Stellar is a decentralized, open-source blockchain platform designed to facilitate fast, cross-border transactions between different currencies. Launched in 2014 by Jed McCaleb and Joyce Kim, Stellar aims to create a unified financial network that allows people and institutions to transfer money efficiently and affordably.
The creation of Stellar
Stellar was initially born out of a collaboration with Ripple, a similar blockchain project co-founded by Jed McCaleb. However, due to differing visions and goals, McCaleb parted ways with Ripple and founded Stellar in partnership with Joyce Kim. The Stellar Development Foundation (SDF), a non-profit organization, was established to support the growth and development of the Stellar network.
How Stellar works
Stellar operates on a unique consensus protocol designed to ensure fast and secure transactions. Unlike traditional proof-of-work or proof-of-stake mechanisms, Stellar uses a consensus algorithm known as the Stellar Consensus Protocol (SCP). This protocol enables network participants to reach an agreement on transaction validity efficiently and without the need for energy-intensive mining processes.
The Stellar Consensus Protocol
The SCP is a federated Byzantine agreement system that allows nodes in the network to agree on the state of the ledger. Each node selects a set of trusted nodes, known as a quorum slice, to validate transactions. These quorum slices overlap with those of other nodes, creating a web of trust that forms the basis of the network's consensus. This approach ensures that transactions are confirmed within seconds, making Stellar suitable for high-speed financial operations.
Key features of Stellar
Stellar offers several features that distinguish it from other blockchain platforms and make it particularly suited for cross-border payments and currency exchange.
Multi-currency transactions
One of Stellar's core functionalities is its ability to handle multiple currencies. The platform supports the issuance and transfer of various digital assets, including fiat currencies, cryptocurrencies, and tokens. This feature allows users to perform multi-currency transactions seamlessly, facilitating global trade and remittance services.
Anchors and trustlines
In the Stellar network, anchors are entities that hold and issue assets on behalf of users. Anchors act as bridges between different currencies, enabling users to deposit and withdraw funds in their preferred currency. Trustlines are established between users and anchors to define the types and amounts of assets that users are willing to hold. This system allows for a secure and flexible approach to currency exchange and asset management.
Path payments
Stellar's path payment feature enables users to send payments in one currency while the recipient receives them in another currency. This is achieved through a series of currency exchanges facilitated by the network's built-in decentralized exchange. Path payments allow for efficient currency conversion, reducing the need for multiple intermediaries and lowering transaction costs.
Remittances and micropayments
Stellar is particularly well-suited for remittance services and micropayments due to its low transaction fees and fast processing times. The platform allows users to send money across borders quickly and affordably, making it an ideal solution for individuals and businesses operating in regions with limited access to traditional banking services.
Stellar's native asset: Lumens (XLM)
The native cryptocurrency of the Stellar network is called Lumens, abbreviated as XLM. Lumens serve multiple purposes within the platform, including preventing spam transactions and facilitating multi-currency transactions. A small amount of XLM is required to conduct transactions on the Stellar network, ensuring the system remains efficient and secure.
Distribution and supply
Stellar initially released 100 billion Lumens, with the majority distributed to the public, partners, and the Stellar Development Foundation. Over time, the total supply of Lumens has been reduced through strategic burn events to create a more sustainable and balanced ecosystem.