Stellar is a peer-to-peer, open-source virtual currency network that first appeared in 2015. The network was established by current chief architect Jed McCaleb, currently chief scientist David Mazières, and former lawyer Joyce Kim, who has since left Stellar. The network’s objective is to make it quicker and simpler for users to move various currencies throughout the world.
Additionally, it can offer financial services and liquidity to those who lack access to conventional banking services. The cryptocurrency tokens used by Stellar are known as lumens or XLM. Although they coexist in the same system, Stellar and XLM are two distinct entities. Lumens are traded on the blockchain network, which is built on the Stellar platform.
Here is how Stellar functions: Consider a situation where someone has to transfer $100,000 but lacks access to a bank that can handle the transaction. Instead, this individual may send the lumen equivalent of $100,000. After that, the receiver might exchange those lumens for $100,000 or a value in another currency. In the end, clearing times are shortened and Neither end of the transaction needs the involvement of a bank.
Under the leadership of its creators, Jed McCaleb, David Mazières, and Joyce Kim, the Stellar network debuted in 2015. McCaleb was a co-creator of Ripple and the former founder of Mt. Gox. Together with Stripe’s CEO and co-founder Patrick Collison and with a $3 million investment from Stripe, the nonprofit Stellar Development Foundation (SDF) was established.
By the end of its first year, Stellar had more than 3 million users. Stellar burned almost half of its outstanding lumens in 2019, which led to a rise in price. Since manipulating cryptos may be hazardous, this has raised considerable debate. To try to stabilize its market, Stellar announced that it would stop producing any more lumens, after which the price quickly stabilized.
In Stellar’s whitepaper it’s architecture is divided into three parts:
The Stellar Consensus Protocol, which was created by Professor David Mazières and functions as a Byzantine consensus mechanism, is the most intriguing component of the Stellar technology stack. The Stellar Consensus protocol allows open network participation to promote network expansion, in contrast to conventional Byzantine consensus protocol.
In the “federated Byzantine agreement” model used by Stellar, network users -Stellar Cores maintain a list of other users they consider “important.” A transaction is not considered finalized unless a majority of these nodes approve it. These “important” nodes all keep their lists up to date and follow a similar procedure when settling a transaction.
Nodes can independently decide how much trust to place in each other, resulting in “quorum slices” that combine naturally to form system-level quorums. A quorum is a group of nodes large enough to reach an agreement, whereas a quorum slice is a subset of a quorum persuaded by one specific node of an agreement.
Read more: Ripple Whitepaper Summary
XLM is the main token that powers Stellar’s ecosystem. The initial total supply of XLM was 10 billion tokens, with a built-in mechanism for a 1% inflation. However, this was changed to 50 billion tokens and the inflation part was removed through a community vote proposal in 2019. So now there are just 50 billion lumens and no more tokens will be added to the Stellar network in the future, thus we can’t mine them now. As of the time of writing, XLM ranks #27 with a market capitalization of $2,917,047,248. It currently trades for $0.1151 and has a circulating supply of around 25.33 billion tokens.
The main competitors of Stellar (XLM) are Ripple (XRP) and Bitcoin (BTC). Even though Stellar was once a derivative of the Ripple Project, the two systems are very distinct. While Stellar is a nonprofit platform that collaborates with financial institutions and money transfer providers with a focus on banking the unbanked, Ripple is a for-profit company that is completely committed to building payment networks between major financial institutions. The way that Ripple achieves consensus differs significantly from how Stellar does it. Stellar employs the Stellar Consensus Mechanism, whereas Ripple largely relies on probabilistic voting. Stellar, in contrast, enables anybody can participate as a transaction validator, whereas Ripple uses a permissioned ledger that limits who may perform this role.
Stellar was developed to ease cross-border payments, a challenge that Bitcoin has encountered because of a slow rate of transaction processing. As opposed to Bitcoin, Stellar processes transactions more quickly, at a rate of over 1,000 per second as compared to the average of five on the Bitcoin network. This is because not all Stellar nodes are required to validate every transaction. Instead, each node selects a group of reliable “co-nodes,” and the group as a whole. Faster transactions are ensured by the fact that each group runs independently of the others.
Read more: Cardano Whitepaper Summary
The Stellar Development Foundation (SDF) revealed two Stellar roadmaps for 2022 during the Stellar Meridian event. The first is a general roadmap presented by the CEO, who outlined five areas of focus for next year, these are:
The second roadmap is more technical and it was detailed during the Meridian event by one of Stellar’s top developers. This roadmap was based on three pillars: to increase scalability & network innovation, activate more network participation, and demand & promote inclusion.
Three to Four years back, Stellar struck people as a straight-up Banker coin, a crypto project with little to no care for or interest in the core values of crypto. And though the actions of the SDF over the last year have proven that this is not the case & that Stellar could very well be a core Crypto project, one major concern is its Architecture.
Never mind the fact that Stella isn’t all that fast by today’s standards, the absence of economic incentives is a recipe for disaster even if the top-tier validators are run by reputable and accountable parties. What’s alarming is that even with Stella’s theoretically secure centralization, in practice its Blockchain has seen significant issues, bringing up the final concern, that is, Regulation. The SDF alliance with the USD coin issue a circle and its success in driving the adoption of the dollar overseas has kept the regulators at bay and will continue to if the SDF continues to play ball with Politicians and Wall Street.
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Disclaimer: User Generated Content – Original Content created by a member of BITS Pilani, under the consultation of Dr. Amit Dua, Assistant Professor, Computer Science Department, BITS Pilani, Pilani Campus in association with CoinDCX. The views and opinions expressed within this post belong solely to the author.
Author: Aman Bansal, Aditya Choraria