The Stellar blockchain is an open-source, distributed payments infrastructure that enables individuals, institutions, and companies to move money quickly and securely. It is powered by a public ledger and the native Stellar cryptocurrency, XLM, which is used to pay transaction fees and facilitate transactions on the network. In this Fork Log review, we will explore the various features of the Stellar blockchain and XLM cryptocurrency.
- Stellar is a blockchain designed for cheap, secure and high-speed international payments between individuals and organizations. As of September 2022, there were over 5 million addresses on the Stellar network.
- The native coin of the project is Stellar Lumens (XLM), which was released in 2014. Now it is in the TOP-50 cryptocurrencies by capitalization.
- The Stellar blockchain is used by MoneyGram, IBM World Wire and many local operators for money transfers around the world.
- According to the roadmap, by the end of 2022, Stellar plans to introduce a virtual machine, which will allow the creation of smart contracts and the development of decentralized applications.
Who founded Stellar?
Project Stellar founded in 2014 by American programmer and entrepreneur Jed McCaleb. At that time, he was known as the co-founder of the eDonkey2000 file hosting service and the infamous Mt.Gox crypto exchange, and then as the co-founder and CTO of Ripple. McCaleb was frustrated by the high level of centralization of the project, which focused on financial institutions, and therefore decided to launch its decentralized version with a focus on private electronic payments.
In July 2014, in San Francisco, McCaleb, along with Stanford University professor David Mazier, registered the Stellar Development Foundation (SDF), a non-profit organization. It soon received $3 million in funding from the American IT company Stripe, which is developing an application for electronic transfers and payments.
The Stellar blockchain started operating in the fall of 2014. It was originally a clone of Ripple with the same codebase. However, in the spring of 2015, the SDF launched an updated Stellar blockchain on its own Stellar Consensus Protocol, developed by David Mazier.
In May 2017, Stellar’s commercial division, Lightyear.io, began operating. In September 2018, it was acquired by Chain and the combined company was named Interstellar. She is engaged in the creation and integration of solutions to improve the efficiency of international payments by using the power of the Stellar blockchain.
In 2019, Jed McCaleb was replaced as CEO of the SDF by Denelle Dixon, who previously served as COO of the Mozilla Foundation.
How does Stellar work?
The backbone of the Stellar network is the Stellar Consensus Protocol (SCP), which its creator David Mazier called the first provably secure consensus mechanism. It uses the architecture of the “federated system of Byzantine agreements”: many peer computing nodes participate in the process of generating blocks and verifying transactions.
The procedure for reaching consensus and including approved transactions in new blocks in the SCP consists of three stages:
- Nomination — nodes nominate candidate blocks for approval;
- Vote – nodes vote for their own and other candidates, and if a quorum is found, a “ballot” is formed that allows the inclusion of a new block in the blockchain;
- Time-out is a mechanism by which nodes discard candidates that failed to reach a quorum and retry voting.
There are three types of compute nodes in Stellar:
- Observer – sends transactions to the network;
- Validator — participates in the SCP voting process and confirms new blocks;
- Archiver — stores and constantly updates the Stellar blockchain ledger.
As of September 2022, the Stellar blockchain has about 40 active validator nodes. Of these, 3 belong to the SDF, the rest belong to two dozen organizations, including cryptocurrency exchanges where the XLM coin is traded. This ensures decentralization and network security.
Thanks to the described architecture, the Stellar blockchain can process more than 1000 transactions per second with an average confirmation time of one transaction of less than 5 seconds.
How is the Stellar tokenomics structured?
During the launch of the Stellar network in 2014, about 100 billion XLM were created, and the inflation rate was set at 1% per year.
It was originally planned that the Stellar Development Foundation would distribute more than 50% of XLM’s emission to partners and private users over the next 10 years. To do this, we have developed an extensive airdrop program for holders of bitcoin, XRP coins and users of various blockchain services.
In particular, in 2018-2019. Stellar Lumens coins worth about $20-30 could be received by every verified user of the Blockchain.com wallet, as well as the Poloniex and Coinbase crypto exchanges, after passing the project knowledge test.
However, the generous distribution of XLM had a negative impact on the market quotes of the asset. So in November 2019 Stellar tokenomics was revised: the SDF decided to burn more than 55% of the XLM supply and canceled the inflationary issue of new coins.
As of September 2022, the total supply is 50 billion XLM, more than 50% of the coins are already in free circulation.
What is XLM cryptocurrency for and what features does it have?
The XLM coin performs three main functions in the Stellar ecosystem:
- payment of commissions for transactions in the blockchain (0.00001 XLM per transaction);
- account management on the Stellar network (to activate the transfer feature, you must have at least 1 XLM in your Stellar wallet);
- unit of exchange in the Stellar blockchain;
- an intermediate currency used to provide liquidity for any tokens issued on the Stellar network.
The Stellar Lumens cryptocurrency is traded on the largest centralized crypto exchanges (both in the spot section and in the form of futures). Its storage is supported by all popular multicurrency wallets.
From the point of view of ordinary users, XLM transfers are very fast and cheap, but not always convenient. For example, when sending cryptocurrency to the addresses of centralized crypto exchanges and other custodial services, it is required to indicate a special Memo note in addition to the address. This is an additional numeric or alphabetic code that is generated in the wallet. You can send a transfer without a Memo, but exchanges will not be able to credit funds to the correct account.
At the beginning of 2019, the well-known investment company Grayscale Investments, focused on investing in crypto assets, launched a trust fund, the underlying asset of which was the Stellar Lumens coin. However, it is not popular: as of September 2022, the capitalization of the trust is only $7.7 million.
What crypto assets are issued on the Stellar blockchain?
The Stellar blockchain allows you to quickly and cheaply, in just a few simple operations, create custom tokens with the given properties. Thanks to this, in 2018, the Stellar platform took second place after Ethereum in terms of the number of ICOs conducted.
Another important consequence of the simplicity of issuing tokens was the possibility of tokenizing any real assets, for example, issuing stablecoins pegged to different national currencies. Their free conversion is carried out using “anchors” — trusted financial organizations that provide free exchange of national currencies into XLM tokens and coins and vice versa. They can be seen as bridges between the traditional economy and the Stellar network.
One of the first to use this opportunity of the Stellar network was the French payment blockchain service Tempo, which in 2017 began issuing the Euro Tempo Token (EURT), pegged to the euro.
In April 2019, the British online bank Wirex issued 26 stablecoins on the Stellar blockchain at once, pegged to different national currencies, with the possibility of instant conversion.
In February 2021, Circle began issuing Stellar-based USDC stablecoin. Support for USDC transfers in this network has been announced by many large crypto exchanges.
How is Stellar evolving?
Unlike Ripple, Stellar was initially positioned as a scalable, fast and secure cryptocurrency for payments between individuals. To bring XLM closer to private users and overcome the barrier between cryptocurrencies and fiat money, the Stellar Development Foundation has entered into many partnerships with payment processors around the world, with a particular focus on Africa, Asia and South America.
Here are just a few of the most interesting partnerships:
- In April 2015, SDF partnered with cloud banking software developer Oradian to integrate Stellar into the Oradian platform to serve microfinance institutions in Nigeria.
- In 2016, Deloitte Corporation announced the integration of Stellar to create the Deloitte Digital Bank cross-border payment application.
- In the fall of 2017, Stellar entered into a partnership agreement with IBM Corporation. Later, the IBM Blockchain World Wire service was introduced, which allows financial institutions to make international payments in seconds.
- At the end of 2017, Stellar began using the SureRemit cashless money transfer platform based in Nigeria.
- In October 2021, payment company Flutterwave launched two new money transfer corridors between Europe and Africa using the Stellar network.
One of the main partners of Stellar is the MoneyGram international money transfer service, which has 350,000 service points in 200 countries around the world. In the fall of 2021, the company began using the Stellar blockchain for USDC stablecoin transactions.
Thanks to the Stellar and MoneyGram collaboration in June 2022, Vibrant and Lobstr digital wallet users in several countries around the world, including Kenya, Canada, the United States and the Philippines, appeared the function of converting local currencies into cryptocurrencies and vice versa without the need to have a bank account or a plastic card.
As published in early 2022 Stellar development roadmap, by the end of the year, the integration of the virtual machine and the support of smart contracts into this network should be completed. This important update could change the Stellar ecosystem and lead to the active development of DeFi services that have become familiar to users of other blockchain platforms.
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The Stellar blockchain and XLM cryptocurrency are both revolutionary tools that have the potential to revolutionize the way we view money and payments in the digital age. With its low transaction fees and fast transaction speeds, Stellar and XLM have quickly become some of the most popular blockchain-based payment systems. With its potential to revolutionize the way money and payments are conducted, it is clear that the Stellar blockchain and XLM cryptocurrency are here to stay.