Stellar – (Lumins) XLM, Disrupting the banking industry with unique consensus protocol.

White paper link.

Github link.

Stellar was founded in 2014.Stellar is structured as a Non Profit Organization. Stellar is an open-sourced payment protocol founded by Jed McCaleb and Joyce Kim. Jed was co-founder of Ripple  and Mt. Gox. Joyce Kim is now co-founded a blockchain based venture capital firm called SparkChain Capital.

Currently Stellar’s crypto-currency called Lumens (XLM) has sky rocketed to being top 10 crypto-currencies in the world by market cap as per coinmarketcap. Stellar currently stands at 11+ Billion USD market cap.At launch, Stellar was based on the Ripple protocol.

The Stellar network does not have a mining-based currency.At the network’s genesis, 100 billion stellars (XLM) were created.The only other stellar creation mechanism is inflation.

The Stellar network adds new lumens at the rate of 1% each year. The network also collects a base fee for each operation in a transaction. The funds from base fees are added to the inflation pool.

Stellar is built upon a new consensus algorithm called “Federated Byzantine agreement” (FBA). The white paper details on how FBA is better and different than other consensus mechanisms used by Bitcoin, Tindermint , Ripple etc. Stellar calls this consensus implementation Stellar Consensus Protocol (SCP).

Another core attributes of SCP , is to avoid extreme waste of resources caused by Proof of Work consensus mechanisms implemented by currencies like Bitcoin or Ethereum. And, also avoid lack of decentralization and security risks in Proof of Stake consensus mechanisms. And so forth reduce the cost of performing a transaction and facilitate faster transactions and micro-payments.

SCP is the first Byzantine agreement protocol to give each participant maximum freedom in choosing which combinations of other participants to trust.

SCP is built with distributed ledgers who have trusted relationship network with each other. And every few seconds they update their trusted network with the latest consensus. This is called Quorum.

Quorum slices In a consensus protocol, nodes exchange messages asserting statements about slots. We assume such assertions cannot be forged, which can be guaranteed if nodes are named by public key and they digitally sign messages. When a node hears a sufficient set of nodes assert a statement, it assumes no functioning node will ever contradict that statement. We call such a sufficient set a quorum slice, or, more concisely, just a slice.

Federated Byzantine Agreement characteristics include decentralization and tolerance of arbitrary behavior.

FBA brings open membership and decentralized control to Byzantine agreement. Anyone can join. FBA determines quorums, or groups of nodes sufficient to reach agreement, in a distributed way. Each node decides which others to trust. Different nodes don’t need to rely on the same combination of trusted participants to reach consensus.


The Good:

  • Because mining is not involved and there is inflation distribution. Micro-transactions are possible.
  • Unique ledger algorithm where trust and relationship between ledgers is involved.
  • Transaction speed is much faster as compared to Proof of Work consensus algorithm.
  • Stellar has signed contracts big customers and banking companies around the world.
  • Stellar has faster speed of transactions.
  • Open sourced project and run as a non-profit organization.

The Bad:

  • Stellar is not live yet, it has deployed its testnet for companies to try out their product.
  • Stellar may look different from Ripple. But, is actually a direct competitor to Ripple. Only one of these might be market leader.
  • Founder Jed owns significant amount of Ripple which account to at-least  1%-2% of all XRP trading volume. This creates an interested non compete and conflict of interest scenario.
  • Even though Stellar promotes itself as a non-profit organization , it still holds
  • FinCen regulations especially in US . And other countries might need regulations on people lending money.
  • Stellar owns approximately 5% of total Lumins (XLM) distributed. This accounts for approx 600 million dollar worth of XLMS.
  • The security risk of a hacked network of ledgers who might distribute incorrect quorum data is still not validated.

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