Those familiar with cryptocurrency know that Bitcoin is a protocol for peer-to-peer transactions without an intermediary. Stellar takes a different approach. It acts as an inexpensive and accessible intermediary for international transfers of value.
Stellar is a payment network that supports use of its native asset called Lumens (XLM). According to stellar.org, the non-profit behind the Stellar network,
“One lumen is one unit of digital currency, like a bitcoin.”
Stellar was initially forked from Ripple, but gained its place as a unique network with the introduction of its Stellar Consensus protocol.
What problem is Stellar solving?
When someone sends money past international borders (e.g. sending USD from the United States to someone in Japan accepting YEN) the transaction is charged high fees (from exchange rates, and the bank’s charge). Not only that, but the transaction will sometimes take days to reach its destination. As a result, Stellar fixes this problem by making it easier to transfer money across borders.
Stellar’s solution to cross-border currency
Stellar is similar to Ripple, in that it was created to enable efficient payment processing between users. In most cases, these “users” are actually large financial institutions, as opposed to individuals.
Stellar uses anchors. These act as intermediaries between a traditional currency, such as USD, and the ledger of the Stellar network. If you think of Stellar as a highway, and the user as a car, then the anchor is the on-ramp. Paypal and your neighborhood bank are both examples of anchor-like institutions in the real-world. Examples of Stellar anchors include Tempo, Stronghold, and Remitr. See the full list of Stellar anchors here.
One way to think about the way that Stellar simplifies the transaction process is this: Right now, some people use banks to send money online, others use Venmo, and others use PayPal. These are all different “anchors” in the sense that they issue you credit on their networks that you can send to other people on the same network. On the Stellar network, each of these anchors (the equivalent of banks like PayPal, Venmo, etc) instead connects to the Stellar network, and can interact with each other quickly and easily.
When you deposit money into your online account of an anchor on the Stellar network, the deposit is recorded as credit in your account. After you have been issued credit, you can send and receive payments from other users. Hence, the Stellar network will convert the credit into your preferred currency at the best available rate when it is time to withdraw funds.
Where do I buy Stellar?
You don’t buy Stellar, that’s the name of the platform. The crypto-asset on the Stellar platform is known as lumens. Lumens (XLM) can be purchased on popular marketplaces and exchanges.
What is a Stellar Lumen?
A Stellar Lumen is the native asset for the Stellar network. Lumen is to Stellar as US dollar is to the American economy.
To make things slightly more confusing, Lumens were not always called Lumens. In fact, in 2014, before the launch of Stellar Consensus Protocol, the native asset on the Stellar network was called stellars. Then, in 2015, the name was changed to Lumens.
Each transaction made on the Stellar network has a comparatively-low fee of 0.00001 lumens. With one Lumen valued at approximately $0.40 at the time of this writing, this makes the cost of a transaction $0.000004. In other words, it’s very, very inexpensive.
And what happens to the small amount collected for transaction fees? No, the organization behind Stellar does not keep the money. Instead, this money is pooled together. It is then distributed through an “inflation vote,” which is when the Stellar network releases new Lumens into the network along with the amount collected from transaction fees. The users on the Stellar network cast votes to other users who they believe should receive the currency. Then the network distributes the currency in proportion to the number of votes that a user receives.
How do you store Stellar Lumens?
Hot storage options: Stellar Lumens can be stored on an iOS or Android device using Lobstr, touted as “the only wallet for your Lumens.”
Cold storage options: Stellar Lumens can be stored on a Ledger Nano S. At the time of this writing, Ledger Nano S is the only hardware option for storage of Stellar Lumens.
Target Audience: Who is using Stellar Lumens?
Because of its ability to facilitate rapid, inexpensive transactions to people using different currencies, Stellar is appealing to traditional and online financial institutions like banks and payment processing companies.
This differs from an asset like Bitcoin because it is primarily positioned for use by individual users.
The Stellar network began in 2014 as a fork from the Ripple protocol. It was created by Jed McCaleb, creator of Ripple, and the Bitcoin exchange Mt. Gox. By April 2015, the Stellar Development Foundation had released updated code and a white paper for its new algorithm.
There are two parts to the Stellar network which are Horizon and Stellar Core. If you’re a programmer, you can think of Horizon as the front-end, and Stellar Core as the back-end of the network. The Horizon API facilitates interaction between external apps and Stellar Core. Stellar Core is “the backbone of the Stellar network.” Therefore, it is the replicated state machine that maintains consensus of the ledger.
Stellar is similar to, and therefore a competitor to, Ripple. Both are mostly used by financial institutions to facilitate international transactions. However, Stellar is a non-profit that exists to increase access, especially for low-income users. Ripple is a for-profit business that could offer shares of the company to users.
Most noteworthy some large financial institutions like IBM have chosen Stellar to facilitate their international transactions.
As a non-profit, Stellar does not charge individual users or institutions for access to its network. Stellar received initial funding from Stripe (a notable international payment processing company), and has since received donations from BlackRock, FastForward and Google.org. Five percent of the initial lumens were set aside to pay for the costs of operating the Stellar network .
Also, Stellar’s ties to the established business world go further than just charity. The Stellar website lists companies “that have integrated to, are working with, or are otherwise supporting the Stellar network.” The list includes IBM, DeLoitte, and Stripe, amongst others. Within this list, the most notable press from Stellar arrived when IBM announced that it would be using Lumens to facilitate its cross-border transactions.
And when it comes to expert advice, the advisors for Stellar are a who’s who of the tech industry. Naval Ravikant of AngelList, Matt Mullenweg of WordPress/Automattic, and Sam Altman of Y Combinator.
Where do I learn more about Stellar?
- Stellar Core source code
- Stellar price
- The Stellar Consensus Protocol: A Federated Model for Internet-level Consensus
- Buy a Ledger Nano S to store your Stellar Lumens
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