Stellar Lumens recently hit a milestone: it hit 1 million registered accounts on their ledger, with more than 300,000 accounts added since July 2018. With a market capitalization of over $4 billion, it is currently ranked 6th on CoinMarketCap at time of press.

The protocol focuses mainly on appealing to those who can benefit from a more cost-effective cross-border payment platform. Through its extensive network of partnerships, Stellar will be able to deliver on cross-border payments at significantly lower costs and also at a faster rate compared to old methods.

What also makes it stand out is that it became the first decentralized ledger technology platform to achieve Sharia Compliance for asset tokenization and digital currency payments, according to FX Empire.

What is the philosophy behind Stellar Lumens?

According to its website, Stellar’s main aim is the decentralization of sending and receiving information. The current state in which financial infrastructure is an unorganized amalgamation of closed systems prevents regular users to properly send and receive information. With a seemingly archaic system, transaction costs are high, and money moves slowly across political and geographic boundaries, according to Rachel Loving Banner from the Consultative Group to Assist the Poor (CGAP). 

The team behind Stellar Lumens aims to create a “worldwide financial network open to anyone, so that new organizations can join and extend financial access to unserved communities.” The protocol seeks to draw the line between having a financial infrastructure that supports organic growth but also ensures integrity of financial transactions.

What are the unique technical aspects of Stellar?

The Stellar Consensus Algorithm (SCP)

Developed by David Mazières, a Chief Scientist at Stellar.org, the SCP “provides a way to reach consensus without relying on a closed system to accurately record financial transactions. The team also claims that the SCP is the “first provably safe consensus mechanism that simultaneously enjoys four key properties: decentralized control, low latency, flexible trust, and asymptotic security.”

Please refer to this link for the original Stellar Consensus Algorithm whitepaper.

What are lumens?

One lumen (XLM) is a unit of digital currency, a native asset to the Stellar network. A lumen enables the free flow of money around the world and to conduct transactions between different currencies quickly and securely. As a native asset, the lumen serves two purposes:

1. Anti-spam role – lumens are needed for transaction fees and minimum balances on accounts on the Stellar network in order to prevent people from overwhelming the network (and to aid in prioritization). Each transaction has a .00001 lumens fee to prevent malicious actors from flooding the network.
2. Multi-currency transactions – Lumens may facilitate trades between pairs of currencies that lack a large direct market. A lumen can function as a bridge instrument to create a liquid market between the lumen and currencies involved.

Anchors

Stellar aims to be a decentralized payment ledger that integrates “anchors” to facilitate fiat currency exchange. The “anchors” are entities that have agreed to exchange XLM for fiat and store it on the ledger. These entities can include banks, money transfer operators (MTOs), and fintech companies. This sets them apart from other payment services because of the swaps right on the chain that happens fluidly since they’ll enable two things:

1. Anchors will take a deposit and issue a corresponding credit to an account address on the Stellar ledger
2. Anchors enable withdrawals by bringing users credit they issued

As trusted entities on the network, anchors’ll issue credits that represent existing currencies (such as USD, EUR, JPY, BTC, etc.). Anchors tend to be organizations such as financial institutions but there is nothing stopping an individual from becoming one. These anchors are responsible for paying out the associated credits whenever a user wants to cash out.

Governance

Lumen supply and circulation is determined by a fixed set of protocol-level rules. At protocol launch, there were 100 billion lumens. There is an annual 1% inflation rate. New tokens could not be created unless validators and nodes on the network collectively accept a proposal, though the team considers this unlikely. While hypothetically possible, changing the fixed, protocol-level rules could potentially diminish trust in Stellar.org.

What are the main problems Stellar is trying to solve?

Scalability and Performance

Stellar was originally a fork of Ripple (XRP) which was a platform trying to allow banks and like institutions to use blockchain. Since then they have changed nearly all of the core code but their backbone is still all about speed. Currently Stellar can achieve 2,000 TX/S on any portion of the network with some institutions reporting 4,000TX/S+. This allows anyone at any time to send money in seconds, similar to services like Paypal except you don’t have to trust them with your money. The founders say there are a lot of things to optimize so they are nowhere near their ceiling for scalability.

Financial Freedom

A major problem facing people around the world is access to competitive financial services. Many remote places are preyed upon by loan sharks and corrupt banks because they have no other options. Stellar focuses on opening the economy to everyone in the world. Their biggest selling point is something called “payment paths”. These use the built-in exchange of the stellar network and allow any currency to be swapped to any other for as cheap as possible. As an example say I wanted JPY but had BTC. A path might look like BTC -> USD -> JPY if a BTC -> JPY pair does not exist. All while not paying exorbitant currency exchange prices and remaining on chain. Opening the financial markets to anyone who wants to join.

What are some of the practical use cases of Stellar?

In October 2017, IBM announced a partnership with Stellar. IBM looks to test a so-called stablecoin, or “crypto dollar,” called Stronghold that runs on the Stellar blockchain network. The main aim is to make cross-border blockchain payments feasible and cost-effective. Foreign exchange costs associated with making cross-border blockchain payments may be reduced through the Stellar Lumens stablecoin, according to Jen Wieczner from Fortune. The partnership falls under the Hyperledger Fabric Project. A network of banks will be able to execute transactions using Stellar Lumens’s protocol, and then rely on local market makers to convert Lumens to fiat, according to Colin Adams.

Some of its use cases for the “future of banking” include:

• Remittances – Tempo, a partner using the Stellar network, facilitates remittances from Europe to the world, a $150 billion market. Tempo can power 600,000 transactions at the cost of .01 USD in fees. With a network of 190,000 locations in 120 countries, Tempo enables customers to pay remotely for services such as water, phone, electricity, and health insurance.
• Mobile Money – Parkway Projects uses the Stellar network to connect Nigeria’s 5 major telcos, enabling customers of different money management services to send money to one another. Parkway contains a portfolio of over 3,000 clients across Africa, including Ecobank, Wema Bank, and Diamond Bank.
• Micropayments – Deloitte enlisted 3 engineers to create a working prototype that reduced transaction costs for micropayments by 40%. The prototype will be put to use for banking clients outside of North America.

What is the corporate structure?

The Stellar Network is entirely decentralized and is not controlled by a central entity. The Stellar Development Foundation is responsible for protocol research & development, and is a non-profit organization running on the initial seed funding and donations from individuals. It is one of the Stellar Development Foundation’s aims to “provide greater access to the world’s unbanked population and promote financial inclusion.” Stellar.org operates as a non-stock nonprofit organization. They also cover operational costs through an initial allocation of 5% genesis lumens. It also accepts tax-deductible donations from the public. It currently has a list of corporate donors that include BlackRock, Google.org and FastForward. 

Stellar.org, its official website, is currently promoting its Stellar Partnership Grant Program, which aims to help finance projects and organizations looking to improve the global financial landscape and promote financial inclusion in underserved regions of the world. This is a considerable community engagement effort on their part. Exceptional organizations who develop and operate on top of the Stellar Network may receive up to $2,000,000 USD worth of lumens were grant. More information can be found here.

Who is on the Stellar Team?

Jed McCaleb, Co-founder of Stellar Development Foundation

Jed McCaleb – Co-Founder of Stellar Development Foundation

McCaleb created eDonkey2000, one of the largest file-sharing networks at the time and Mt. Gox, the first bitcoin exchange before it was sold to its current owners. After selling Mt. Gox, he came up with the “ripple protocol,” as a means of streamlining money settlements. This led to the creation of Ripple and Ripple (XRP). After leaving Ripple, he founded the Stellar Development Foundation.

David Mazières, Chief Scientist at Stellar Development Foundation

David Mazières – Chief Scientist of the Stellar Development Foundation

Mazières is also the author of the Stellar Consensus Algorithm. He was formerly a professor of Computer Science at Stanford University, and leads Stanford’s Computer Systems Group. He received his BS in Computer Science from MIT in 1994, and his Ph.D in Electrical Engineering and Computer Science from MIT in 2000. He has received several awards, including an Oakland distinguished paper award (2014), Sloan award (2002), USENIX best paper award (2001), and MIT Sprowls Best These in Computer Science Award (2000).

Greg Brockman, Board Member of Stellar Lumens

Greg Brockman – Board Member

As former CTO of Stripe, Brockman helped build and scale the company from 4 to over 250 employees. He’s written and spoken extensively about how cryptocurrencies can succeed. While studying at Harvard, he was heavily involved with the administrative responsibilities of the Harvard Computer Society. He is also the Cofounder of OpenAI, a nonprofit AI Research organization.

Sam Altman, President of Y-Combinator & Advisor of Stellar Lumens

Sam Altman – Advisor

Altman is currently the President of Y Combinator. He was named one of the “Best Young Entrepreneurs in Technology” by BusinessWeek. He has been a personal investor in many companies, including Airbnb, Stripe, Reddit, Asana, Pinterest, and Soylent. He was also the a co-chairman for OpenAI, with Elon Musk, before Musk left OpenAI’s board.

ICO & Tokenomics

The Stellar network launched with 100 billion stellars in 2014. But in 2015, the name of the native assets stellar changed to lumen, to distinguish the native assets from the Stellar network and Stellar.org. It currently has a market cap of $4.2 billion on CoinMarketCap, and is ranked #6. Each lumen is trading at $0.223 at time of press, with a total circulating supply of 18 billion lumens.