After our review of The Ripple protocol (XRP), we are now tackling that of Stellar (XLM). This cryptocurrency has the ambition to be a reference in the field of exchange of currencies and assets of all kinds.
As we shall see, Stellar project shares many similarities with main competitor Ripple. Indeed, it was initiated in 2014 by Jed McCaled and Joyce Kim. However, the first is none other than the co-founder of Ripple! He resigned in 2013 before he decided to create his own cryptocurrency… For the record, we can probably draw a fun parallel here with smart contract-oriented cryptocurrencies. Indeed, Charles Hoskinson, the founder of Cardano (ADA) also participated in the creation of Ethereum (ETH) before slamming the door and leaving his project…
Stellar Consensus Protocol
The SCP (Stellar Consensus Protocol) protocol is based on the principles of the Byzantine Federated Agreement. Unlike proof of work (which relies on a node’s computing power) and proof of stake (which relies on a node’s deployment power), we rely here on the agreement between trust nodes.
In SCP, each participating node decides which set of other nodes it wants to trust. This is the established quorum. He also needs to choose a threshold. It is the minimum number of nodes in a quorum group that must agree to reach consensus.
This trust flexibility allows for open network membership (anyone can become a central node) and decentralized control (no central authority dictates what voting is required for consensus).
There are no monetary rewards for being a validator on the Stellar network. It is only one contribution to the security and stability of the network that benefits the products and services built on Stellar.
Consensus mechanisms must support 3 essential properties:
- Fault tolerance: the system can continue to function despite node failures or malfunctions
- Security: two nodes never agree on different values, ensuring that nodes produce the same block
- Liveliness: a node can produce value without the participation of misbehaving nodes
Only two of these three properties can be prioritized by a consensus mechanism, to the detriment of the third. SCP chose to prioritize fault tolerance and security over liveness. So blocks can sometimes get stuck waiting for nodes to agree.
The agreement is reached by federated voting. A node reasons about the state of the network based on what it learns from its quorum group. Before a statement is accepted by any honest node in the network, it goes through three voting phases: voting, acceptance, and confirmation.
Lumens (XLM) and Stellar transactions
Each Stellar transaction costs 0.00001 XLM fee. Since there is no reward in Stellar, this fee is only used to prevent spamming attempts on the network. Each account must have a credit balance of at least 0.5 XLM.
A total of 105 billion XLM tokens were initially pre-mined by Stellar, which however decided in 2019 to burn half of its tokens. Therefore, the current supply is 50 billion XLM. The network is capable of processing 1000 transactions per second, with an authentication delay of 3 seconds.
Stellar can be used to track, hold and transfer any type of asset: coins, cryptocurrencies, stocks, gold and other valuable tokens. Any asset on the network can be traded with any other.
Holding assets in Stellar is, in effect, holding a claim on the issuer of that asset. The latter has agreed to exchange it for you against the corresponding asset, outside the Stellar network.
It is then necessary to explicitly trust the issuer to repay his loan correctly, creating a line of credit. It is an entry that persists in the registry and defines the limit for which the holding account trusts the issuing account.
Lumens (XLM) are the network’s native currency. It is the only asset type that can be used on the Stellar network without an issuer or a trust line.
Any account can issue assets on the Stellar network. They are called “anchors”. Assets are uniquely identified by asset code and issuer. The latter is responsible for determining the code and ensuring the liquidity of the asset.
Reversibility of said transactions
By default, anyone can establish a line of credit with an issuer to receive an asset. However, an anchor can explicitly authorize and revoke user access to multi-currency assets by enabling the following flags in the issuer’s account:
• AUTHORIZATION REQUIRED: The anchor must approve anyone who wants to maintain their asset, allowing them to control who their customers are.
• REVOCABLE AUTHORIZATION: the anchor may freeze the asset held by another account. When an asset is frozen, that account cannot transfer the asset to another account, not even on the dock. This setting allows the issuing account to revoke assets that it has accidentally issued or received in error. To use this setting, AUTHORIZATION REQUIRED must also be enabled.
This last indicator is really the antithesis of what we are used to seeing in the cryptocurrency world, namely the irreversibility of transactions and the irreversibility of property transfers. A real heresy in the world of public blockchains like Bitcoin (BTC).
However, to inspire confidence in potential asset holders who fear that the issuer will freeze them arbitrarily, the issuer’s account may enable the UNCHANGEABLE AUTHORIZATION flag to prevent revocability.
An integrated distributed exchange
Stellar naturally offers all the features of a decentralized exchange. It contains all the assets that anchors have added to the grid. Thus, a Stellar account can bid to buy or sell assets. For a sale, he must hold the asset he wants to sell. For a purchase, he must already trust the issuer of the asset in question.
The supply is then compared to the existing order book for that asset pair. If the bid exceeds an existing bid, it is executed. Otherwise, it is saved until it is taken by another offer or simply cancelled.
Here we find the behavior we are used to seeing in traditional exchanges.
The most friendly address of the stars
It is possible to map Stellar addresses with aliases that resemble email addresses such as name*yourdomain.com. Which is much easier to manipulate than a traditional form like GCCVPYFOHY7ZB7557JKENAX62LUAPLMGIWNZJAFV2MITK6T32V37KEJU.
Star addresses are divided into two parts separated by *, the username and the domain. The ampersand is allowed in the username. Which allows the use of email addresses in the username of an address, such as: [email protected]*stellar.org.
Like Ripple, which is emerging from its hurdles with the SEC, Stellar is racing to offer a blockchain-oriented asset transfer. Both networks look the same; Stellar is more geared towards individuals and small organizations, while Ripple is more dedicated to financial institutions and large corporations. As proof that the two players target the same market, we will cite the case of Moneygram. The latter ended in 2019 a deal with Ripple to improve money transfers with blockchain, but it has been suspended a year later, likely due to the reaction to the threat of a lawsuit with the SEC. That’s how it is Star who recently took the bet thanks to a new deal with Moneygram.
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Computer entrepreneur and resident in African lands for fifteen years. In this uncertain and volatile world, I see bitcoin and cryptos as one of the best opportunities in the face of the challenges ahead.