Stellar- The Decentralized XRP
- Tanishq Wadhwani
- May 23, 2021
- 6 min read
Twitter: Money could move like email. Stellar is an open network for storing and moving money.
Stellar is an open-source network for currencies and payments. Stellar makes it possible to create, send and trade digital representations of all forms of money—dollars, pesos, bitcoin, pretty much anything. It’s designed so all the world’s financial systems can work together on a single network.
Stellar has no owner; if anything it’s owned by the public. The software runs across a decentralized, open network and handles millions of transactions each day. Like Bitcoin and Ethereum, Stellar relies on blockchain to keep the network in sync, but the end-user experience is more like cash—Stellar is much faster, cheaper, and more energy-efficient than typical blockchain-based systems.
Lumen (XLM) is the native cryptocurrency for Stellar. The purpose of Stellar is to connect financial institutions via the blockchain and provide cheap transactions in developing markets. It can be used to transfer digital currency to fiat money domestically and across borders. Jed McCaleb, a longtime cryptocurrency entrepreneur who founded bitcoin exchange Mt. Gox and co-founded blockchain-based payment system Ripple Labs, created Stellar in July of 2014. Stellar uses a federated byzantine agreement (FBA) algorithm instead of a traditional mining network to validate transactions. Since the transfer of lumens doesn’t require approval from traditional cryptocurrency miners, the Stellar network enables quicker transactions than some other blockchain-based systems.
What Is Stellar?
The term Stellar cryptocurrency refers to a digital or virtual currency developed by Stellar Development Foundation. The organization's currency, which is called the lumen, is traded under the symbol XLM on various cryptocurrency exchanges. Lumens can be used by traders on the Stellar network, which is a blockchain-based distributed ledger network that connects banks, payments systems, and people to facilitate low-cost, cross-asset transfers of value, including payments.
Put simply, Stellar is an open network that allows money to be moved and stored. When it was released in July 2014, one of its goals was boosting financial inclusion by reaching the world’s unbanked — but soon afterwards, its priorities shifted to helping financial firms connect with one another through blockchain technology.
The network’s native token, lumens, serves as a bridge that makes it less expensive to trade assets across borders. All of this aims to challenge existing payment providers, who often charge high fees for a similar service.
If all of this sounds familiar, it is worth noting that Stellar was originally based on the Ripple Labs protocol. The blockchain was created as a result of hard fork, and the code was subsequently rewritten.
The Stellar protocol is supported by a Delaware nonprofit corporation, the Stellar Development Foundation, though this organization does not enjoy 501(c)(3) tax-exempt status with the IRS.
Understanding Stellar Cryptocurrency
Cryptocurrencies are digital or virtual currencies that were developed for trading on decentralized networks called blockchains. Doing so ensured they couldn't be counterfeited like regular currencies. It also prevented them from being double-spent.
Unlike fiat money, cryptocurrencies aren't issued by central banks, which means governments don't interfere in their trading activity. A variety of cryptocurrencies popped up following the success of Bitcoin—created in 2009—including the lumen.
As mentioned above, the lumen is Stellar's cryptocurrency. There are roughly 22.5 billion coins in circulation, with a maximum supply of 50 billion. The Stellar Foundation originally had over 100 billion lumens in existence but burned roughly half of its outstanding coins in November 2019. The move caused a short-term rise in the price of XLM, though the rally quickly faded. Coin burns are controversial because they imply the kind of manipulation that decentralized systems are supposed to protect against.
Although the value of Stellar's lumen dropped by more than two-thirds as of May 2020, it is still one of the best-performing altcoins.
Each lumen transaction has a standard mining fee of 0.00001 lumens.
History of Stellar
Stellar is operated by the Stellar Development Foundation, a nonprofit organization founded by Jed McCaleb. The Stellar project received initial funding from the payments startup Stripe, along with donations from organizations like BlackRock, Google, and FastForward. The organization covers its operational costs by accepting tax-deductible public donations.
In 2018, Stellar signed a deal with TransferTo for cross-border payments to more than 70 nations. It also became the first distributed technology ledger to obtain a Shariah-compliance certificate for payments and asset tokenization and was selected as a partner by IBM (IBM) for a double-pegged stablecoin project.
Stellar Future
Stellar’s primary focus is on developing economies in the areas of remittances and bank loans to those who are outside of the scope of the banking services. Stellar doesn't charge individuals or institutions for using the network.
Stellar supports a distributed exchange mode. This allows users to send payments in specific currencies even though they may hold credits in another, while the network automatically performs the forex conversion. The receiver can withdraw their currency equivalent through a partner institute like a bank.
As a cross-border transfer and payment system that connects financial entities, Stellar aims to significantly reduce transaction costs and time lags. While Stellar works just like technologies like Bitcoin, its key distinguishing feature is its consensus protocol. The present-day Stellar is a result of a 2014 fork that created the Stellar Consensus Protocol (SCP) following which Stellar became an open-source system. Under this protocol, the transaction authentication process is confined to a select set of trustworthy nodes rather than being left open to the whole network of nodes.
Each node on the network selects a set of trustworthy nodes, and a transaction is considered approved once authenticated by all nodes that are part of this select group. This shortened approval cycle allows the Stellar network to process transactions faster and keep transaction costs lower.
Who Are the Founders of Stellar?
Jed McCaleb founded Stellar with the lawyer Joyce Kim after leaving Ripple in 2013 over disagreements about the company’s future direction.
In explaining the rationale behind Stellar in September 2020, McCaleb told CoinMarketCap: “The whole original design of Stellar is that you can have fiat currencies and other kinds of forms of value run in parallel with each other and with crypto assets. This is super important to drive this stuff mainstream.”
McCaleb’s goal is to ensure that Stellar can give people a way of moving their fiat into crypto — and eliminate the friction that people normally experience when they are sending money around the world.
He currently serves as the CTO of Stellar, as well as the co-founder of the Stellar Development Foundation. This not-for-profit organization aims to “unlock the world’s economic potential by making money more fluid, markets more open, and people more empowered.”
What Makes Stellar Unique?
Fees are a sticking point for many. However, high costs when making cross-border payments aren’t just exclusive to fiat-based payments solutions such as PayPal — transaction fees have also been known to go through the roof on the Bitcoin and Ethereum blockchains because of congestion.
Stellar is unique because every transaction costs just 0.00001 XLM. Given how one unit of this cryptocurrency only costs a few cents at the time of writing, this helps ensure that users keep more of their money.
Few blockchain projects have managed to secure partnerships with big-brand technology companies and fintech firms. A few years ago, Stellar and IBM teamed up to launch World Wire, a project that allowed large financial institutions to submit transactions to the Stellar network and transact using bridge assets such as stablecoins.
Although other blockchains have community funds, meaning that grants can be given to projects that help further the ecosystem, Stellar allows its users to vote on which ventures should be given this support.
How Many Stellar (XLM) Coins Are There in Circulation?
A total of 100 billion XLM were issued when the Stellar network launched in 2015 — but things have changed since the release date. At present, the total supply stands at 50 billion XLM, and the circulating supply is currently 20.7 billion.
In 2019, the Stellar Development Foundation announced that it was burning over half of the cryptocurrency’s supply. This means that it now controls approximately 30 billion XLM. While some of this capital is earmarked for marketing and helping the organization develop, about one third is reserved for making investments in other blockchain ventures.
Explaining why it took this drastic move — and promising not to burn any more XLM in the future — the foundation explained: “SDF can be leaner and do the work it was created to do using fewer lumens… Those 55.5 billion lumens weren’t going to increase the adoption of Stellar.”
How Is the Stellar Network Secured?
This network is secured using the Stellar Consensus Protocol, which is described as having four main properties: “Decentralized control, low latency, flexible trust, and asymptotic security.”
Through SCP, anyone is able to join the process of achieving consensus, and no single entity can end up with the majority of decision-making power. Transactions are also confirmed cheaply and within a few seconds — and safeguards are in place if bad actors attempt to join the network.
Summary
Stellar is an open blockchain network designed to provide enterprise solutions by connecting financial institutions for the purpose of large transactions. Huge transactions between banks and investment firms that typically would take several days, a number of intermediaries, and cost a good deal of money, can now be done nearly instantaneously with no intermediaries and cost little to nothing for those making the transaction.
While Stellar has positioned itself as an enterprise blockchain for institutional transactions, it is still an open blockchain that can be used by anyone. The system allows for cross-border transactions between any currencies. Stellar’s native currency is Lumens (XLM). The network requires users to hold Lumens to be able to transact on the network.
Stellar was founded by Jed McCaleb, a founding member of Ripple Labs and developer of the Ripple protocol. He eventually left his role with Ripple and went on to co-found the Stellar Development Foundation.
References
Comments