network. Consensus is reached every 3-5 seconds on the Stellar network.
- Anchors and Credit
Anchors are responsible for holding deposits and issuing credit when needed in the Stellar architecture. Anchors facilitate the movement of value from the traditional banking system into Stellar and vice versa. They are the bridge between the Stellar network and other payment systems. Stellar network anchors are an important component of the Stellar network. Anchors are responsible for holding deposits for users and issuing credits to them.
Multi-Currency Transactions on Stellar
This is definitely one of the most important features of the Stellar architecture. This means that user A can send USD to user B using Yen. This seamless decentralized forex system is Stellar’s USP. Transactions can happen in many ways, but we will focus on the USD/EUR currency pair for convenience.
- Direct Transactions
Stellar looks at the USD/EUR exchange rate to determine if anyone is willing to buy EUR with USD. If someone is willing, the transaction will happen immediately.
- Indirect Transactions
Stellar can also search for people who want to exchange USD for Lumens. They will connect you with someone who is looking for Lumens to exchange for Euros and then ensure the transaction happens. However, the network can go through a chain of conversions if these conversions are not available. BTC/XLM and XLM/EUR are examples of such conversions.
How many organizations are using the Stellar Blockchain?
Stellar made headlines in October 2017 after announcing a partnership with IBM. The partnership envisions the establishment of multiple currency corridors between countries in the South Pacific.
The project has a stated goal of processing up to 60 percent of all cross-border payments in the region, including countries like Australia, Fiji, and Tonga. This will enable connections between small businesses, non-profits, and local banking institutions to speed up trade transactions.
Who is the founder of Stellar?
The creator of Lumens and co-founder of Stellar is Jed McCaleb. He is also the founder of the Stellar Development Foundation, the group of developers behind the project. McCaleb is also widely known in the cryptocurrency space for his role in creating the first major Bitcoin exchange, Mt Gox.
McCaleb was the Chief Technology Officer (CTO) of Ripple, the company most prominent in the development of the XRP Ledger. However, he left the project in 2013 when he founded Stellar.
In addition to McCaleb, other notable figures in the XLM ecosystem include David Mazieres (creator of the Stellar consensus protocol), Denelle Dixon (CEO and CEO of SDF), as well as Joyce Kim (Co-founder of Stellar and former CEO of SDF).
What makes Stellar unique?
Stellar’s uniqueness comes from its “all-in-one package”, as this cryptocurrency possesses features such as: Fully decentralized and easy to use, supporting many currencies and assets as well as fast, almost free transactions.
Benefits of Stellar Lumens
XLM transaction fees are close to 0 while Bitcoin transaction fees are from 3-5 USD. The Stellar system has tools to help banks perform anti-money laundering operations. Stellar transactions can freeze wrongly transferred assets to avoid abuse, quickly resolve disputes. All transactions are performed and saved on a public ledger. The Stellar system allows up to 1000 transactions per second, higher than both Bitcoin and Ethereum.
Stellar brings superior technology as well as outstanding advantages to help future technology go further. However, every investment decision is up to each individual, the cryptocurrency market always has a lot of potential risks so you should consider before investing.
Conclusion
Stellar is a cryptocurrency that tries to act as a cross-border payment system for any digitalized asset or currency. Most people see it as a decentralized XRP aimed at consumers rather than institutions.
