If you have a little information about cryptocurrency, you must have heard about the term Stellar. The cryptocurrency is growing exponentially, and different software is promoting it. One example is the bitcoin trading software. Other platforms are also available. One of the renowned cryptocurrency platforms is Stellar. Let’s have a detailed look at how it works as a platform and cryptocurrency.
What is Stellar?
Stellar is a platform for digital money which is based on blockchain technology. It uses the native currency as a digital coin known as Lumen and denoted by XLM. The blockchain network consists of peer-to-peer attached computers, known as nodes. This system makes it reliable and transparent. This platform uses XLM that works on stellar consensus protocol (SCP)l.
XLM is defined as the native currency used by the Stellar platform in a blockchain system. It is decentralized and does not involve a third party for transactions like a fiat currency. Lumen is counted as one of the best alternative coins of the digital world. Nearly 22 million lumens are circulating. Initially, the stellar foundation made 50 billion lumens and burnt half of them, which increased its value. Coin burning is a process to reduce inflation and hike the value of digital currency.
How was Stellar discovered?
The Stellar Foundation, a non-profit organization, was founded by Jed McCaleb, who took donations from various big companies, including Google and FastForward. In 2018, the Stellar foundation collaborated with the TeansferTo company to start transactions in over 70 countries across the globe. Stellar is the first to obtain a Shariah compliance certificate in the history of distributed ledger technology. It further collaborated with IBM to peg stable coins.
How does it work?
Stellar works on a technology that is based on a blockchain network. It consists of a chain of blocks storing certain information. The blocks are accessible to all users, and the database is distributed among the ledgers. It works precisely like bitcoin with a slight difference in the consensus mechanism. It does not validate the transactions in all the nodes. Instead, it uses a selected group of nodes to verify a transaction. Each node selects a group of nodes for a consensus mechanism leading to an open-source protocol. Read more about bitcoin selling and buying in the Bitcoin Digital platform.
Stellar Consensus Protocol
Stellar consensus protocol or SCP does not require all the miners to validate a transaction. Instead of operating on the entire network, it uses the FBA (Federated Byzantine Agreement) algorithm. It implies the validation of quorum slices to proceed and approve a transaction. Since it does not use all networks for confirmation, it is efficient and cheaper.
How does Stellar carry out cross-border transactions?
A complex system carries cross-border transactions. It requires two banks and a similar account operated in the originating country and foreign. The Nostro-Vostro transfer system used in fiat currency is a long process that requires multiple people for validation. The stellar foundation provides a faster and more efficient method than Nostro-Vostro.
What are the advantages of investing in Stellar?
The stellar foundation provides various benefits to the users, such as:
- The approval cycle is relatively short compared to bitcoin and other altcoins, making the transactions faster.
- Stellar supports smart contracts and Initial Coin Offerings, which increases security.
- It provides a solution to one of the most significant digital currency challenges, scalability, as Stellar enables thousands of transactions per second.
- Smart contracts help to gain a working system with inalterable rules. Hence, security measures are enhanced.
- It requires meagre fees to proceed with transactions.
What are the disadvantages of investing in Stellar?
The Stellar foundation faces some issues and has the following disadvantages:
- The circulating supply is relatively low as compared to other digital currencies.
- It is highly volatile, so the coins are released in a small amount.
- The current competitors are offering better services which makes it less usable.
The bottom line
Stellar is a foundation for quick transactions, and it uses XML as its native currency. Like all digital currencies, it poses some risk factors, out of which volatility is the most serious one. Therefore, investors need to be cautious about the risk factors before investing their capital.