Stellar: everything you need to know about XLM
Axel has been immersing himself in the world of crypto and blockchain for quite some time, which he then translates into understandable articles.
Jed McCaleb, Joyce Kim
Stellar Consensus Protocol
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What is Stellar?
Stellar (XLM) is a cryptocurrency and payment protocol designed to enable fast, low-cost, and cross-border transactions. The platform was founded in 2014 by Jed McCaleb, co-founder of Ripple, and developed by the non-profit organization Stellar Development Foundation. Stellar operates on a distributed ledger, also known as blockchain technology. The protocol utilizes a unique consensus method called the Stellar Consensus Protocol (SCP).
One of Stellar's distinctive features is its ability to exchange and support various currencies, facilitating seamless transactions between different fiat and digital currencies. Additionally, users can create, issue, and manage their own digital assets.
Another important aspect of Stellar is its focus on financial inclusion, particularly for individuals in developing countries and areas with limited access to traditional financial services. Stellar aims to assist the unbanked and those with low incomes in accessing financial services, thereby increasing their economic opportunities.
How does Stellar work?
Stellar is a decentralized network designed to enable the exchange of money and assets between different parties. The network utilizes a distributed ledger called the Stellar blockchain, where transactions are recorded and confirmed by a network of nodes. Stellar enables fast and low-cost transactions, even across borders and between different currencies. The network also has its own cryptocurrency, XLM, which is used to facilitate transactions and secure the network. XLM serves various other purposes within the Stellar ecosystem, including incentivizing node participation and funding new projects on the platform.
Thanks to its unique features, Stellar is often used for international payments, microtransactions, and the exchange of assets between different parties.
The XLM token
The XLM Token
The XLM token has a unique token economy. The native cryptocurrency of Stellar is Lumens (XLM), which facilitates transactions on the network and acts as a bridge currency between different fiat and crypto currencies.
The Stellar network does not require miners, as it uses a consensus mechanism called the Stellar Consensus Protocol (SCP). This protocol relies on a network of validators instead of miners, and they must agree on the validity of transactions. Validators are chosen by XLM holders, who stake their tokens to vote for the validators they trust.
Another unique feature of the XLM token economy is the use of trustlines. Trustlines are agreements between two parties that enable them to conduct transactions without actually transferring money, increasing the speed and efficiency of the network.
Lastly, a small amount of XLM is deducted from each transaction on the Stellar network. These 'transaction fees' are subsequently burned, increasing the scarcity of XLM and potentially raising its value.
The Technology Behind XLM
The technology behind XLM consists of an open-source decentralized payment protocol. The protocol is designed to simplify cross-border payments and provide financial services to people without access to a bank. The protocol is designed to be fast, cost-effective, and secure, utilizing a unique technical architecture for efficient transaction processing.
The technical design of Stellar is based on the Stellar Consensus Protocol (SCP), which uses a network of nodes to validate transactions and reach consensus on the state of the ledger. Unlike some other blockchains, SCP does not rely on mining or Proof of Work algorithms to achieve consensus, making it more energy-efficient.
The Stellar protocol uses the XLM token, which serves as a transactional currency and a bridge between currencies. Lumens are also used as an anti-spam mechanism to prevent the network from being flooded with unwanted transactions.
In addition to XLM, the Stellar protocol supports the issuance of custom tokens. These tokens can represent other assets such as fiat currencies, commodities, or stocks, allowing users to trade various assets without the constraints of traditional financial systems.
The Stellar ecosysteem
The Stellar ecosystem is designed to provide a secure, fast, and cost-effective way to conduct financial transactions, with a focus on promoting financial inclusion worldwide. Which players and components are part of this ecosystem?
- Stellar Network: The technical foundation of the Stellar ecosystem and a decentralized open-source protocol. It allows users to make payments and other transactions through the Stellar network.
- Stellar Lumens (XLM): The native cryptocurrency of the Stellar ecosystem, used to facilitate transactions and serve as a bridge currency between various fiat currencies and other cryptocurrencies. It is also used to pay transaction fees on the network.
- Nodes: Computers connected to the Stellar network that act as nodes to verify and validate transactions. The network is decentralized, meaning nodes are operated by various parties.
- Anchors: Financial institutions that issue fiat currencies and other cryptocurrencies on the Stellar network. Anchors serve as bridges between the Stellar network and traditional financial systems.
- Stellar Development Foundation (SDF): A non-profit organization established to develop and support the Stellar protocol. The SDF is responsible for managing the Stellar network and promoting its use.
- DApps: An increasing number of decentralized applications (DApps) are being developed on the Stellar network. These DApps leverage the functionalities of the Stellar protocol and offer various applications, including payment processing, ICOs, asset tokenization, and more.
Benefits of Stellar
What are the advantages of Stellar that make the platform popular?
- No barriers of national borders.
- High transaction speeds.
- Very low transaction costs.
- Multi-signature security.
- Support for the issuance of new coins.
Drawbacks of Stellar
What disadvantages of Stellar should investors consider?
- Relatively small circulating token supply.
- Slow platform development.
- Competition from other major blockchains like Ethereum and Ripple.
Who is the founder of Stellar?
Stellar (XLM) was founded by Jed McCaleb and Joyce Kim in 2014. McCaleb is also the founder of Mt. Gox and a co-founder of Ripple. Kim is an experienced attorney and entrepreneur.
Before the official launch, McCaleb created a website called the 'Secret Bitcoin Project,' which was seeking alpha testers. The non-profit Stellar Development Foundation was established in collaboration with Stripe CEO Patrick Collison to oversee the development of the Stellar protocol.
In 2025 experts expect a minimal price of €0.3600 and a minimal price of €1.19 in 2030.
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A video explanation of Stellar
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