A Beginner’s Guide to the Stellar Blockchain

The Stellar blockchain is the bridge between digital and fiat worlds connecting global financial infrastructure. Boasting more than 6.5 million accounts, the Stellar payment network has processed over 2 billion operations since its 2014 launch. Businesses and developers are attracted by near-instant settlements and transaction fees that are mere fractions of a cent.  

What is Stellar?

Stellar is an open-sourced network for currencies and payments that is leading the way to a global decentralized financial network that is open to all. 

The platform was released in July 2014 by The Stellar Development Foundation and the first block on the public mainnet network by the Stellar Consensus Protocol's (SCP) was created on September 30th, 2015.

The protocol is entirely owned by the public with its software running across a decentralized, open network. This network enables the creation, sending and trading of digital currencies— both FIAT and crypto. 

The Stellar Development Foundation is a nonprofit launched by Ripple co-founder Jed McCaleb. While some consider Stellar to be a Ripple fork, the two are actually quite different. They have completely different codes and have a different vision for the future of cryptocurrency— Stellar considers itself “finance with a mission.” 

The motivation behind Stellar is to increase interoperability between the world’s financial systems, creating a single network where banks, payment systems, businesses, and individuals can all work together. Its intention is to be a global exchange network to facilitate faster movement of money in a reliable way and for almost no cost. 

Hosting thousands of exchanges between currencies and tokens per second, Stellar provides undisputed value. Run on the blockchain, it is faster than traditional methods of money transfer, and its unique design makes it cheaper than other blockchain networks. 

Powered by the Stellar Token

The Stellar network has its own native digital currency called the lumen, shown as XLM on exchanges. Lumen is what powers all of the operations on the platform and Stellar requires that each account holder own a small number of lumens at all times. 

Lumens are also needed to open an account and pay transaction fees but the amount is insignificant for users. Currently the minimum balance is 1 lumen and the minimum per-transaction fee is 0.00001 lumen.  

At its inception, 100 billion XLM/Stellar Lumens were created on the Stellar network. Lumen is an inflationary token fixed at a 1% annual inflation rate to account for economic growth and lost Lumens. New Lumens are generated every week and distributed via voting.

CoinMarketCap.com currently ranks the Lumen on #25 out of the thousands of cryptocurrencies available for trading.

Stellar has built-in decentralized exchange for crypto, forex, or securities. Users can swap between tokens using simple functions built into the protocol.

How Does Stellar Work?

At a basic level Stellar works like an accountant with an old-school ledger to track ownership. The blockchain technology removes the need for the accountant, replacing it instead with a network of independent computers or nodes. The nodes communicate to check and recheck the work of the other nodes to verify transactions and update the ledger every five seconds. 

This is made possible through a unique algorithm, called the Stellar Consensus Protocol (SCP), which keeps all of the nodes and the ledger in sync.

Stellar Consensus Protocol

Stellar’s consensus mechanism, otherwise known as the Stellar Consensus Protocol (SCP), is the technology that enables fast, transparent, and smooth transactions on Stellar.

Instead of mining, as in Proof of Work systems like Bitcoin, Stellar’s transactions are processed and verified by a network of nodes that work in unison using SCP, a system of federated agreements to achieve consensus. The consensus is known as the Federated Byzantine Agreement.

SCP works by allowing nodes to select other nodes that they consider to be trustworthy, and then work with them to create and verify a set of valid transactions to change the state of the ledger.

Those nodes in turn choose other reliable nodes to work with and do the same to ultimately reach network consensus through a quorum.

Transactions can be verified and processed quickly using SCP. The average processing time is three-to-five seconds and allows the possibility of thousands of transactions to take place simultaneously. 

Types of Stellar Nodes

There are three types of nodes on the Stellar network, Basic Validator, Full Validator, and an Archiver. All Stellar nodes have the same basic functions:

 - run Stellar Core (the Stellar software),

 - connect to peers, 

 - submit transactions, 

 - store the state of the ledger in a SQL database, 

 - and keep a duplicate copy of the ledger in flat XDR files called buckets. 

Beyond the basic functions, there are two additional key configurations which determine how a node behaves. These are participating in consensus to validate transactions and publishing an archive of the complete history of the network. Not all nodes can perform these two functions. 

Here is an overview of the node types and what functions they have:  

Basic Node - Submits transactions, validates transactions

Full Node - Submits transactions, validates transactions, publishes history

Archiver Node - Submits transactions, publishes history