Crypto star: The Stellar network in 300 words (or so)

What is the Stellar network?

Stellar network
Credit: Pixabay

I came across the Stellar network editing a blog article a while ago, and I have followed it since. And I also bought some Lumens (XLM), its coins.

The Stellar network is an open-source, blockchain-based financial network. It is open to anyone, cheaper, quicker, and more energy-efficient than earlier generation blockchains, such as Bitcoin and Ethereum. It is a decentralised system that allows you to trade tokens, make markets, and issue assets, transparently and efficiently.

Foundation and consortium

The project is connecting individuals, institutions, and payment systems through its platform. Its mission is to enhance rather than compete against the existing financial system, unlike Bitcoin and other cryptocurrencies.

The Stellar Development Foundation (SDF), a US, non-profit organization guides and supports the development. The SDF helps maintain Stellar’s codebase, works with technology and business communities around Stellar, and liaises with regulators and institutions.

An international consortium supports the web of decentralised servers that keeps track of the network’s transactions.

Protocol, ledgers and more

Stellar tracks ownership using the Stellar Consensus Protocol (SCP), an algorithm. Its ledgers are verified and updated every five seconds. A Stellar ledger stores two pieces of info for every account holder:

  • balances, e.g. “100 EUR tokens” or “50 USD tokens”
  • operations, e.g. “sell 10 USD tokens for 50 XLM” or “send 20 EUR tokens to such-and-such account”

The computers that run the core Stellar software and therefore publish and check the ledger are called nodes. They check that the correct balances are debited and credited when you send someone EUR tokens on a Stellar-built app. Each node makes sure every other node sees and agrees to the transaction. Stellar has hundreds of nodes across the globe.

An application programming interface (API) allows you to trade tokens, make markets, and issue assets.


Final thoughts

I think we need blockchain-based systems that enhance the existing financial system as well as those that compete against it. That is to say that we need a “portfolio of systems” to ensure that we are not all dependent on the same system at any one time.

However, both types of blockchain-based systems need to be energy-efficient, i.e. sustainable. Something that Bitcoin and others are currently not.


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Mauro Tortone

View posts by Mauro Tortone
Mauro helps financial services, technology and mobility businesses manage change and leads the Strategy & Finance practice. His expertise is in strategic change, capital markets and more. Mauro has over 25 years of experience working with banks such as UBS and Deutsche Bank, smaller financials, fintechs and others across Europe, the US and Asia. He sat on the CISI Corporate Finance Forum Committee for ten years and is passionate about sustainability.
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