The Blockchain Handbook - Chapter 8: Stellar (XLM)
Stellar bills itself as the "future of banking." Begun in 2014 as an offshoot of Ripple, Stellar is a cryptocurrency network for enabling cross-asset transfers and payments. Jed McCaleb, co-founder, had some differences of opinion with Ripple's board, and founded Stellar to help payments between people as opposed to banks, a bottom-up approach that contrasts with Ripple's top-down approach. Thus far, in 2018, they've made some "stellar" progress. According to Money:
"Just weeks into the new year, Stellar has seen the market value of its currency, 'Lumens,' rise from $2.5 billion to over $12 billion at a time when many virtual currencies have seen their market caps slip amid a crypto correction."
It's a far cry from when they started, and Stellar's low transaction fees (about 0.00001 Lumens per transaction) have helped draw some major interest in the platform. Their market cap is currently $8,480,686,748, about 760,233 BTC, and a present value of about $0.459221, equivalent to 0.00004117 BTC. Stellar's 24-hour volume sits at around $53,514,600, and the circulating supply is, at the time of writing, 18,467,549,933 XLM, with a total supply of 103,689,123,972 XLM.
Stellar: Competition, Pros and Cons
Born from one of the minds of Ripple, Stellar draws obvious comparisons. Like Ripple, Stellar can take care of exchanges between both fiat and cryptocurrencies. Unlike Ripple, though, Stellar is run through a nonprofit, and their platform puts a greater emphasis on being open-source and decentralized. Stellar wants to make it easy to move money across borders for low costs, as well as give everyone in their network equal access and economic participation. One way to think of it is as a more flexible version of PayPal, and one of the facets that enables its abilities is a concept they refer to as "anchors," for which they provide an easy-to-understand description:
"Anchors are simply entities that people trust to hold their deposits and issue credits into the Stellar network for those deposits. They act as a bridge between different currencies and the Stellar network."
Using this system, all non-Lumens transactions on the Stellar network take the form of credit issued by various anchors. These anchors take deposits, then issue corresponding amounts of credit to accounts by way of Stellar's ledger. Anchors also allow users to make withdrawals by bringing them credit they issued. They break it down further, using PayPal as an analogy:
"To use PayPal, you deposit money in from your bank account. PayPal then gives you credit in your PayPal account. You can now send that PayPal credit to anyone who trusts PayPal. Someone that received your PayPal credit can convert it to real money using PayPal by withdrawing it to the bank."
The concept works similarly on Stellar, with the added bonus that all the anchors are on the same network, resulting in a more powerful system. With everything integrated, users don't have to wait for bank transfers (like they would with PayPal), and they are more readily able to send funds across borders. Stellar automatically converts balances to different currencies using the lowest exchange rates, and those receiving funds receive a credit in their preferred currency.
Stellar also operates a decentralized exchange, which is part of the reason they are able to find low exchange rates for currencies. It's useful for more than those who wish to buy and sell money, however. The decentralized exchange can be used to trade anything held by Stellar anchors, with buy and sell orders appearing on Stellar's dashboard. This puts Stellar in competition with other exchanges, as well as cryptos like Ethereum and Ripple, as a tool for banks and businesses.
Then there's Stellar's native asset, Lumens tokens, or XLM. These are part of the lifeblood of the Stellar network and are the backbone of conducting transactions and moving money globally both quickly and securely. They enable Stellar to facilitate trades using "pairs of currencies between which there is not a large direct market." They also play a role in preventing spam attacks from flooding Stellar's network.
While the Stellar network is technically free to use, anyone planning to transact on it requires Lumens to carry out their goals. Lumens cover the base fee, which are collected by Stellar's ledger, then redistributed during the built-in fixed inflation process. The drawback with the system, however, lies with the Lumens, as they aren't as readily available to obtain as other currencies, like Bitcoin, so prospective users of Stellar's system have to rely on exchanges to buy Lumens to facilitate their transactions.
The Uses of Stellar
Stellar's primary use is as a cryptocurrency and method of transferring value globally. It's a kind of middleware that links financial products and institutions, with a focus on providing banking services to those who are normally underserved by traditional banks. By reducing transaction costs and providing global flexibility, Stellar makes it possible for users to manage micropayments, lower the cost of remittances, perform mobile transactions and increase their banking reach through "mobile branches."
The Future for Stellar
Courtesy of their blog, Stellar has revealed a few of their plans for the coming year. As detailed in their roadmap, Stellar is building out the front-end of their decentralized exchange under the working name SDEX, and will be integrating Lightning into the Stellar Network. If all goes as planned, these changes, in combination with the expansion of their partnerships, should help bring them closer to their goals of providing faster and more flexible transactions across borders and throughout the world.
Sources:
- https://coinmarketcap.com/currencies/stellar/
- https://www.stellar.org/
- https://www.stellar.org/blog/2018-Stellar-Roadmap/
- https://motherboard.vice.com/en_us/article/gyw9aq/wtf-is-the-lightning-network-and-will-it-save-bitcoin
- https://coincentral.com/what-is-stellar-lumens-a-beginners-guide/
- https://www.bitcoinbeginner.com/blog/what-is-stellar/
- https://cryptocurrencyfacts.com/what-is-stellar/
- https://globalcryptoacademy.com/coins/stellar-coin-xlm/
- https://www.weusecoins.com/what-is-stellar-lumens/
- http://time.com/money/5104082/meet-stellar-the-cryptocurrency-poised-to-be-the-next-bitcoin-and-ripple/
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