Stellar Lumens: The Ripple Fork That Became So Much More

Stellar Lumens incentivize good behaviour on an exchange network. Unlike Bitcoin, and other token based cryptocurrencies, Stellar Lumens can be assigned to any asset. The SCP, a type of Byzantine Agreement, can reach consensus on transactions originating anywhere in the world in under 4 seconds – on average.

Founded by Jeb Mccaleb and Joyce Kim in 2014, it has become a fast-moving altcoin and billion dollar success.

What are Stellar Lumens?

Stellar Lumens are used on the Stellar network to pay for transaction fees and act as an intermediary currency for other assets. At network genesis, 100 billion stellar lumens were created. Since then the foundation has been actively distributing them through coin drops SDF allocated 20% of the initial lumens to be distributed for free to holders of bitcoin and XRP (19% for bitcoin holders and 1% for XRP holders).

Additional coins are created at a fixed inflation rate of 1% per annum. New Stellar Lumens are distributed via a direct voting method back to Lumen holder.  

The traditional way that money and payments work is a big mess. Nothing really interoperates. big banking conglomerates like SWIFT and SEPA are messy agreements between international banks, and they are light years ahead of banking infrastructure in the developing world. Sure people can use Western Union, remittance services and PayPal, but these services all take time, cost lots of money, and require the consumer go out of their way to use them.

What Stellar is really trying to do is connect all these platforms together.

Stellar Vs Ripple

Stellar was born from a Ripple hard fork back in 2014. Both Ripple and Stellar were co-founded by Jeb Mccaleb. Jeb left Ripple on bad terms, with the Ripple Foundation, that would drag him into a lawsuit. He was later cleared of all charges, but a daily sell limit was imposed on his XRP holdings to stop him dropping all his XRP at once and crashing the price of Ripple.

Stellar vs Ripple

Stellar isn’t just a copy of Ripple. Since the genesis block was mined, in 2014, the open source development team have made serious changes to the underlying blockchain technology creating a new Federated Byzantine agreement they call the Stellar Consensus Protocol (SCP)

There is some centralisation in every blockchain. They don’t build themselves. But Stellar isn’t as centralised as Ripple. Ripple, as an organisations, elects nodes that can add transactions to the ledger. While anyone can participate in the Stellar network if they are trusted by other nodes.

How Does Stellar Work?

The Stellar Lumens blockchain is scalable. The average processing time is a little under 4 seconds a transaction.  Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Monero and all ERC20 tokens are limited to only a handful of transactions per second on the entire network. How is Stellar so much faster than other network?

It uses something called a “Federated Byzantine agreement (FBA), a model suitable for worldwide consensus. In FBA, each participant knows of others it considers important. It waits for the vast majority of those others to agree on any transaction before considering the transaction settled. In turn, those important participants do not agree to the transaction until the participants they consider important agree as well, and so on.” – Stellar Consensus Protocol paper.

Nodes ask other nodes if they agree on a state update before adding it to the ledger slot. This avoids contradictory states, by identifying each update as a unique slot and inferring inter-update dependencies. The consensus protocol is all about making sure that nodes agree rather than posting and checking everything.

Node V can safely apply update X in Slot I when it has safely applied updates in all slots upon which Slot I depends and, additionally, it believes all correctly functioning nodes will eventually agree on update X for slot I.

In the Federated Byzantine Agreement, used by Stellar, nodes get to choose who they trust using something called a Quorum Slice. Nodes in the Stellar network form Quorum. When the consensus algorithm is listening for  

A Quorum Slice

 

“Consider the four-node system in Figure 2, where each node has a single slice and arrows point to the other members of that slice. Node V1 ’s slice {V1 , V2 , V3 } is sufficient to convince V1 of a statement. But V2 ’s and V3 ’s slices include V4 , meaning neither V2 nor V3 can assert a statement without V4 ’s agreement. Hence, no agreement is possible without V4 ’s participation, and the only quorum including V1 is the set of all nodes {V1 , V2 , V3 , V4 }.” – Whitepaper

Read the whitepaper if you want to understand all the consensus rules that make a quorum slice, but it is really just rules that group nodes in certain ways that make it theoretically impossible for a node to maliciously tell a lie without being caught out by other nodes in the slice.

The goal of Byzantine agreement is to ensure that well-behaved nodes externalize the same values despite the presence of such ill-behaved nodes.

What Will Stellar Lumens Be Used For?

Stellar is a value exchange network. Digital assets like pounds can be converted to USD and sent across the world very quickly. Using existing banking infrastructure, a transaction between the UK and the US can take 2 – 5 days, and it might cost $10 – $30 in fees.

It’s worse in developing nations. Where non competitive industries and sometime complete failure of traditional banking makes it the most expensive for some of the poorest people to send money. Mobile banking is an interesting phenomenon that has taken off in African and developing Asian nations for these exact reasons. 

Stellar Lumens would be a cheaper and more reliable alternative to using a phone as a bank. XLM is used to pay the network fees. To prevent spam, each transaction costs 0.00001 lumens, which compared to a $10 + Bitcoin fee, or a $20 SWIFT transaction fee, is nothing.

Stellar’s Lumen isn’t the only digital asset that can be exchange on their network. You can also issue tokens to assets. Cash is an asset, but so are bonds, debt, goods and services, deeds and inventory. Assigning a credit to these assets through a trust line – your wallet – makes it possible for any Stellar Lumens holder to participate in the distributed exchange which is built into the platform at a protocol level.

Stellar’s platform is also seen as an ERC20 alternative. Not as burdened by scalability issues as the Ethereum network, but still able to trade tokens, it has attracted Mobius, a $35 million ICO, to their platform.

Stellar Consensus Protocol

Who Are The Stellar Team?

The SDF Members are Patrick Collison, David Mazieres, and Jed McCaleb. Each Member serves for life or until he or she becomes incapacitated or appoints a successor Member and resigns.

The SDF (Stellar Development Fund) has three boards

  • Board of Directors: Responsible for core governance decisions, determining the direction of the Stellar Network, and lumen distribution. The Board of Directors is advised by the other two boards.
  • Architecture Board (AB): Responsible for determining and overseeing sponsored technical initiatives.
  • Expansion Board (EB): Responsible for overseeing network expansion initiatives, engaging with regulators, and training.
Stellar Team Part 1Stellar Team Part 2A Director’s term lasts for one year and then they must be re-elected for additional years of service. Stellar employees are paid a competitive salary with SDF funds. Stellar might be open source and non-profit, but you can’t really expect leading tech professionals to go hungry. Read Stellar’s governance page on Stellar.org if you want to understand how the corporate side of Stellar works.

Should I Invest In Stellar?

With the mounting congestion on the Ethereum network, we might see Stellar gain some traction as an ICO platform. The team continues to develop their product. You can use the network right now through various Stellar clients and connect to different anchors. Anchors are entities that people trust to hold their deposits and issue credits into the Stellar network for those deposits

Stellar Graph

If you just want to invest in Stellar short term, I think it will continue to follow the general upwards trend of cryptocurrencies. Current market hype is fairly indiscriminate, but there is positive sentiment for Stellar online. Many investors treat Ripple’s rise as a vote of confidence for Stellar. If you want to make a decision based on the technological innovation of a single blockchain, the Stellar Consensus Protocol (SCP), solves the issues impeding proof of work blockchains. Maybe someone does find a way to attack it, these are the risks of investing in early-stage crypto projects, but Stellar’s current price is only a fraction of what it will one day be worth.

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