Stellar is a decentralized open source platform that connects banks, payment systems and people. The platform is designed to make cross-border transactions easier and faster, safer and cheaper.
What is the history of Stellar?
Stellar was founded by Jed McCaleb, co-founder of Ripple, and Joyce Kim, who previously practiced law and co-founded the trading startup SimpleHoney. Many users notice similarities between the Stellar and Ripple blockchain systems, and that’s because Jed McCaleb took some models from his previous project. The main difference is that while Ripple was designed for transactions between banks, Stellar is a tool primarily designed for the average user and developing countries.
Stellar was originally launched on July 31, 2014 with the support of the Stellar Development Foundation, a non-profit organization. This foundation was created in partnership with Stripe CEO Patrick Collison. In addition, the company received a 2% initial bonus in exchange for its initial investment, which is equivalent to US$2 billion today.
Since its inception, Stellar has experienced impressive growth. In January 2015, it reached 3 million unique users. About a year later, in April 2015, the Stellar Development Foundation updated the network to launch a new consensus algorithm, which was implemented in November of the same year. This new algorithm uses a cryptocurrency protocol called SCP (Stellar Consensus Protocol), which was created by David Mazieres, a professor at Stanford University.
The Stellar network is based on blockchain technology, which consists of a decentralized network of servers supporting distributed ledgers. These ledgers are updated after each transaction, and all records are complete and available on each server. The servers communicate with each other, synchronizing the ledger every 2-5 seconds. Even if someone saw their site, they would realize that one of the company’s priorities is transparency of transactions on the blockchain. This communication process is known as consensus.
Sending payments through the Stellar network is done through an “anchor.” Anchors essentially act as a link between any particular coin and the Stellar network.
Another of the main benefits is that Stellar supports a distributed sharing model. This allows users to send a payment in a specific currency, such as USD, even if they have funds in euros. The Stellar network will automatically convert at the best available exchange rates. In addition, the recipient of the funds can withdraw the funds through a partner institution, such as a bank.
What are Lumens?
The cryptocurrency of the Stellar platform is Lumens. In the beginning, the name they gave to this asset was Stellars, which is why many still use this name today to refer to the company’s cryptocurrencies.
Lumens are used as a bridge currency (or cryptocurrency) in their network. Lumens (or XLM) serve two important functions:
- they facilitate seamless multi-currency transactions by converting each coin into lumens when they enter Stellar and back into another coin on exit,
- discourage DoS attacks on the network by adding a token fee of 0.00001 lumens to each transaction. DoS attacks are usually malicious attempts by unethical participants who may try to corrupt the network.
XLM has attracted the attention of investors because of the real-world applications of the network. In August 2014. “Mercado Bitcoin,” Brazil’s first bitcoin exchange, announced it would use the Stellar network, and in 2016. Deloitte announced an integration with Stellar to build a cross-border payment application. It’s worth noting that Stellar has had a long-term partnership with technology giant IBM since 2017. That company uses XLM for its blockchain solutions, and has even announced that it has no plans to launch its own crypto token. Like Ethereum, the Stellar platform allows users to create other decentralized applications (dApps) and tokens. There are also other stablecoin projects, most notably USD Anchor, which are fully backed by fiat currencies.
Technical aspects of Stellar
Stellar is one of the few networks with actual use cases. Stellar’s near-zero fees have reduced remittance costs and even enabled micropayments at low costs. Its transaction execution time ranges from 2 to 5 seconds, placing it as an industry leader.
In addition, the company has also set the standard for integrating international remittances. Stellar has partnered with IBM, Deloitte, Parkway Projects and TEMPO Money Transfer. With the entry of more partners, XLM is likely to attract even more demand.