New Coins on the block - Stellar (XLM)

Stellar is a decentralized network with which value-exchange transactions of various kinds can be realized worldwide with low transaction fees.

Stellar is not a New Coin on the Block in itself, but Stellar has been around for some time: the first blog post to introduce Stellar was written on July 31, 2014 . However, the network has gained more than 5,000% in value in the fourth quarter of last year - meaning its value has increased fiftyfold . Currently, Stellar is in seventh place of the crypto currencies in terms of market capital and trading volume.

Where does this value gain come from and what is the nature of this cryptocurrency? We would like to pursue these questions in this new edition of the series " New Coins on the Block ".

Stellar - transaction platform for various forms of value exchange
To introduce Stellar it makes sense to start with the motivation behind this cryptocurrency. A modern problem in global payments are different currencies: A person from Germany wants to pay a company in India. As an Indian company, the preferred currency of the service provider is the rupee, but the customer's euro.

So that it nevertheless comes to a business, the euro must therefore be converted into rupees. The challenge is that financial infrastructures are incompatible with each other. In order for value to be exchanged here, third parties are needed, acting as intermediaries between the different currency systems - so it will take a lot of money at the exchange bureaus. In the big financial economy there are corresponding international institutions. However, these middlemen provide for centralized international payment channels and inefficient payment transfers.

Use Cases, in which the presence of middlemen is necessary for process handling, are known to be the classical motivations for the blockchain technology: In the case of Stellar, this value exchange should be realized via a blockchain.

If someone feels reminded of Ripple by this motivation , he is not wrong: Stellar was originally developed on the basis of ripple, also reminds the role of the Anchors strongly to the gateways of Ripple. A decentralized network for the exchange of goods requires a bridge between the network and the rest of the world. In this blockchain only promissory notes are stored, which are not worth anything without a link to other payment systems.

In the above example, the Indian company wants to receive rupees as part of the international payment transfer and the customer needs a job that accepts Euro. These bridges to the real world are called in the Stellar network Anchors. They are financial service providers that are connected to each other via the Stellar network. The ancestry of Ripple is still recognizable today, that the Anchors in their pictures continue to be called gateways.

Next to these anchorages are the classic nodes, where the blockchain is stored. The nodes are simply called servers in the Stellar network. Since the promissory notes are deposited in this block chain, the exchange value of different goods can be decentrally recorded via these transactions. In this way a decentralized exchange is realized in the Stellar network. Again, you feel reminded of Ripple, the expert urges the catchword Interledger .

Stellar Consensus Protocol - a decentralized, energy-efficient and secure consensus protocol
Of course, Stellar is not just Ripple in green: However, since they followed the Ripple approach to the consensus, Stellar was completely put on its own codebase. The background to this move away from Ripple is almost as far in the past as the origin of Stellar itself: In December 2014 was weaknesses in the consensus system of Ripple written .

These weaknesses are primarily in the so-called FLP Impossibility , a dilemma formulated by Michael Fischer, Nancy Lynch and Michael Paterson in 1985 regarding the achievement of a consensus in distributed systems. According to this dilemma, a decentralized consensus system can have a maximum of two out of three positive characteristics:

Security (all results on all nodes are identical)
Liveliness (working nodes always provide an answer to inquiries)
Fault tolerance (the network can handle errors of individual nodes)

According to Stellar, the ripple consensus mechanism is intended to favor fault tolerance and liveliness over security. Concretely, according to Stellar, Ripple optimizes the processing speed of the network at the expense of security. Since situations could arise in which different versions of the blockchain are temporarily located on different nodes, this would open the door for double-spending attacks.

Of course, Ripple responded to these allegations and emphasized the security of their consensus mechanism. Here is not the place to discuss the validity of Stellar's allegations. It is clear that this was the basis on which a new consensus mechanism was developed. A final white paper was written in February 2016 by David Mazières. The basic idea behind this consensus is pretty cute in a comic illustrated on the website of the Stellar Development Foundation. In the Stellar Consensus Protocol, a consensus based on a so-called Federated Byzantine Agreement is reached and should be decentralized, fast, secure and not dependent on trust. The consensus is achieved as follows:

Nodes write a possible entry for the blockchain and publish it
each node now looks at a portion of the other nodes and tries to adapt its version of the new entry to it
Since all nodes have reached consensus with one part of the other nodes in this way, a complete consensus can emerge.

All nodes decide for themselves which other nodes they want to trust. In addition, it is checked whether the entries which are appended to the block chain contradict the previous block chain. So Stellar reaches a consensus that is similar to the ripple consensus and gets along without proof of work and the creation of a big stakes.

Stellar Lumens - the fuel of Stellar
Lumens is Stellar's own asset and is related to the Stellar network such as XRP to Ripple or Gas to Ethereum: transactions in the Stellar network cost, regardless of the goods exchanged, a trading fee of .00001 lumens, which in the As the transaction burns. In addition, each Stellar account must contain a minimum of 20 lumens. One reason for these measures is that it prevents spam transactions. If someone with evil intentions wants to paralyze the network with a plethora of transactions, so someone plans a DoS attack, he needs a plethora of lumens.

In addition to preventing spam, Lumens can facilitate transactions between different currencies if there is not a large market for that value pair. In such cases, lumens would serve a bridging function.
In short, it can be said that Lumens is the fuel that makes the Stellar network workable.

Stellar's Genesis Block has created 100 billion Stellar, but each year 1% new coins are created. Every week a part of it is generated. Within the Stellar network, token holders can choose to which account in the network this distribution should be realized. Those who can combine 0.05% of the votes receive a share of the newly generated coins.

IBM and Stellar - a partnership for Blockchain?
Overall, certainly an exciting currency - but what exactly happened in October that since then Stellar shot so high? One reason may be that Stellar has IBM as a co-operation partner to work together to create a solution for cross-border payment transactions. In addition, Stellar presents itself as an alternative to Ripple; People to whom Ripple is too centralized will accordingly find an interesting counter-proposal in Stellar.

With people like Jed McCaleb , who was no stranger to cryptocurrency with the eDonkey 2000 filesharing network, and Stanford University's Prof. David Mazières, Stellar's development team is very well positioned. Jed McCaleb's past, however, raises a legal point of view: technically filesharing networks are very interesting, but eDonkey itself has been sued by the RIAA, In addition, Jed McCaleb was also a developer of MtGox. On the one hand, this crypto-purse was the biggest hub for Bitcoin at weddings, but there is little need to be said about the further story after being handed over to Mark Karpelès. Finally, it is critical to note that solving a decentralized, global exchange through anchors only shifts the middleman problem.

Nevertheless, Stellar is an interesting cryptocurrency - regardless of the current price. If you want to know more about this network, please refer to the very detailed page of the Stellar Foundation .