Home News What is Stellar Blockchain?

What is Stellar Blockchain?

by SuperiorInvest

What is Stellar Blockchain?

The Stellar blockchain is one of hundreds of networks that store and transfer cryptocurrencies. As Bitcoin has grabbed headlines over the past decade, many other virtual currencies and platforms have amassed impressive profits and user bases. The stellar blockchain with its lumens token is one of them.

In early 2021, the value of Stellar’s lumen token increased more than fivefold, from $0.13 to $0.73, before collapsing the following year. As of early 2023, the lumen token is trading at around $0.08, according to crypto data website CoinMarketCap.

Key things

  • The Stellar blockchain is a distributed ledger used to transfer digital currencies.
  • The main token of the Stellar blockchain is Star lumens or XLM.
  • The Stellar blockchain uses a consensus algorithm that is faster, cheaper and more energy efficient than bitcoin.
  • The Stellar blockchain was launched in 2014 by Jed McCaleb, who also founded Mt. Gox and co-founded Ripple.
  • Critics say the Stellar blockchain is centralized around the Stellar Development Foundation, which controls a large share of lumen tokens.

Understanding the Stellar Blockchain

The basic operation of Stellar is similar to most decentralized payment technologies. It runs a network of decentralized servers with a distributed ledger that is updated every 2 to 5 seconds between all nodes. The most prominent differentiating factor between Stellar and Bitcoin is its consensus protocol.

Stellar’s consensus protocol does not rely on the entire network of miners to approve a transaction. Instead, it uses the Federated Byzantine Agreement (FBA) algorithm, which enables faster transaction processing. This is because it uses quorum segments (or part of the network) to approve and verify the transaction.

Each node in the Stellar network chooses a different set of “trusted” nodes. Once a transaction is approved by all nodes in that set, it is considered approved. The shortened process makes the Stellar network extremely fast, reportedly processing up to 1,000 network operations per second.

How the stellar blockchain works

The current process of cross-border transfers is complicated. It requires domestic banks to maintain accounts in foreign jurisdictions in local currencies. Their correspondent banks must operate a similar account in the country of origin.

The Nostro-Vostro process, as it is known, for cross-border fiat currency transactions is a lengthy process that involves conversion and reconciliation of accounts. Because it enables simultaneous verification, the Stellar blockchain can reduce or eliminate the associated delay and complexity.

Stellar’s Lumens cryptocurrency can also be used to provide liquidity and streamline the process. According to some reports, banks will use their own cryptocurrencies to facilitate such transfers in the future. According to David Mazières, Stanford University professor and creator of SCP, the protocol has “modest” computational and financial requirements. This allows even organizations with minimal IT budgets, such as non-profits, to join its network.

History of Stellar Blockchain

Stellar was launched in 2014 by Jed McCaleb (pictured), who also co-founded the cryptocurrency company Rippling and exchange Gox mountain. After leaving Ripple due to differences with the other co-founders, McCaleb and his partner Joyce Kim launched the Stellar protocol as a fork of the Ripple codebase. Payments company Stripe has provided $3 million in seed funding.

Stellar came into the limelight in October 2017 after it announced a partnership with IBM. The partnership envisages the creation of several currency corridors between the nations of the South Pacific.

The project has set a target of processing up to 60% of all cross-border payments in the region, which includes countries such as Australia, Fiji and Tonga. This would allow connections between small businesses, non-profit organizations and local banking institutions to expedite business transactions. For example, a farmer in Samoa could connect and transact with a buyer in Indonesia.

Also in 2016, leading technology consulting firm Deloitte announced a partnership with Stellar to develop a payment app. At a 2017 conference, McCaleb confirmed that 30 banks had signed up to use the Stellar blockchain for cross-border transfers.

Every Stellar wallet must maintain a minimum balance in order to exist. Currently, each account must maintain a base reserve of 1 XLM.

Concerns about stellar blockchain

After the launch of the Stellar protocol, many investors raised alarm about the high number of lumen tokens controlled by the Stellar Development Foundation. Rather than having Stellar nodes “mine” the new cryptocurrency, Stellar’s creators simply created 100 billion lumens of tokens. The vast majority of them were assigned to the Stellar Development Foundation.

Although these resources are ostensibly intended to fund development and adoption, some investors are concerned that they could be sold on the market, diluting the holdings of potential investors. To address these concerns, the SDF intentionally destroyed 55 billion lumens in 2019.

There are also concerns that the network relies on a small number of nodes, many of which are controlled by the SDF. In 2019, two of these nodes unexpectedly failed, causing the Stellar blockchain to grind to a halt for over an hour.

Stellar Blockchain Vs. Ripple

Stellar is an open-source payment technology that shares several similarities Rippling and his XRP cryptocurrency. Like Ripple, Stellar is a payment technology that aims to connect financial institutions and reduce the cost and time required for cross-border transfers.

Both networks use similar protocols and were derived from the same code base. There is no mining or algorithmic proof of work in either protocol: All tokens were created at the moment the blockchain was launched.

The majority of XRP tokens are controlled by the for-profit company Ripple, while the majority of lumen tokens are held by the non-profit Stellar Development Foundation. While Ripple is a closed system, Stellar is open-source.

They also have different customers. Ripple works with established banking institutions and consortia to streamline their cross-border transfer technology. In contrast, Stellar focuses on emerging markets and has several use cases for its technology, including money transfers and bank loan distribution.

What is XLM Crypto?

XLM or Stellar lumens is the native cryptocurrency of the stellar blockchain and is used to pay transaction fees. However, it is not the only cryptocurrency on the Stellar blockchain that can be used to move tokens representing anything from commodities to fiat currencies.

How do I check the blockchain for a star transaction?

You can check the star transaction in the star block explorer. These are online tools that allow users to view recent transactions, holds and account balances. Popular Stellar explorers include Stellarchain.io, Blockchair.com, and StellarExpert.

How does the Stellar Blockchain work?

The Stellar blockchain uses a proof-of-agreement consensus algorithm to ensure coordination between different nodes. These nodes broadcast transactions to each other every five seconds, ensuring that they all keep identical versions of the Star Ledger.

Bottom Line

The Stellar blockchain is one of thousands of competitors to Bitcoin and Ethereum. It is used for fast, low-cost transactions with minimal computational or energy costs. Although it has enjoyed occasional price spikes, the value of Stellar lumens has plummeted relative to other cryptocurrencies.

Investing in cryptocurrencies and other initial coin offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the author to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decision. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. At the time this article was written, the author owns the cryptocurrency.

Source Link

Related Posts

%d bloggers like this: