What is Stellar?

Stellar is a decentralized, blockchain-based network that aims to connect people and financial institutions globally. Its main objective is to promote financial inclusion by developing accessible, low-cost, and user-friendly global payment systems.

The Stellar network is being developed by the Stellar Development Foundation. The network’s native currency is known as Stellar lumens, or simply lumens, and is represented by the symbol XLM.

Key Takeaways

• Stellar is a decentralized, open-source payment network that allows for the fast and inexpensive transfer of any currency, including fiat currencies and cryptocurrencies.
• The Stellar ledger network operates using the Stellar Consensus Protocol, which utilizes a decentralized network of servers and the Federated Byzantine Agreement (FBA) algorithm to confirm transactions.
• Stellar’s native digital currency is called Lumens (XLM), which is used to facilitate transactions and pay transaction fees on the network.
• Stellar was founded in 2014 by Jed McCaleb and Joyce Kim, and is supported by the non-profit Stellar Development Foundation.
• How does Stellar work?

Stellar is a network that connects people, banks, and payment processors, and allows end users to create, send, and trade various types of cryptocurrencies. The network’s native digital currency, XLM (also known as Lumens), serves as an intermediate currency for operations and is also used to pay transaction fees. When using the Stellar payment protocol, money is quickly converted into XLM and then into the desired currency.

The Stellar network operates using the Stellar Consensus Protocol. Unlike some other consensus protocols that require the approval of the entire miner network, Stellar’s consensus protocol utilizes the Federated Byzantine Agreement (FBA) algorithm to enable faster transaction processing. The FBA algorithm uses “quorum slices,” or a portion of the network, to approve and validate transactions.

Each node in the Stellar network selects a group of other “trustworthy” nodes. Once a transaction is approved by all nodes within this group, it is considered approved. This streamlined process has made the Stellar network extremely fast, with the ability to process up to 1,000 network operations per second.

While Stellar is not as decentralized as some proof-of-work-based systems like Bitcoin, it is able to achieve faster speeds and greater efficiency as a result of this trade-off.

The current version of Stellar, known as Stellar-core, uses a consensus algorithm that is distinct from its original code base, which was similar to Ripple.

In the Stellar network, all balances and operations are broadcast to the entire network every five seconds. These transactions are validated by computers running the Stellar software, known as nodes. The nodes verify that the correct amount is transferred for each pending transaction.

Nodes can be found all over the world, and anyone can turn their computer into a node by installing the Stellar software. This allows the computer to become part of the consensus process.

Thanks to its system, Stellar is able to process transactions within five seconds. The transaction fee is currently 0.00001 XLM, which is a small fraction of a penny at current prices. (The fee may increase when network activity is high, but it will still be relatively low.)

What makes Stellar unique?

Unlike some cryptocurrencies that aim to replace traditional financial systems, Stellar is designed to enhance existing systems by providing a single network for all currencies to work together.

Stellar’s payment protocol is based on distributed ledger technology, which is open-source and owned and distributed by the community. XLM is particularly useful for facilitating cross-border transactions, as it can overcome the high fees and slow processes associated with traditional methods. Stellar is geared towards helping individuals transfer money, rather than institutions, and offers access to financial systems that allow people to send money quickly and affordably around the world.

In addition to facilitating transactions, Stellar also acts as a decentralized exchange and marketplace, with a built-in order book that tracks ownership of Stellar assets. Users can manage buy/sell orders and select their preferred assets for settlements. XLM can be used to reduce transaction fees.

There are several ways for individuals to use Stellar. Stellar apps and third-party services, known as network anchors, provide an easy way for users to transfer funds to anyone, regardless of their location. Stellar can also be used to purchase digital versions of various currencies, which can be useful for people in countries with weak national currencies who want to use a more stable currency for their savings.

Stellar maintains a high level of security, requiring XLM holders to have at least one token to remain active on the network. This helps to ensure the efficient and cost-effective execution of network transactions. Lumens also offer protection against flood attacks by making microtransactions too expensive for hackers, keeping the Stellar Network safe from serious threats.

Stellar Development

Jed McCaleb founded Stellar with lawyer Joyce Kim after leaving Ripple in 2013 due to differences in opinion about the company’s future direction. The Stellar network launched in 2014 aiming to connect world’s financial systems.

McCaleb sees Stellar as a platform enabling the parallel use of fiat currencies, other forms of value, and crypto assets in order to drive mainstream adoption.

McCaleb’s aim is to provide a way for people to easily move their fiat into crypto and eliminate the friction often associated with sending money internationally.

McCaleb currently serves as the CTO of Stellar and is also the co-founder of the Stellar Development Foundation.

Stellar gained significant attention in October 2017 when it announced a partnership with IBM to set up multiple currency corridors among countries in the South Pacific, with the goal of processing up to 60% of all cross-border payments in the region, including countries such as Australia, Fiji, and Tonga. This partnership aimed to enable connections between small businesses, non-profits, and local banking institutions to facilitate commercial transactions, such as allowing a farmer in Samoa to conduct transactions with a buyer in Indonesia.

In 2016, technology consulting firm Deloitte also announced a partnership with Stellar to develop a payments app. In 2017, McCaleb confirmed that 30 banks had signed up to use Stellar’s blockchain for cross-border transfers. Payment service Stripe has also removed bitcoin from its platform and left the door open for the use of Stellar.

As an open-source network, Stellar’s infrastructure is available for anyone to use and build upon. Companies can use it to create their own blockchain wallet, app, or cryptocurrency token, and they can also use the Stellar network for payments and currency conversion.

Stellar FAQ

Who created Stellar (XLM)?

Stellar (XLM) was created by Jed McCaleb, a well-known figure in the cryptocurrency industry. McCaleb co-founded Stellar in 2014 along with lawyer Joyce Kim after leaving his previous project, Ripple, due to differences in opinion about the company’s future direction.

McCaleb currently serves as the CTO of Stellar and is also the co-founder of the Stellar Development Foundation.

What are the benefits of using Stellar (XLM)?

Stellar (XLM) has several benefits, including:

• Simplicity: Stellar makes it easy for both senders and recipients to perform transactions, and retail users can join the Stellar Network with just a stable internet connection and Lumen-enabled software.
• Decentralization: The Stellar database is open-source, and transactions are authorized by the community, with data stored on the blockchain and available for anyone to view.
• High speed: Transactions on the Stellar Blockchain are typically confirmed within 3-5 seconds thanks to the Stellar consensus mechanism, which is faster than bank transfers and cross-border payments. The Stellar Blockchain can handle thousands of transactions per second, allowing for the use of smart contracts and multi-signatures.
• Low cost: Stellar has a fixed annual inflation rate of 1%, making it an affordable option for transactions compared to other methods.

How is the Stellar network secured?

The Stellar network is secured using the Stellar Consensus Protocol (SCP), which is designed to have four main properties: decentralized control, low latency, flexible trust, and asymptotic security.

The SCP allows anyone to participate in the consensus process and ensures that no single entity can gain a majority of decision-making power. Transactions on the Stellar network are also confirmed quickly and inexpensively, and there are safeguards in place to prevent bad actors from joining the network.

What is the circulating supply of Stellar (XLM)?

When the Stellar network was launched in 2015, a total of 100 billion XLM coins were issued. However, the total supply and circulating supply of XLM has changed since then. As of 2021, the total supply of XLM is 50 billion, and the circulating supply is 20.7 billion.

In 2019, the Stellar Development Foundation announced that it was burning over half of the cryptocurrency’s supply, giving it control over approximately 30 billion XLM. Some of this capital is reserved for marketing and development efforts, while a portion is set aside for investments in other blockchain ventures.

As of December 2022, the circulating supply of XLM is approximately 26 billion.