In this guide, we will be analysing what is Stellar (XLM), how it works, which are its features and who is behind this interesting project in the cryptocurrency market. For those that do not know, Stellar is among the top 10 cryptocurrency networks in the market and it has been operating for around three years as of August 2019.
What Is Stellar?
Stellar is a cryptocurrency blockchain created by Jed McCaleb and Joyce Kim back in 2014. The project was born after McCaleb co-founded Ripple and the cryptocurrency exchange Mt. Gox.
Stellar is a platform that connects banks, payments systems and people. The main intention is to be able to offer cheap and fast transfers for both individual users and companies using blockchain technology.
Technology allowed information to be shared around the world in a fast and easy way, helping companies improve their outcomes, and making society much more efficient. But funds became difficult to be moved from one country to another, indeed, it is expensive and slow.
McCaleb has been working to improve the access that users have to the cryptocurrency world and how they can deal with digital assets. He created Mt. Gox, the first massive crypto exchange in the world, he co-founded Ripple, Stellar’s main competitor, and co-founded Stellar.
Stellar is a project that has a decentralized and open database that allows parties to send and receive funds with a confirmation time of 3 to 5 seconds. The network is also able to support thousands of transactions per second, much more than other crypto networks such as Bitcoin (BTC) or Ethereum (ETH).
To move funds across borders, the Stellar network is powered by Lumens, the 10th largest cryptocurrency in the market that is represented as XLM. Banks get connected through this network allowing users to send funds in a fast and easy way integrating cryptocurrencies and blockchain technology to the traditional banking system.
If a bank wants to send funds from one country to another, it is possible to do it with local fiat currency and receiving local currency in the other country. Everything can be performed using the XLM digital asset or any other coin based on the Stellar network.
As mentioned before, Stellar is a decentralized system, meaning it does not have a central authority controlling the transactions. Using blockchain technology, all the information about XLMs sent and received can be stored safely. These transactions in the network are verified using the Stellar Consensus Protocol.
Anchors in the Stellar network allow participants to have credits as soon as they need it. These anchors hold the deposit the company or individual makes and issues credit for them. With these anchors is also possible to send a transaction using one currency and another party receiving the funds in different fiat currency.
The network has a mechanism called conversion chain that makes possible the transaction between two illiquid currencies. For example, a transaction between MXN and INR. The MXN funds can be exchanged for USD, then the USD can be exchanged for BTC, the BTC for XLM and the XLM for INR.
Stellar Consensus Algorithm
Stellar worked with a consensus algorithm known as Byzantine Fault Tolerant (PBFT). With it, it is possible to help the network operate even when actors are acting maliciously. Nonetheless, this consensus algorithm has been replaced for another one.
In the Stellar network, there was a predefined set of validators that were selected by a central authority. This is completely different from how PoW (Proof-of-Work) where validators are miners that provide the necessary processing power and are not selected by any central authority.
The validators that were operating in the Stellar network agreed on different things, including transaction verification. For the PBFT systems to work, it is necessary to have 66% of the validators reaching a consensus. That means that malicious participants shouldn’t reach more than 33% of the consensus for the network to keep working.
Stellar moved forward and adopted a new version of a consensus algorithm that is based on Federated Byzantine Agreement (FBA) and that is also known as “Stellar Consensus Protocol.”
According to London Blockchain Labs, the Stellar Consensus Protocol is the first implementation of the FBA, created in 2015 by Professor David Mazières of Stanford. This system describes a way for nodes in a network to reach an agreement that can be used for blockchains.
The system has three main characteristics:
- Decentralized control: everyone can be a validator in the network.
- Low latency: Consensus can be reached in just a few seconds.
- Flexible trust: Participants are free to decide what other nodes they trust, without restrictions.
- Asymptotic security: Digital…
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