Updated: Dec 20, 2019
Stellar is a payment protocol based on the blockchain technology. It was initially aimed at creating a network of microfinance institutions to serve the under-banked, especially in the many developing nations. However, during its conceptualization, the focus shifted from the under-banked to connecting established financial organizations with their blockchain.
Lumens or XLM is Stellar’s native cryptocurrency, which serves a multi-functional role on the network.
This guide will talk about why Stellar and XLM was designed, the team behind it, the way it works and various applications in the real world.
What is Stellar Designed For?
Stellar is an open-source project that originally forked from the protocol of another cryptocurrency, called Ripple. Stellar was created to enable banks and financial institutions to move money reliably, quickly, and at almost no cost. It was designed to connect the payment systems, banks, and individual users seamlessly.
The following factors make Stellar unique:
● Transactions take place on a decentralized network
● Faster processing time
● The infinitesimally small network fee
Stellar’s primary focus was to help developing economies in the areas of bank loans, remittances and attempted to bring people outside the scope of banking, to be part of the global system.
Who Is the Team Behind Stellar?
Stellar was launched in 2014 by Jed McCaleb and Joyce Kim. McCaleb is one of the most prominent figures in the crypto sphere. He has helped create 2 pretty famous projects since 2006, before building Stellar.
He built the exchange Mt. Gox to get more out of Bitcoins – a project that he eventually sold to Mark Karpeles. He also helped create Ripple, a well-established and highly popular cross-border payment system.
In 2019, ex-Mozilla executive, Denelle Dixon, was brought on-board the Stellar management. Dixon is known for her advocacy for personal data control and net neutrality.
Over the years, the framework controlled by a non-profit organization has partnered with various businesses around the world, including Deloitte in the UK, ICICI and IBM in the US, and Barclays in the EU.
How Does Stellar Work?
Stellar works a lot like other cryptocurrencies. However, it does utilize its consensus mechanism built by the notable Stanford professor David Mazière, called the stellar consensus protocol (CSP).
In general, Stellar supports cross-border and multi-currency payments, by moving the sender’s funds into the Stellar network, in the form of native Stellar tokens aka Lumens. The network then looks for the best exchange rate that can be used to convert the Lumens (XLM), into the recipient’s currency.
The system relies on the users running the nodes in the software, to cooperate between networks and to communicate using the internet. The entire system works on trust, where each person running the software is tasked with identifying several other participants and to apply cryptographic rules, which would enable the validation of transactions.
Everyone downloading the Stellar software, such as developers, businesses, individuals and banks is tasked with the running of nodes, even if it is for the simple process of transferring money.
All Stellar users are required to maintain a bare-minimum balance of XLM in their accounts. Each transaction on the network settles to the blockchain, with an average ledger closing time of 3 to 5 seconds.
What are Current and Future Applications of Stellar?
XLM is primarily used as a bridge in the ‘Stellar’ blockchain network, though it can also be used to pay the framework’s trading fee, allowing users to trade among multiple currencies.
Stellar announced releasing an integration into Vumi in 2015, which is an open-source messaging platform. Vumi is controlled by the Praekelt Foundation, an African non-profit, which is dedicated to helping people living in poverty, improve their lives with the help of mobile technology. Vumi uses the Stellar protocol currency to determine cellphone talk time.
Stellar also partnered with Oradian, a cloud-based banking software company, in 2015 to integrate the protocol into Oradian's banking platform, adding microfinance institutions in Nigeria.
In 2016, Deloitte announced integrating with Stellar to build a seamless cross-border payment application, called the Deloitte Digital Bank. The same year Stellar’s payment network expanded to include:
● ICICI Bank in India
● Coins.ph - a Philippines – based mobile payments startup
● Tempo Money Transfer – a French remittances company
● Flutterwave – and African mobile payments firm
In 2017, Stellar partnered with KlickEx and IBM to facilitate cross-border transactions, and to make them more reliable in the South Pacific region.
The future holds some very exciting opportunities for Stellar. In its recent roadmap, the platform announced to be working on two important goals - The Stellar Decentralised Exchange (SDEX) and Lightning Network on Stellar.
SDEX is going to be the front end of the crypto-exchange that will enable protocol-level trades for XLM, and will also help create liquidity to maximize the choice of assets, minimizing the spreads.
Lightning Network is being created in response to meet the demands of private transactions. It will have the necessary scalability and security that ultimately benefits the platform.