What is Stellar and Is It The Next Big Thing in Crypto?

In the vast landscape of cryptocurrencies, one name has been steadily gaining momentum and capturing the attention of tech enthusiasts: Stellar. But what is Stellar, and why is it making waves in the world of blockchain?

Just like Bitcoin, which has dominated the headlines for the past decade, numerous other virtual currencies and platforms have emerged, accumulating substantial growth and user communities. Within this dynamic landscape, the Stellar blockchain, accompanied by its native token called lumens, has established its position.

So, it’s quite understandable that there’s a lot to talk about Stellar. In this article, we’ll do just that by uncovering its key features, use cases, and the impact it’s making in the crypto sphere. 

Let’s get into it.

What is All This fuss About the Stellar Blockchain? Let’s Break It Down in an “Rasy” Manner

In 2014, Jed McCaleb and Joyce Kim founded Stellar. McCaleb had previously worked on the Ripple payment network and was one of the co-founders of Mt. Gox, the original Bitcoin exchange. He and Kim saw an opportunity to build an open-source, decentralized, blockchain-based cross-border payment platform that was more user-friendly and effective.

So, you may be getting the idea that Stellar views itself as “crypto-adjacent” because it wants to improve rather than replace the current financial infrastructures. Stellar exists so that anyone can produce, send, and exchange various types of digital representations of money, in contrast to cryptocurrency networks like Bitcoin, that only exist to trade Bitcoin.

In other words, Stellar blockchain is a decentralized network that enables fast, secure, and cost-effective transactions and transfers of digital assets. So, in technical terms, it’s a distributed ledger technology (DLT). 

The cryptocurrency used by Stellar to enable international transactions is called Stellar Lumens (XLM). As you may guess, within the Stellar network, anyone can build a Stellar core verification node that validates transactions. In other words, these Verification nodes, or trusted nodes, manage the Stellar core and validate transactions.

All these make Stellar a hot topic in the blockchain arena. 

Key Features of Stellar Blockchain

In the ever-evolving world of blockchain technology, Stellar stands out as a powerful platform with a range of key features that set it apart. From its decentralized network for fast and secure transactions to its efficient consensus protocol and built-in exchange and tokenization capabilities, Stellar offers a comprehensive ecosystem for individuals and businesses alike.

Decentralized Network for Fast and Secure Transactions

• Stellar operates on a decentralized network, ensuring that no single entity has control over the transactions.

• This decentralized structure eliminates the need for intermediaries, reducing costs and increasing transaction speed.

• Stellar’s consensus algorithm enables quick transaction confirmations, typically within 3-5 seconds, making it significantly faster than traditional banking systems.

• Robust security measures, including digital signatures and cryptographic protocols, protect transactions from tampering or unauthorized access.

Stellar Consensus Protocol: Consensus Made Efficient

• Stellar Consensus Protocol (SCP) is the underlying consensus algorithm of the Stellar blockchain.

• SCP allows for efficient consensus among network participants, enabling fast and secure validation of transactions.

• Unlike resource-intensive proof-of-work mechanisms, SCP achieves consensus through federated voting, resulting in lower energy consumption and faster confirmations.

• SCP’s consensus process enhances scalability, enabling the Stellar network to handle a high volume of transactions without compromising performance.

Built-in Exchange and Tokenization Capabilities

• Stellar offers a built-in decentralized exchange, allowing users to convert between different assets seamlessly.

• The decentralized exchange supports both cryptocurrencies and fiat currencies, facilitating efficient and cost-effective asset conversion.

• Stellar also provides a platform for tokenization, allowing the representation of real-world assets as tokens on the blockchain.

• Tokenization simplifies the process of transferring and trading assets, enabling fractional ownership and streamlining asset management.

Use Cases of Stellar Blockchain

To fully understand what Stellar is, you must understand its versatile range of use cases. Here are the three notable task forces on the stellar blockchain network. 

Cross-Border Payments: Revolutionizing Remittances

• Stellar blockchain has emerged as a game-changer in cross-border payments, offering a more efficient and cost-effective alternative to traditional remittance systems.

• By leveraging Stellar’s fast and secure transactions, individuals and businesses can transfer funds across borders with reduced fees and shorter settlement times.

• Stellar’s decentralized network and built-in exchange facilitate currency conversions during the payment process, eliminating the need for multiple intermediaries and reducing foreign exchange costs.

• The streamlined cross-border payment capabilities of Stellar have the potential to empower individuals and businesses, particularly those in underserved regions, by providing affordable and accessible financial services.

Financial Inclusion: Empowering Unbanked

• One of the core goals of Stellar is to promote financial inclusion and empower the unbanked population worldwide.

• The Stellar blockchain provides an opportunity for those individuals bereft of conventional banking facilities to accumulate, transmit, and accept funds via electronic wallets.

• By enabling low-cost transactions and providing access to a global network of financial services, Stellar opens doors to economic opportunities for the unbanked, fostering financial empowerment.

• Stellar’s focus on inclusivity and affordability has the potential to bridge the gap between the financially excluded and the global economy, unlocking new possibilities for economic growth and poverty reduction.

Tokenization and Asset Transfer: Simplifying Ownership

• Stellar blockchain provides a platform for tokenization, enabling the representation of real-world assets as digital tokens on the blockchain.

• Through tokenization, assets such as stocks, bonds, real estate, or even commodities can be digitized, divided into fractional ownership, and traded more easily.

• This simplifies the transfer of ownership, reduces administrative complexities, and enhances liquidity for traditionally illiquid assets.

• Stellar’s built-in decentralized exchange allows for seamless trading of these tokenized assets, enabling investors to diversify their portfolios and access a broader range of investment opportunities.

Let’s Talk About Stellar’s Key Components

Stellar, as a robust blockchain platform, comprises several key components that work together to create a seamless and efficient ecosystem. Let’s explore these components and their roles:

Nodes:

Stellar network consists of nodes, which are individual computers that maintain a copy of the blockchain ledger. Nodes participate in the consensus process, ensuring agreement on the state of the network and validating transactions.

Stellar Consensus Protocol (SCP):

SCP is the unique consensus algorithm used by Stellar, enabling fast and secure transaction confirmations. It employs a federated Byzantine agreement model, where a group of trusted nodes reaches a consensus on the validity of transactions.

Anchors:

Anchors are bridges between the Stellar network and external assets, such as fiat currencies or other cryptocurrencies. They issue asset-backed tokens on the Stellar network, representing the value of the corresponding assets held in custody.

Distributed Exchange:

Stellar incorporates a decentralized exchange (DEX) that allows users to trade various assets directly on the network. The DEX supports both fiat-to-crypto and crypto-to-crypto trading pairs, providing liquidity and facilitating seamless asset conversions.

Smart Contracts:

Stellar supports the creation and execution of smart contracts, enabling the automation of complex financial agreements and processes. Smart contracts on Stellar are implemented through the use of “anchors” and “escrow accounts.”

Horizon API:

Horizon is the API server for the Stellar network, providing developers with tools and resources to interact with the blockchain. It offers functionalities such as submitting transactions, querying account balances, and retrieving transaction history

How Does the Payment System of Stellar Actually Work?

Imagine Sarah, a freelance designer from the United States, receives payment for her services in euros from a client based in France. With Stellar’s payment system, Sarah can easily convert the euros into Lumens (XLM), the native asset of the Stellar network.

Using an anchor, she can then convert the Lumens into US dollars, ensuring a seamless cross-border transfer. The pathfinding algorithm finds the most efficient conversion route, taking into account available liquidity on the network, ensuring Sarah receives the converted payment quickly and at a low cost.

This example showcases how Stellar’s payment system leverages anchors, Lumens as a bridge currency, and the pathfinding algorithm to enable fast and cost-effective cross-border transactions, making it ideal for freelancers, businesses, and individuals who require efficient global payment solutions.

Comparison with Other Popular Blockchain Platforms

As blockchain technology evolves, it’s essential to understand how different platforms compare to make informed decisions. Stellar, as a prominent blockchain platform, has its own popular competitors like Ethereum and Ripple. Let’s dive deeper. 

Stellar vs. Ethereum: Scalability and Performance

As you may know, just like Stellar, Ethereum is also a prominent blockchain platform that has made significant contributions to the world of decentralized applications and cryptocurrencies. However, while they share similarities in their goals of empowering users and facilitating decentralized transactions, there are key differences that set them apart.

Among the principal divergences between the two lies their capacity for expansion. The architecture of Stellar has been constructed considering scalability as a priority, which facilitates rapid and economical transactions. 

In contrast, Ethereum has confronted issues related to scalability, particularly when its network experiences a surge in demand. The proof-of-work consensus methodology employed by Ethereum demands an extended duration for validating transactions, thereby resulting in a reduced transactional velocity.

Stellar principally aims to expedite and safeguard transaction processes, albeit its aptitude for managing smart contracts is somewhat restrained in comparison to Ethereum. Additionally, Stellar is committed to transforming the realm of international financial transfers, fostering swift and economically viable remittances, and championing the cause of financial inclusion for populations devoid of traditional banking facilities.

Ethereum, on the other hand, provides a broader platform for building decentralized applications (DApps) and executing complex smart contracts. Its objective is to create a global decentralized computing platform that allows developers to build and deploy a wide range of applications.

Stellar vs. Ripple: Focusing on Different Objectives

It’s no secret that Stellar is a hard fork of Ripple, making them quite similar in terms of structure and restrictions. However, there are some significant distinctions between the two that you must take into account. 

While the nonprofit Stellar Development Foundation has most of the lumens tokens, the for-profit Ripple controls most of the XRP tokens. Stellar is an open-source system, whereas Ripple is a closed system.

They serve a variety of clients. Stellar, in contrast, focuses on emerging markets and has many applications for its technology, including money transfers and the disbursement of bank loans.  

Stellar Lumens (XLM): The Native Asset of Stellar

At the heart of the Stellar blockchain lies Stellar Lumens (XLM), the native cryptocurrency that fuels the network and enables a wide range of transactions and functionalities. This is a key aspect to learn before diving into the Stellar ecosystem. 

Introduction to Stellar Lumens (XLM)

The native coin of the stellar blockchain is called XLM, or stellar lumens, and it is used to pay transaction fees. However, the Stellar blockchain, which can be used to transfer tokens reflecting anything from goods to fiat currencies, is not the only cryptocurrency available.

Utility and Role of XLM in the Stellar Ecosystem

• Transaction Settlement: XLM serves as a pivotal component in expediting transaction resolutions within the Stellar network. It functions as an intermediary currency, streamlining the conversion process amongst diverse assets, which include both contemporary digital and conventional ones.

• Anti-Spam Measure: To prevent network spam and abuse, a small amount of XLM is required as a transaction fee, ensuring the integrity and security of the Stellar network.

• Pathfinding: XLM serves as a pathfinding asset, enabling users to find the most efficient conversion routes for asset transfers, especially in cases where direct liquidity may be limited.

• Voting and Governance: Holders of XLM have the opportunity to participate in the governance and decision-making processes of the Stellar network through voting on protocol upgrades and improvements.

• ICO Platform: Stellar provides a platform for Initial Coin Offerings (ICOs) and token issuance. XLM acts as a means of raising funds during ICOs and as a base currency for trading newly issued tokens on the Stellar decentralized exchange.

The Advancement of Stellar Smart Contract on Soroban

In the world of blockchain technology, smart contracts play a vital role in automating and executing agreements without the need for intermediaries. Stellar, being a flexible and innovative blockchain platform, has introduced a unique implementation of smart contracts known as “Stellar Contract” on Soroban.

Soroban, developed by Interstellar, is a powerful toolset that enhances Stellar’s capabilities by enabling the execution of sophisticated smart contracts. It extends the functionality of Stellar by incorporating advanced scripting capabilities, allowing developers to create and deploy complex contract logic on the Stellar network.

Understanding Stellar Contract on Soroban     

Advanced Scripting:

Soroban introduces an advanced scripting language that extends the capabilities of Stellar’s native transaction set. Developers can utilize this language to define intricate conditions, logic branches, and fine-grained controls within their smart contracts.

Flexibility and Customization:

Stellar Contract on Soroban offers flexibility in contract design, allowing developers to tailor contracts to specific requirements. It enables the creation of conditional payments, escrow services, multi-signature setups, and more.

Enhanced Security:

Stellar Contract leverages the security features inherent to the Stellar blockchain. Combining the power of smart contracts with the robustness of Stellar’s consensus protocol ensures secure and tamper-resistant execution of contract logic.

Integration with Stellar Ecosystem:

Soroban seamlessly integrates with the Stellar ecosystem, leveraging the existing infrastructure and network effects. Developers can easily deploy and interact with Stellar Contracts using the Horizon API, Stellar’s official API server.

Simplified Development:

Soroban provides developers with a user-friendly development environment, making it easier to create, test, and deploy Stellar Contracts. It offers tools, documentation, and libraries that assist developers in implementing complex contract logic efficiently.

With Stellar Contract on Soroban, the Stellar blockchain opens up a world of possibilities for creating and executing sophisticated smart contracts. This integration of advanced scripting capabilities and the robustness of Stellar’s underlying technology empowers developers to build complex decentralized applications, financial instruments, and innovative solutions on the Stellar network.

Now the Big Question: How to Get Started with Stellar Blockchain?

Starting your journey on the Stellar blockchain is an exciting chance to learn about the decentralized financial industry and to utilize the potential of quick and safe transactions. We will walk you through the necessary steps to get started with the Stellar blockchain in this part, from creating a Stellar wallet to traversing the network and perusing its resources.

Setting Up a Stellar Wallet

• Choose a Wallet: Select a reliable and secure Stellar Wallet to store and manage your XLM and other assets. Options include desktop wallets, mobile wallets, and web wallets.

• Create a Stellar Account: Follow the wallet’s instructions to create a Stellar account. This involves generating a unique public key (account address) and private key (used for authentication and securing your funds).

• Secure Your Keys: Safeguard your private key by storing it offline or using a hardware wallet. Back up your keys in a secure location to prevent the risk of losing access to your Stellar account.

Navigating the Stellar Network and Assets

• Connect to the Stellar Network: Once your wallet is set up, connect it to the Stellar network. Some wallets may require you to choose a Stellar node to connect to, while others handle this automatically.

• Send and Receive XLM: Use your Stellar wallet to send and receive XLM by entering the recipient’s public key and the desired amount. Stellar’s fast transaction confirmations ensure quick transfers.

• Explore Stellar Assets: Apart from XLM, Stellar supports various assets, including stablecoins, cryptocurrencies, and even traditional assets like fiat currencies. Discover and trade these assets on the Stellar decentralized exchange.

However, in any blockchain platform, it’s crucial to prioritize security when dealing with cryptocurrencies. Keep your wallet and private keys secure, and exercise caution when interacting with third-party services.

The End

So, what is Stellar? It’s one of the countless blockchains that compete with Bitcoin and Ethereum. Transactions are carried out quickly and cheaply with little expenditure of time or energy. However, the value of Stellar lumens has decreased in comparison to other cryptocurrencies, despite the fact that it has occasionally experienced dramatic price increases. 

Despite these difficulties, Stellar Blockchain appears to have a promising future. With organizations like IBM, Deloitte, and Stripe using the network for their payment systems, the platform has already experienced significant acceptance in the financial sector. We anticipate that Stellar and other Blockchains will be adopted more widely in the upcoming years as more people become aware of the advantages of Blockchain technology.

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Frequently Asked Questions

Is Stellar a good investment?

Stellar, like any investment, carries its own risks and rewards. It is important to conduct thorough research and consider various factors before making investment decisions. 

Can I make passive income with Stellar?

Stellar offers opportunities for individuals to earn passive income through various mechanisms, such as Stellar’s inflation mechanism allows XLM holders to receive a small portion of newly minted XLM as an incentive for holding and supporting the network. To participate, you can delegate your XLM to an inflation pool or run a validator node.

Also, some platforms and services allow you to stake or delegate your XLM, earning rewards in the form of additional XLM or other assets. This typically involves locking up your XLM for a specific period.

Why is Stellar so cheap?

The price of Stellar’s native asset, XLM, is influenced by several factors, and its perceived “cheapness” may be subjective. Some factors that can contribute to the price of XLM include market demand and supply, market competition, and token supply.