Contents

As digital currencies become more widespread, it is essential to have a trading platform that can handle both fiat and digital currencies. Stellar serves as an intermediary platform that allows for the trading of virtually any currency, making it easier and safer to transfer money.

Similar to tokens, Stellar can be traded for other items, or funds can be withdrawn. This makes international money transfers more efficient and faster than using a bank.

The Stellar blockchain operates as a distributed ledger network, facilitating transactions between financial institutions, customers, remittance networks, and the general public. Its purpose is to make transferring value between different assets cheaper and easier.

This guide comprehensively explores the various aspects of the Stellar blockchain.

What is Stellar?

Stellar is an open-source payment platform that is similar to Ripple in various ways. It was founded by Jed McCaleb, who also co-founded Ripple.

Like Ripple, Stellar is a payment technology that aims to connect financial institutions and decrease the time and cost needed for international transfers. Both payment networks initially used the same protocol.

The idea behind Stellar is that users should be able to transfer fiat currencies and tokens representing current and new assets (such as euros, dollars, gold, stocks, and other tokens). Users can also easily trade these assets through Lumens.

How Does the Stellar Blockchain Work?

Stellar is a decentralized blockchain network where each server operates independently. This implies that all nodes are linked together but are not governed by a single authority. By syncing and reaching a consensus, the network enables transactions and facilitates widespread and uniform deployment of the distributed ledger. Anyone can join the Stellar network as a verification node (server) using the Stellar Consensus Protocol (SCP).

SCP makes it possible for the network to scale much more quickly and efficiently than other proof-of-work blockchains like Bitcoin. Moreover, the network is more decentralized in theory thanks to a unique feature called “anchors.”

To make deposits and distribute blockchain credits, users can entrust their funds to “anchors,” which stand in for reliable third parties. Anchors act as a connecting point for various digital assets and the Stellar blockchain.

How Does the Stellar Payment System Work?

Here’s an example of a financial transaction between Joe and Ken to illustrate how the Stellar payment system works.

Joe lives in the United States, while Ken lives in the United Kingdom.

Joe wants to transfer $5,000 to Ken for a cross-border transaction that converts to GBP (Pound Sterling).

For this transfer to take place, let’s assume Joe banks at Bank A in the United States and Ken banks at Bank B in the United Kingdom. These two financial institutions are referred to as “anchors” on the Stellar network.

Joe sends Ken $5,000. Within seconds, Bank B receives Ken’s transaction intent and checks to see if he complies.

The money is taken out of Joe’s account as soon as Bank A gets approval from Bank B.

The USD is then deposited into Bank A’s pool account and then sent to the Stellar network in the form of XLM (Stellar token).

After entering the Stellar network, the XLM is converted to GBP at the most favourable exchange rate. The transfer goes to Bank B’s main account, where it is eventually deposited and then credited to Ken’s account.

What Makes Stellar Unique?

There are many digital currencies available that offer fast, low-cost transactions. However, one of the main advantages of Stellar is its compatibility with all currencies. It can be used to send a digital version of any currency in the world, including the US dollar, euro, bitcoin, and more.

Unlike some other cryptocurrencies, Stellar is not intended to replace the existing financial system. Instead, it aims to improve it by bringing all financial systems onto a single network that can interact with other networks.

Stellar can be used in a few different ways. Users can send money to anyone, anywhere in the world, through Stellar’s apps or third-party services that act as network anchors. It can also be used to purchase virtual versions of other currencies, which is useful for people in countries with weaker currencies who want to save in a stronger one.

As an open-source network, anyone can utilize and build upon the Stellar infrastructure. Businesses can use it to create their own blockchain-based token, wallet, or app. The Stellar network is also useful for making payments and exchanging digital currencies for fiat currency. The Stellar Development Foundation also supports the use of Stellar for smart contracts and NFT minting.

Features of Stellar Blockchain

Scalability and Speed

The Stellar blockchain has become popular as a result of the improvements it offers. Stellar seeks to address the issues with scalability, transaction speed, and volume that plague other prominent blockchain networks like Bitcoin and Ethereum.

The network is an open-source database that is completely decentralized, with many different nodes handling the task of entering transactions.

It also assumes the duty of verifying blockchain-based financial transactions. Stellar’s Singular Consensus Protocol (SCP) simplifies transaction verification. Although verification of each transaction may take around 3-5 seconds, Stellar still outperforms other blockchains in terms of speed and scalability with minimal effort.

Limited Token Supply

One of the standout features of Stellar is the Lumen (LUMEN) token. Upon the launch of the Stellar network, approximately 100 billion Lumens were mined and released into circulation. However, Stellar also introduced native tokens, which have contributed to an average annual growth of 1% in the overall supply.

The community also voted against a proposal to increase the supply by an additional 1%, leading to the implementation of a new initiative to reduce the Lumen supply to 50 billion from the original 100 billion. A cap of 50 billion will now be placed on the supply, meaning that no additional coins will be minted.

Stellar vs. Ripple

Stellar and Ripple use nearly the same blockchain code and utilize a distributed ledger. They do not allow mining and offer almost free, instantaneous transactions. These similarities are present because a co-founder of both platforms, Jed McCaleb, utilized his knowledge from working on Ripple to develop Stellar.

However, the two platforms have different objectives. Ripple was developed so that banks could conduct international money transfers within a few seconds at a negligible cost, making banking and monetary systems more effective.

Stellar, on the other hand, was created to allow average users, especially those in developing countries, to participate in global trade in a streamlined, fast, and cost-effective manner. Although both can be used by anyone, they were intended for different user groups.

Furthermore, Stellar is backed by the Stellar Development Foundation, a charitable organization, while Ripple operates as a for-profit business.

Is It Safe to Invest in Stellar?

The potential of investing in Stellar depends on two factors: its past performance and prospects.

Performance History

So far, Stellar has been performing well. It has increased from a fraction of a cent at its inception to $0.086 as of December 6th. Based on Stellar’s performance, it may be an excellent long-term investment in the context of the larger cryptocurrency market. However, it is essential to consider all factors before making investment decisions.

Prospects

Most of the Lumen tokens have been burned, and the company does not have plans to replace them. This may cause concern for investors, but it’s important to remember that the coin will be in limited supply in the long term. Like any scarce resource, the remaining lumens may increase in value due to their scarcity. Stellar could be an excellent investment opportunity, given its potential for value growth.

It’s worth mentioning that the coin’s value is directly related to its usefulness and its ability to address real problems. Lumens meet both criteria as Stellar can efficiently, quickly, and inexpensively process international payments. Stellar is also backed by several industry leaders, such as MoneyGram.

In Conclusion

The Stellar blockchain technology allows for the integration of all forms of value, resulting in an interconnected financial infrastructure.
Its open-source nature promotes inclusivity and accessibility, helping to create a world where everyone has equal access.

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

If you would like to read more articles like this, visit DeFi Planet and follow us on Twitter, LinkedIn, Facebook, and Instagram.