Decentralized Exchanges:

What is Stellar?

Stellar, conceptualized as an open-source, decentralized protocol, is built on blockchain technology. Its primary mission is to revolutionize cross-border transactions by making them instantaneous and extremely cost-effective. The power behind Stellar’s functioning is its native currency, Lumens (XLM).

The History of Stellar Lumens (XLM)

Early 2010s: A partnership is formed

Jed McCaleb, a known figure in the blockchain space for co-founding Mt. Gox, the first major Bitcoin exchange, and later Ripple, partners with Joyce Kim, a venture capitalist and lawyer, to conceptualize a new project that focuses on democratizing access to financial services.

2014: Stellar’s Inception

• July: McCaleb and Kim officially launch the Stellar Development Foundation, a non-profit organization, to oversee the Stellar protocol. Stellar is introduced as a payment technology built on the Ripple protocol due to McCaleb’s connection to Ripple.

2015: Stellar’s Evolution

• April: Following issues with the initial protocol and to differentiate from Ripple, Stellar network undergoes a significant upgrade. The upgraded network no longer uses the Ripple protocol, instead, it operates on an entirely new consensus protocol known as Stellar Consensus Protocol (SCP). SCP is designed to offer transaction validation with more efficiency and flexibility, developed by Stanford Professor David Mazières.

2016-2018: Partnerships and Adoption

• 2016: Stellar announces its partnership with Deloitte, a renowned global consultancy, for cross-border payments.
• 2017: Stellar and IBM announce their partnership, and IBM decides to use the Stellar network for its blockchain solutions.
• 2018: Stellar gains more traction when it becomes the first distributed technology to obtain a Shariah compliance certificate for payments and asset tokenization, opening the market to millions of Muslim users.

2019: Reduction of Total Lumens Supply

• November: The Stellar Development Foundation burns approximately 55 billion XLM, more than half of the total supply, in an attempt to make the distribution process more efficient. This decision effectively brings down the total supply of Lumens to around 50 billion from the original 100 billion.

2020-2021: Further Developments and Partnerships

• 2020: Stellar announces a significant partnership with the Ministry of Digital Transformation of Ukraine to develop a national digital currency.
• 2021: The Stellar Development Foundation continues its partnership expansion and developments, aiming to increase the adoption of Stellar for cross-border transactions and the tokenization of assets.

As of 2021 and Beyond

Stellar continues to demonstrate its potential as a major player in the blockchain and cryptocurrency space. Its focus on developing markets and underserved customers, combined with technical innovations and strategic partnerships, indicate its commitment to fulfilling its mission of democratizing access to financial services.

Differentiating Stellar Lumens (XLM) and Ripple (XRP)

The creation of Stellar Lumens (XLM) and its divergence from Ripple (XRP) originated with one key individual: Jed McCaleb. McCaleb is a significant figure in the blockchain and cryptocurrency space, co-founding several notable projects including the infamous Mt. Gox Bitcoin exchange, Ripple, and later, Stellar.

Jed McCaleb and Ripple

McCaleb joined Ripple in 2012, along with Chris Larsen, and was a driving force in the early days of the project. Ripple was created with a vision to enable instant, low-cost international money transfers through its digital asset, XRP. However, internal disagreements within Ripple led McCaleb to part ways with the company in 2013. The precise nature of these disagreements isn’t fully public, but it’s known that there were differences of opinion over the future direction of the company.

Creation of Stellar

Following his departure from Ripple, McCaleb partnered with Joyce Kim in 2014 to create the Stellar Development Foundation, a non-profit organization with the mission of enabling access to low-cost financial services through the Stellar protocol and its native digital asset, Lumens (XLM). Initially, Stellar was a fork of the Ripple protocol, as McCaleb utilized his understanding of the technology to build upon it.

The Divergence

However, Stellar soon ran into technical issues, and these initial problems led the Stellar team to develop a new consensus algorithm, the Stellar Consensus Protocol (SCP), introduced in 2015. This was a significant divergence point between Stellar and Ripple.

The Stellar Consensus Protocol, developed by Stanford Professor David Mazières, was designed to offer a more flexible and efficient method of achieving consensus compared to Ripple’s protocol. This marked Stellar’s shift away from its roots, as it no longer relied on the Ripple protocol.

Current Differences between Stellar and Ripple

While both Ripple and Stellar aim to revolutionize cross-border transactions, their focus and methodology differ.

• Ripple primarily targets financial institutions, offering them faster and cheaper cross-border transactions using the digital asset XRP through its RippleNet network.
• Stellar, on the other hand, primarily targets individuals, particularly those in developing countries who may not have access to traditional banking systems. It aims to be a platform for issuing and transferring digital representations of all forms of money: dollars, pesos, bitcoin, pretty much anything through its native asset, XLM.

While Stellar originated from a fork of Ripple, the path it took post-fork has led to significant differences between the two projects in their visions, consensus mechanisms, and target audience.

Understanding Lumens (XLM) and how Stellar works

Lumens (XLM) is the native digital asset of the Stellar network, playing an integral role in maintaining and facilitating its operations.

• Role in Network Operations: One primary function of XLM is to act as an anti-spam mechanism for the network. Each transaction made on the Stellar network costs a minor fee of 0.00001 XLM. This minuscule fee, while negligible for regular users, becomes substantial for anyone attempting to overwhelm the network with spam transactions, thereby securing the network against such attacks.
• Facilitating Multi-currency Transactions: Lumens also serve a crucial role in simplifying and enabling multi-currency transactions. When two parties wish to transact in disparate currencies, finding a direct market can sometimes be challenging. Here, Lumens can act as a bridge currency, making the process smooth and easy.
• Distribution and Supply: At its inception, 100 billion XLM were created. However, in an unexpected move in November 2019, the Stellar Development Foundation decided to burn more than half of the Lumens supply, reducing the total to approximately 50 billion. As of 2021, there were about 20 billion XLM in circulation, with the rest held by the Stellar Foundation to support the network’s growth and incentivize participation.

Stellar’s Unique Operating Mechanism

Stellar operates on a unique model, the Stellar Consensus Protocol (SCP), which greatly differentiates it from other blockchains that use traditional consensus methods like Proof of Work (PoW) or Proof of Stake (PoS).

• Stellar Consensus Protocol (SCP): Unlike PoW or PoS mechanisms where consensus is achieved through mining or staking respectively, SCP operates on a network of trusted nodes. This network structure allows for quicker consensus without the need for every node to agree on the status of the transaction ledger, improving efficiency and throughput.
• Concept of Anchors: Anchors are entities within the Stellar network that users trust to hold their deposits and issue credits into the system. They act as bridges between different currencies and the Stellar network, enabling users to send and receive money in various forms, whether it’s fiat or cryptocurrencies.

Highlighting Stellar’s Key Features and Advantages

Stellar brings some unique capabilities to the table, which have been instrumental in its adoption and growth.

• Fast and Affordable Cross-Border Transactions: Stellar’s standout feature is its ability to facilitate cross-border transactions in a matter of seconds, at a tiny fraction of traditional costs. This makes it a powerful tool for remittances and international money transfers, which are often subject to high fees and lengthy processing times with traditional banking systems.
• Issuance and Trading of Digital Money: Stellar isn’t limited to just its native Lumens. It allows any user to issue and trade digital representations of all forms of money. Whether it’s US Dollars, Euros, or even other cryptocurrencies like Bitcoin, they can all be tokenized and transacted on the Stellar network.
• Built-In Compliance Measures: In a world where regulatory compliance is becoming increasingly important for financial institutions, Stellar stands out with its built-in measures for compliance. It provides functions for Know Your Customer (KYC) checks, making it an attractive option for financial institutions and aiding in its adoption.

Each of these elements serves to showcase Stellar’s powerful capabilities and potential to revolutionize the world of financial services. By creating a network where money is as easy to send and exchange as email, Stellar is taking significant strides in democratizing access to financial services across the globe.

How to Buy and Store Lumens (XLM)

Lumens can be bought on several cryptocurrency exchanges like Binance, Coinbase, or Kraken. Storing Lumens requires a digital wallet compatible with Stellar. Some popular choices include StellarTerm, Solar Wallet, and Ledger. Remember, the world of digital currencies is not without risks, and it is imperative to make informed choices and prioritize security when dealing with cryptocurrencies.

Stellar’s Real-world Use Cases and Partnerships

Stellar has cemented its practicality with collaborations that underscore its real-world utility. It has partnered with IBM to launch World Wire, a project aimed at improving international remittance. Additionally, it has collaborated with the Ukrainian government to digitize the country’s national currency. These partnerships emphasize Stellar’s potential in shaping the future of financial infrastructure on a global scale.

The Future of Stellar

Stellar Development Foundation has several plans on the horizon aimed at improving the network’s scalability and versatility. Expert opinions often cite Stellar’s unique features and partnerships as indicators of potential future growth. However, like any other cryptocurrency, XLM’s market performance is subject to volatility and should be considered in the context of the broader crypto market trends.

Conclusion

Stellar represents an intriguing fusion of technology and finance. Its journey, from its inception in 2014 to its current standing, offers an insightful look into the evolution of blockchain technology. As you navigate the complex labyrinth of cryptocurrencies, keep your mind open to learning more about Stellar and the vast universe of digital currencies.

Stellar Lumens (XLM) Frequent Questions and Answers

Q: What is Stellar Lumens (XLM)?

A: Stellar Lumens, or XLM, is the native digital currency of the Stellar network, a blockchain-based platform designed to facilitate fast, low-cost cross-border transactions.

Q: Who are the founders of Stellar?

A: Stellar was founded by Jed McCaleb and Joyce Kim in 2014.

Q: What is the primary use case of Stellar?

A: The primary use case of Stellar is to enable quick, low-cost cross-border transactions and facilitate issuance and exchange of digital representations of all forms of money.

Q: What is the Stellar Consensus Protocol (SCP)?

A: SCP is a unique consensus mechanism used by the Stellar network. Unlike Proof of Work or Proof of Stake, SCP relies on a network of trusted nodes to reach consensus, enhancing efficiency and scalability.

Q: What are anchors in the Stellar network?

A: Anchors are trusted entities in the Stellar network that hold users’ deposits and issue credits into the system. They serve as bridges between different currencies and the Stellar network.

Q: How does Stellar achieve fast transaction speeds?

A: Stellar achieves fast transaction speeds due to its unique Stellar Consensus Protocol (SCP) which allows the system to reach consensus without every node needing to agree, thereby significantly speeding up transaction processing times.

Q: How does Stellar prevent spam on its network?

A: Each transaction on the Stellar network requires a minor fee of 0.00001 XLM. This fee discourages spam by making it cost-prohibitive to flood the network with transactions.

Q: What role do Lumens play in multi-currency transactions?

A: Lumens can serve as a bridge in multi-currency transactions, making the process of trading between different currencies smoother.

Q: How many Lumens (XLM) are in existence?

A: As of 2021, there were approximately 50 billion XLM in existence.

Q: Why were 50 billion Lumens burned in 2019?

A: The Stellar Development Foundation decided to burn more than half of the total Lumens supply to make the distribution process more efficient.

Q: Who are some of Stellar’s notable partners?

A: Some of Stellar’s significant partnerships include IBM and the Ministry of Digital Transformation of Ukraine.

Q: How does Stellar handle regulatory compliance?

A: Stellar’s protocol has built-in compliance measures such as Know Your Customer (KYC) checks, making it a preferred choice for financial institutions.

Q: How can Stellar Lumens (XLM) be stored?

A: Stellar Lumens can be stored in a variety of digital wallets that support the Stellar network. These wallets can be hardware-based or software-based.

Q: Can Stellar be used for smart contracts?

A: Yes, Stellar supports simple smart contracts. However, it’s worth noting that the platform’s smart contract functionality is not as extensive as that of Ethereum.

Q: How does Stellar differ from Ripple (XRP)?

A: While both Stellar and Ripple aim to improve cross-border transactions, their focus and approach differ. Ripple targets financial institutions, while Stellar aims to democratize access to financial services for individuals, particularly in developing countries.

Q: What is Stellar’s inflation mechanism?

A: Initially, Stellar had an inflation mechanism where Lumens were inflated at 1% per year. However, in 2019, the Stellar community voted to discontinue the inflation mechanism.

Q: Can I mine Stellar Lumens?

A: No, Stellar Lumens cannot be mined like Bitcoin or some other cryptocurrencies. Lumens were pre-mined at Stellar’s inception.

Q: Is Stellar decentralized?

A: Yes, Stellar is a decentralized network. However, its consensus protocol is based on a network of trusted nodes, which differs from the traditional full decentralization seen in networks like Bitcoin.

Q: How secure is the Stellar network?

A: Stellar uses advanced cryptographic techniques and its unique consensus protocol to secure the network against attacks. Additionally, the small transaction fee prevents spam and denial-of-service attacks.

Q: Can other tokens be issued on Stellar?

A: Yes, Stellar allows for the issuance of other digital assets or tokens, and these tokens can represent any form of value, including other cryptocurrencies, fiat currencies, or commodities like gold.

Q: How does Stellar facilitate cross-border transactions?

A: Stellar facilitates cross-border transactions by enabling quick, low-cost transfer of assets across borders. This is accomplished through anchors and the use of XLM as a bridge currency when needed.

Q: Can Stellar Lumens (XLM) be used for everyday transactions?

A: Yes, if both parties in a transaction agree to use XLM, it can be used for everyday transactions. However, its usage is primarily seen in cross-border transactions and as a utility token within the Stellar network.

Q: What was the reason for the split between Ripple and Stellar?

A: The split was mainly due to differences in ideology and the intended target audience. While Ripple has been focused on providing solutions to financial institutions, Stellar aims at empowering individuals, especially in underbanked regions.

Q: What’s the future of Stellar?

A: The future of Stellar looks promising with continuous technological advancements, increasing partnerships, and growing adoption. However, like all cryptocurrencies, it also depends on regulatory developments and market conditions.

Q: Where can I buy Stellar Lumens?

A: Stellar Lumens can be purchased on a variety of cryptocurrency exchanges that support XLM. It’s important to use a reputable exchange and ensure secure storage for your XLM.