Stellar Platform — What You Should Know

Digital Asset Platforms Series (5 part series — Part 4)

In this article, you’ll get all your questions about this particular project addressed explicitly.Document source

So, what is Stellar?

But, who are the founders?

The Stellar Platform is the brainchild of Jed McCaleb, a well-known figure in the Crypto sphere. His entry in the space was marked by the Mt GOX exchange which, unfortunately, got hacked shortly after he had sold it. After Mt GOX, he went on to create Ripple but left after a disagreement with one of the co-founders.Document source

Other notable names on the Stellar Platform project include Patrick Collison of Stripe, the Y Combinator president Sam Altman, Wordpress founder Matt Mullenweg, Naval Ravikant ( CEO and co-founder of AngelList) and Keith Rabois — a prominent technology entrepreneur and investor. They serve as the advisory board of Stellar.

Types of transactions on the Stellar Platform

Stellar is more like your traditional bank but without the outrageous fees. It also gives you complete control over your finances — since the platform is decentralized.

With Stellar: you can send and receive money across borders seamlessly, cheaply and fast. A complete transaction on the Stellar Platform takes between two and five seconds.

The platform also provides a cheap and flexible model of expansion for agency banking companies. It said that with fee as little $ 0.01, about 600,000 transactions can be achieved on the platform. As such, agency banking enterprise can leverage on mobile branches and increase their operations without ever having to spend a dime on overhead costs.Document source

How the Stellar Platform works

The Stellar Network has decentralized servers around the world that run a public ledger. Just like other Blockchain systems, the ledger is publicly available and keeps a record of every single transaction. The servers pass information between each other to verify transactions and update the ledger simultaneously.

Now let’s delve and explore how it works in three simple concepts:

PayPal on Blockchain

Think of Stellar as PayPal that operates on the Blockchain. For you to use Stellar, you’ll first of all need to deposit money in what we call an anchor. You deposit funds to the platform via trusted intermediaries such as banks.

The anchor keeps your money and credits your virtual wallet with a figure equivalent to the amount you deposited. And you can now send money to anyone on the network, anywhere in the world.

Since people transact on the same network, Stellar can sustain low fees. This is contrary to conventional financial systems that are coupled with a series of detours, multiple conversations and exorbitant fees to complete a transaction.Document source

Multi-currency transactions

Stellar facilitates cross-border transactions through their multi-currency approach. For instance, let say you have US dollars and you would like to send some Euros to a friend in Germany. There are three ways you can use to execute this transaction on the platform:

Currency conversion — To deal with foreign exchanges, the platform ledger contains a native orderbook for different currency pairing. In our example, Stellar will find a user who would want to trade EUR for USD and proceed to complete this transaction in a few seconds automatically.Document source

Use Lumens — As we earlier mentioned, Lumens (XLM) is the token used on the Stellar network. XLM serves as the bridge currency should there be no active market for a currency pair at a given time. In our case, if there is no ready market to trade Euro for USD, the platform will opt for USD -> XLM offer (as it instantaneously looks for an XLM -> EUR offer). Stellar then makes this exchange to complete your USD -> EUR trade.

Lumens can be stored in a variety of digital wallets as per your preference. You can use a desktop wallet, mobile wallet or a web wallet. You can download your wallet here.

Finally, should you exhaust the first two options, the platform will then check out for all possible offers available on the Stellar network that lead to your desired conversion. For instance, the process may look like this: EUR to AUD, AUD to ETH, ETH to XLM, and eventually XLM to USD.Document source

Consensus Protocol

Perhaps you may ask: how are transactions validated? Stellar uses a consensus protocol also referred to as ‘federated byzantine agreement’ to validate transactions.

Since Stellar Protocol operates on the basis of open membership system: any user can serve as a validation node, and as a node, you are free to select other nodes you would want to follow- instead of relying on recommendations from a central authority. And this makes the network even more decentralized.Document source

Currently, the platform has about 30 nodes powering the Stellar network. Such low participation levels are common side effects of systems without economic incentives for nodes maintaining the Blockchain. On Stellar, there are no economic rewards for validators; they dedicate their resources to maintaining the network purely on free will.

Who funds Stellar?

Remember we mentioned that Stellar.org is a nonprofit project and it is as good as free to use it. So, where does Stellar get enough resources to operate? Besides the initial lumen sale (5% lumens allocated to cover operation costs), Stellar relies on donations from corporates such as Google.com, BlackRock, FastForward and many more. Stripe (the startup) also offered initial funding to support Stellar.Document source

Final thoughts

Stellar has high potential to tremendously change the financial sector. The platform fees are ridiculously low, and their bottom-up approach in facilitating cross-border money transfers is certainly a force to reckon with.

Working families, for instance, spend over $44 billion on transaction fees via traditional financial systems. This can directly or indirectly cause a disproportionate impact on the poor. And through using Stellar, such unnecessary cost can be eliminated.

By and large, the platform’s ultimate success heavily depends on its adoption by the masses as well as other financial institutions. And should the scaling of the platform succeed, then Stellar will transform global cash transfers.Document source