A Beginner’s Guide to Stellar (XLM)

In October this year, one of the major cryptocurrencies of the market, XLM turned heads with a “stellar” performance. Clearly, this is a cryptocurrency that deserves our attention. In this beginner’s guide, we take a look at what this cryptocurrency is, how it works and whether it truly lives up to its name.

What is Stellar?

Stellar’s ticker symbol is XLM and its full name is Stellar Lumens. Stellar is an open-source, decentralized blockchain platform that seeks to act as the bridge between crypto and fiat currencies. The Stellar coin is essentially designed to facilitate cross-border transactions at a zero cost. This is expected to greatly help migrant labourers from developing countries who need to send money to their families back home. This is much like the characteristic we explained in our beginner’s guide to Ripple, which has also been developed as a payment protocol. In fact, Stellar is incredibly similar to Ripple, although they are not the same, since they were founded by the same person, that is Jed Mccaleb. Stellar was introduced as a fork of Ripple but the two have absolutely different codes and even Mccaleb himself left Ripple to work full-time for Stellar in 2014. Ideologically, the two payment protocols are different as Stellar with its open-source code, attempts to be more accessible to various people around the world, Ripple is geared towards profit earning by partnering with financial institutions. Technologically also, Stellar tries to make a difference by implementing the Stellar Consensus Protocol and by introducing the Stellar Core. According to the Stellar website:

“Stellar is a platform that connects banks, payments systems, and people. Integrate to move money quickly, reliably, and at almost no cost.”

How does Stellar Work?

Stellar attempts to cut down on the high fees of traditional payment systems like Western Union by eliminating middlemen to validate and verify transactions. This is achieved by using a decentralized ledger system which is made secure and scalable using the Stellar Consensus Protocol (SCP).

The SCP uses a “federation” of nodes for consensus fulfilment. A federation is basically a set of nodes that are trusted and can choose to trust other nodes. In this way, a chain of trusted nodes are created, making it possible to verify transactions in under 5 seconds. This trust between peer nodes helps formulate consensus without having a central authority pulling all the strings. As a result the ledger gets updated with all the requisite information very frequently, making transactions faster and more efficient.

What makes XLM so “Stellar”?

There are several characteristic features that make Stellar one of the top 10 cryptocurrencies of the market. Let’s have a look at whether or not this payment protocol platform and cryptocurrency really live up to the name:

Given that Stellar was developed with the aim of reaching out to unbanked communities, it does a good job of keeping operational efficiency high (which results in lower costs). It can easily process more than 2000 transactions every second, with each transaction taking under 5 seconds on an average. The transaction costs are practically negligible and XLM can be easily used to exchange with or trade on any other virtual or fiat currency in the market. Its interesting new consensus protocol and ability to host technology aspects such as multi signatures or smart contracts also make it a great player in the crypto and blockchain industry. Now that protocols like Stellar and Ripple are trying to reach out to communities that lack banks and promote greater financial inclusion, can blockchain help the world’s poorest? It sure seems so!