What is Stellar (XLM)?

by in Crypto 101, Cryptocurrency For Beginners

Stellar

Stellar Lumens (XLM) is a fully decentralized consensus platform. It supports any currency and has a built-in decentralized exchange that can be used to trade any currency or asset.

Briefly about XLM

  • Confirmation time is 3-5 seconds.
  • Supports thousands of transactions per second.
  • Can be used to transfer or sell any currencies, assets, or tokens.
  • Open-source.
  • Uses SCP instead of Proof of Work.
  • There is technical documentation.
  • Simple, clean API.
  • Multisignature and smart contracts.
  • Decentralized distributed database.
  • Initially, 100 billion XLM created.
  • The fixed annual inflation rate of 1%.
  • Distribution of coins.
  • Since the Stellar network does not use mining, all coins are available when the network is launched.
  • Most of them are owned by the non-profit organization Stellar.org.

What is Stellar?

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Stellar is a technology that makes transferring money between people, companies, and financial institutions as easy as sending an e-mail. That means that individuals gain access to financial transactions, banks' costs go down, and business profits go up. You can help improve the world's economic infrastructure by becoming a member of the community or by taking Stellar at the heart of your financial operations.

Lumens is a native Stellar network asset that most crypto enthusiasts are somewhat familiar with. Interestingly, Stellar Lumens tokens have suddenly gained a lot of prominences, as their value has suddenly started to rise lately. More specifically, Lumens are embedded in the Stellar network, where they act as a unit of digital currency.

Lumen cannot be physically stored, but users can digitalize those assets with a private key, just like other currencies.

The renaming process was done to avoid confusion since the token had a name like a network itself, which raised unnecessary questions. However, it can be assumed that the Stellar network does not need a native asset. This assumption is incorrect as Lumens is designed to prevent spam on the web.

Besides, all Stellar accounts must have at least XLM 20 in their balance at all times. The idea behind Lumens is how they can facilitate multiple foreign exchange transactions at a given moment. The token can be used as a "bridge" between different currencies that do not have a direct market. That brings added value to the Stellar network.

It follows from the asset data that some statistical data must be taken into account. 5% of the total replenishment will be held by the team to fund Stellar.org activities. Some of the funds will be auctioned from time to time starting in March 2015. Most of the coins are distributed to everyone who wants to use XLM tokens, non-profit organizations, and bitcoin holders. As a result, everyone who had Bitcoins on the exchange in March 2015 received a small amount of XLM.

It's not hard to see why Stellar Lumens will be of interest to investors. The currency can be used to facilitate blockchain-based multicurrency transactions regardless of existing markets and gateways. Whether this means investing in XLM is a difficult question to answer. There will always be a market for these tokens, but they may not necessarily be a speculative asset.

Decentralized network

A decentralized network is made up of peers that operate independently of each other.

That means that the Stellar network is independent of any organization (legal entity). The idea is to have as many independent nodes on the Stellar network as possible, so the network will work well even if some of the servers go down.

Distributed Exchange

Stellar Ledger is capable of storing offers made by people to sell or buy currency. Offers are public commitments to exchange one loan for another at a predetermined rate. Ledger is becoming a global marketplace for assets.

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All offers form what is called an order book. An order book exists for each currency/issuer pair. So if you intend to exchange Virgin Bank / EUR for bitstamp / BTC, you can search for the corresponding order book in the ledger to see what people are buying and selling them for.

That allows not only to buy and sell all currencies in much the same way as foreign ones but also to convert currencies without any problems during transactions.

Multicurrency

Transactions Stellar allows you to transfer any currency you hold to anyone in another currency through an embedded distributed exchange. Also, people can receive any currency through the anchor that they have added.

Consensus instead of mining

The nodes of the network confirm the transactions of the participants, establishing a consensus by voting. The node selection algorithm is based on the SCP - Stellar Consensus Protocol, which is used to select a group of nodes for voting for transactions and the process of making a collective decision of the group for each of them. In many ways, it copies the principle of consensus implemented in Ripple, but with the difference that anyone can own a node - you just need to install ready-made software packages on a dedicated server of a certain configuration.

If we briefly consider the process of forming a block in the Stellar network, then it includes several simple steps:

Preliminary definition of a pool of nodes that will participate in the process of finding consensus. It is implemented in a separate thread and does not have an explicit control center, representing a mutual and cyclical poll of the status of all network nodes.

Users send transactions directly to those nodes that are selected to search for consensus, which allows reducing delays in processing incoming data, and eliminates the presence of a bullet of unconfirmed transactions, as is implemented in Bitcoin.

The consensus itself is a vote by nodes on whether a transaction is valid. In other words, checking its copy of the blockchain, the node looks for the account status of the sender of the transfer in it, and, if the distributed ledger contains information about the sufficient amount of funds in this account, then the node confirms its legitimacy and transfers it to another node. The voting process must be completed in less than 5 seconds with a score of at least 80% of successful confirmations.

Further, a successful transaction enters the ledger (ledger, distributed ledger) of the node that forms the next block. The changes made are propagated between other nodes, and the consensus search operation is repeated for new transactions received for processing.

Finding consensus allows us to effectively solve the problem of communication between nodes that cannot trust each other. The already classic task of the Byzantine generals, the effective solution of which is the basis for finding a consensus in many other cryptocurrency payment systems, requires the presence of an absolute majority of "loyal" nodes to eliminate errors. In Stellar, Ripple, and other cryptocurrencies that work on similar principles, the required majority advantage is deliberately increased to 70-80% to exclude even the slightest chance of fraudsters being included in the transaction block.

Stellar consensus is also necessary because it solves the problem of forks. The high processing speed of data received from users and a short time to form one block should have led to the formation of parallel blockchain chains.

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Consensus logic allows you to automatically save only the longest and most complete of them since only the version of the blockchain that meets these requirements will be guaranteed to display the current state of the entire network. As a result, this will lead to the confirmation of a larger number of transactions initiated by network participants and sent to the holder of the most current copy, which will lead to the continuation of the chain's growth, which means that no additional actions need to be taken when comparing parallel chains.