What is Stellar (XLM)?

Stellar Lumens (XLM) was just added to the Edge Wallet increasing the number of supported blockchains to 15!

The Stellar project was launched in 2014 and XLM is the native digital asset on the Stellar platform. Although XLM is the native asset on the Stellar network, it acts as the intermediary currency for asset exchange on the network. Transferring XLM from one user to another is not the purpose of the network but rather functions to move a wide diversity of assets seamlessly across the globe without a central administrator. XLM helps facilitate this movement by acting as a bridge asset. The network uses XLM to impose a small economic cost on its users. Users of the Stellar payment platform must have a minimum balance of 1 XLM to activate a Stellar wallet and have to use XLM to pay transaction fees on the network. These costs are imposed to limit spamming or other undesirable behaviors that could overwhelm the network’s resources.

Anchors, Credits, and Distributed Exchange

At the heart of Stellar is what the network calls an “anchor”. Anchors are financial organizations like banks, remittance companies, and savings institutions which act as bridges between assets (usually fiat currencies) and the Stellar network. Anchors can issue “credits” on the Stellar network based on assets that have been deposited at their institution. Examples of credits would be US Dollar (USD) credits or Euro (EUR) credits. These digital credits can be sent and received by anyone on the Stellar network. While networks like Bitcoin aim to be as trustless as possible, the Stellar network relies on the reliable reputations of institutions that become anchors to maintain their status as honest brokers. Anchors have to be trusted to hold deposits and honor withdrawals by users of the Stellar network.

The Stellar network’s distributed ledger not only records transfers of XLM and credits but also acts as a decentralized order book for those credits. Users of the Stellar network can not only send and receive XLM and various credits but they can also make offers to buy and sell the different credits issued. The network records these offers and completes them when the offer’s conditions are met. This allows for the seamless conversion of assets during transactions.

For example, a user with USD credits in their account can pay someone who only accepts EUR credits without an extra step. An anchor would find a path in the Stellar network’s order book to exchange some USD credits for EUR credits and then transfer the EUR credits to the recipient. Along the way XLM would be used to pay transaction fees needed for conversion of assets and their delivery.

Stellar Consensus Protocol (SCP)

On a more technical level, Stellar boasts of a unique consensus protocol that doesn’t use PoW or PoS to facilitate agreement amongst the participants of the Stellar network. Instead, the SCP uses something their developers call Federated Byzantine Agreement (FBA). Traditional Byzantine agreement protocols in distributed computing generally require unanimous agreement on membership by all participants meaning each node must be known and verified ahead of time. FBA allows for open membership. Each member can choose the members of the network it wants to trust. The group of nodes a member chooses to trust are called quorum slices which can overlap and communicate with each other.

The SCP uses a federated voting system starting at the node level then migrating to the quorum slices which come to accept different states as a collective unit. Quorum slices overlap and those overlapping members can facilitate agreement amongst the differing slices. The voting process and the goal of the SCP in general is to minimize the potential for disagreement about the state of the network. The SCP allows nodes to form trusted groups that can vote collectively and those groups can come to agreement with each other about the state of the network. The mechanisms for this intricate voting process are detailed in the SCP whitepaper written by Stellar’s Chief Scientist David Mazieres

The Stellar network is focused on seamless cross border and cross asset payments. We’re happy to add XLM to our wallet and look forward to the network’s continued development.

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