Bitcoin, Ethereum ... perhaps these are the best known cryptocurrencies, although it is true that the options of using cryptocurrencies are much broader. Have you ever heard of Stellar? Stellar Lumens is a decentralized protocol that gives users the ability to send money anywhere in the world instantly and cheaply. Its symbol is XLM and is currently among the top 10 cryptocurrencies.
Before we begin, it would be advisable to clarify some concepts. For example, Stellar is what the system is called. And Stellar Development Foundation (SDF) is the name of its foundation, a non-profit organization, whose main objective is the expansion of financial access to all. Especially people in parts of the world who do not enjoy the benefits of basic financial institutions like banks.
And on the other hand, the cryptocurrency that uses Stellar technology, is called Lumens or XLM, the native token of this network.
This cryptocurrency was developed in 2014. And the idea to create it came from Jed McCaleb, one of Ripple's co-founders. As soon as it was born, 100 billion XLM was generated and put into circulation on the market.
Stellar Lumens, what cryptocurrency is it?
Stellar is the technology that allows you to send and receive funds quickly and economically is open source. Runs a decentralized network of servers using a distributed ledger protocol that is updated every 2-5 seconds on all nodes.
Stellar's consensus protocol is really what sets it apart from Bitcoin. Its name is Stellar Consensus Protocol (SCP). The SCP does not rely on a network of miners to validate transactions. Instead, it uses the Federated Byzantine Agreement (FBA) algorithm, which allows for faster processes in operations.
The way Lumens and XRP (Ripple) work is that their own developers run their own nodes across multiple servers. In addition, both use a distributed ledger to verify the movement of funds, so transactions only take a few seconds to process and commissions are quite cheap.
Unlike with Bitcoin, as XLM is not generated through miners initially created 100,000 million. In addition, a system was implemented whereby its amount would be increased by 1% each year and a weekly deposit would be made to the recipients. As this mechanism was misused, the foundation deactivated it in October 2018.
How does Stellar Lumen work?
If you are already considering the option to buy Stellar, you should first know how their system works.
In practice, the Stellar protocol works like PayPal but is more practical. To start using it, you must first deposit funds in an “anchor " or anchor in the network. This "anchor" is a trusted intermediary, just like a bank or PayPal. This anchor holds your funds and displays your balance in stellar wallet.
You're probably wondering why the first thing I have to do is change my funds and deposit them in an anchor in exchange for credit. This anchor actually works as a” bridge " between any currency and the Stellar network. This allows you to send funds instantly over this network without having to wait for a bank transfer. Let's take an example.
Imagine that you want to send money to your friend in the United States. Then, you will make use of your balance in Euros that you already have validated in your wallet to send them to it through the network of this network. Stellar will automatically convert EUR to USD using the lowest exchange rate. And your friend's balance will be credited in USD. Now he will be able to withdraw the funds through an anchor that supports in EUR.
Works as an exchange environment
But Stellar also allows you to sell or buy other currencies or cryptocurrencies. The exchange rate of each trade is predetermined by the individual orders issued by each individual person. Therefore, these transactions do not use the automatic exchange rate that Stellar applies to personal transfers.
For example, if you want to change USD to GBP, you post that order in Stellar's transaction book. And at that time it is shown in the global network market.
Allows multi-currency transactions
As we have seen before, Stellar allows you to freely send funds internationally without the need for banks or exchange offices. In order to perform this operation, the network can perform one of these 3 operations:
1) Stellar converts funds via an order that is already on the market. And the change is automatically made.
2) Stellar converts forex X funds into Lumens on the global market. Then it turns those Lumens back into the currency and that will be the one that the receiver receives.
3) If you cannot “marry” market orders between two currencies, then Stellar looks for a set of trades on the network that will allow you to perform the trade. Imagine that I need to change USD into GBP. Then you could look for this group of transactions: USD to AUD, AUD to CAD, CAD to GBP.
Advantages of Stellar as a cryptocurrency
Stellar aims to be a platform that provides access to financial services to everyone around the world, including services for which they do not have banking services.
Stellar's main benefits come from its low transaction costs, near-instant transaction speed for cross-border transfers, and high security.
Specifically, transactions take approximately 2 to 5 seconds to be made and verified. In addition, the commissions charged for them are usually very economical.
On the other hand, Stellar Lumens platform offers high scalability. Currently the network can handle up to 2000 transaction processes. Although its engineers advance that actually the network can scale to 10,000 if you use services like Google Cloud Servers.
Stellar Lumens vs Ripple
If Stellar Lumens came from one of Ripple's co-founders, it will surely look a lot like Ripple, you'll think. Yes and no. And is that, as usually happens in this type of thing, as McCaleb had irreconcilable differences with the Ripple board, Stellar has several changes that are characteristic of this cryptocurrency.
To begin with, Stellar aims to assist in transactions between people. While Ripple seeks to do so by focusing primarily on banks.
One of the main differences between Stellar Lumens XLM and Ripple is that although Stellar can also be used by banks, its protocol targets the entire world. The idea is that by using Stellar, citizens and organizations in the poorest countries can transfer money internationally virtually free of charge and in just a few seconds.
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