Stellar Oversimplified: A Beginner’s Guide To Stellar and Lumens

How It All Started

In 2013, Jed McCaleb, one of the founders of Ripple, Stellar’s most notable competitor. Left Ripple due to some differences ideologically with the rest of the team’s leadership, shortly after, he founded Stellar. Jed McCaleb is the face of Stellar. Previously, he also created the infamous Mt. Gox. However, he was no longer involved during the over $450 million hacks. Stellar has one of the best advisory boards of any other project in the cryptocurrency world. The list includes Matt Mullenweg (WordPress Founder), Naval Ravikant (AngelList Founder), Patrick Collison (Stripe CEO), and Sam Altman (Y Combinator President).

What Is Stellar and Lumens

Stellar is a database and a distributed blockchain based ledger that facilitates cross-asset transfers of value, such as payments. The digital asset of Stellar is called Lumens (XLM). Basically, Lumens (XLM) is the cryptocurrency, and Stellar is the payment network. Stellar’s goal is to make monetary transactions quicker, cheaper, and more reliable than they are under our current systems. Furthermore, they aim to connect people from all over the world by allowing more efficient cross-border payments.

How Does Stellar Work?

Like most of the other cryptocurrencies, Stellar is decentralized. The whole network runs on a web of decentralized servers supported by individuals and entities. The servers support the distributed ledger that keeps track of the network’s transactions and data.

In practice, the Stellar aim is to function like PayPal, only more flexible. To start, it is needed to upload funds to an anchor on the network. Much like a PayPal or a bank, this anchor then holds your money and issues credit to your virtual wallet in its stead.

Anchors serve as a bridge for all the currencies and the network of Stellar. It is needed to convert all the funds into Stellar’s public ledger formally.

This process basically means, unlike traditional systems, you do not have to wait for a bank transfer. You can send funds instantly on the platform. It also streamlines cross-border payments. For example, you wanted to send funds to your friend who lives in Turkey. You would have to use your credited USD balance to transfer the funds through the Stellar network. Stellar would then convert the USD to Lira by using the lowest exchange rate, and your Friend’s account would be credited with the exchanged amount in Lira. When he receives the transfer, he can withdraw the money from an anchor that supports Lira.

Stellar’s Distributed Exchange.

Another use of the Stellar’s technology is that it also offers you the option of placing exchange orders onto the public ledger to buy or sell other currencies. All the rates are pre-determined by the individual putting the request, so they are not subject to Stellar’s exchange rate that applies to personal transfers. Stellar uses Lumens (XLM), its own coin, as the medium for the exchange. Let’s say if you wanted to exchange USD to EUR, It converts the Dollars into the Lumens currency (XLM) on the global marketplace, and then it takes those Lumens and converts them to Euro for the person receiving these funds. And If there are no trading pairs in the platform for the two currencies that you want to exchange, Stellar uses the “Multi-Currency Technology” to search for all the offers on the platform that will lead to a chain conversion into the currency that you want to exchange. For example, USD to GBP, GBP to AUD, AUD to JPY, JPY to Euro). Thus, completing your order.

Citations:

What Is Stellar (XLM)? | A Guide to the Common Man’s Financial Network. (2019, January 10). https://coincentral.com/what-is-stellar-lumens-a-beginners-guide/

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Stellar Oversimplified: A Beginner’s Guide To Stellar and Lumens was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.