Stellar (XLM) is an open-source value exchange protocol and cryptocurrency designed to make exchanging money simple and easy.
Founded in 2014 and based on Ripple, Stellar has since forked into its own project with an entirely separate network and modus operandi. Stellar’s primary purpose is to function as a real-time gross settlement and remittance system, making financial transactions simple and easy and backing them with the power of the blockchain.
Since its founding, Stellar has taken its place alongside Ripple, Ethereum, and other similar cryptocurrencies to provide an all-in-one network for exchanging money and value, giving it a stability and resiliency that many cryptocurrencies lack.
For these reasons, Stellar is a worthwhile investment for your crypto portfolio.
Stellar was founded in 2014 by Jeb McCaleb, one of the creators of Ripple and the creator of eDonkey, an early peer-to-peer file sharing protocol that preceded Napster, LimeWire and similar services. McCaleb is also known as the founder of the now-shuttered Bitcoin exchange Mt. Gox, though he sold it to Mark Karpelès not long after creating it. Stellar’s development is headed by the nonprofit Stellar Development Foundation. (1) (2)
Initially based on the Ripple protocol, Stellar introduced a number of changes to its code that fundamentally diverged it from Ripple. Not long after Stellar’s foundation, it was forked from Ripple and became its own entity. In response, the Stellar Development Foundation created a new consensus algorithm for the network, bringing it online in 2015. Stellar and Ripple have since diverged so much that there is no compatibility and almost no code shared between the two platforms. (3) (4)
Similarly to Ripple, Stellar is not simply a cryptocurrency, but is designed as an all-in-one network for financial transactions. Stellar exists as a software protocol on financial servers and uses the Internet to form a global network for exchanging money. Unlike Ripple, which is centralized and proprietary, Stellar is an open-source platform that utilizes an open ledger which anyone can view and contribute to. (5)
Stellar’s central ledger is changed whenever users on the network engage in transactions. Utilizing Stellar’s central consensus protocol, transactions are monitored and changes to the ledger are made according to agreement among all servers connected to the Stellar network. This is a fundamental difference from Ripple in that no one entity or individual can take control of the Stellar network, since agreement on ledger changes must be obtained from all parties involved in Stellar. (6) (7)
This open-source approach to transaction validation gives Stellar more flexibility than Ripple, since any machine connected to the Stellar network can participate in the validation of transactions, though not all machines will be treated equally. Additionally, Stellar is much friendlier towards third-party developers than Ripple, encouraging creators to design their own add-ons and projects for the Stellar network and helping to raise money for their work. (8)
Stellar’s open-source nature has made it a hit among financial institutions in the developing world who are seeking stable and reliable platforms to build on. For example, the banking software company Oradian has begun using the Stellar network to connect and coordinate operations between microfinance institutions in Nigeria, while other similar partnerships have since been unveiled in India, sub-Saharan Africa, and the Philippines. (9) (10)
Stellar has also gained traction in the developed world as an alternative to Ripple and traditional banking mechanisms. In 2017, Stellar and IBM formed a partnership designed to increase the speed of the Stellar network and improve the efficiency of transactions. IBM also seeks to use Stellar to develop a new “cross-borders payment solution” to make transferring money around the world an easy and painless process. (11) (12)
Stellar is also distinguished from Ripple by its inflationary structure. While Ripple works to keep the amount of currency in circulation stable, Stellar automatically increases its money supply by one percent each year. This rate of increase is hard-coded into the system and cannot be modified by miners or any other entity. (13)
It’s because of all this that Stellar has become a worthwhile investment option for cryptocurrency traders interested in “smart contract” currencies. Like Ethereum and Ripple, Stellar’s framework for financial transactions gives it a strength that gives it extra credibility in the world of traditional finance.
Like Ripple, it is not possible for individuals to mine Stellar.
At the inception of the Stellar network, 100 billion Stellars were created. The only way that additional Stellars can be made is through the aforementioned inflationary structure, which caps the increase by one percent each year. This inflation happens automatically on a weekly basis, with the new Stellars created distributed throughout the network via direct voting. (14)
Because of this, mining Stellar is impossible; the only way to obtain Stellar is to buy it via an exchange, buy it via the Stellar network directly, or receive it as a result of inflation voting.
Stellar may have begun life as an offshoot of Ripple, but its developers have taken it in a decidedly different direction, establishing it as one of the hottest commodities in the “smart contract” tranche of cryptocurrencies.
Stellar provides the advantage of a robust computer network with which to process and tabulate financial transactions, coupled with a decentralized structure that makes the network impossible to hijack or hack. Stellar provides solid technical and economic backing for a wide variety of projects, particularly those reliant on open-source software and solutions.
Furthermore, the Stellar Development Foundation’s support for third-party development has helped the currency grow by leaps and bounds, allowing it to compete with Ripple’s superior marketing and centralized structure.
For cryptocurrency investors, Stellar is worth keeping an eye on for these reasons. Smart contract cryptos such as Stellar, Ethereum, and Ripple represent a new evolution in blockchain technology. Beyond serving as a store of value and a transaction mechanism, cryptocurrencies like Stellar provide all the necessary tools and infrastructure to serve as financial platforms in and of themselves.
It is because of this that Stellar is a worthy investment for crypto investors looking to diversify their portfolios. Few cryptocurrencies can match the stability, reliability, and potential for growth that it has.