Mwagiru Karongo 🇰🇪, author of this article
Twitter @mkarongo

Think of the Stellar network as a blockchain network similar to the world-famous Bitcoin network for easier reference. Stellar Lumens, traded under the ticker XLM on crypto exchanges, is the native digital coin of the network. 

Unlike the Bitcoin network, the Stellar network was created to bridge the gap between digital currencies and fiat currency. Currently, about 20 billion XLM are in supply, while about 30 billion are held by the Stellar development foundation (SDF), which supports the development of the Stellar network.

The initial XLM release was about 100 billion XLM, which was burned to half of the original amount. Burns are controversial because they encourage moves that go against the intended purpose of decentralization in the first place. 

Understanding Stellar #

Stellar is an open-source payment blockchain network founded by Jeb McCaleb, who also co-founded an almost similar payment network known as Ripple. However, Ripple is a closed network, while stellar is an open-source network.

At its core, the primary goal is to connect financial institutions and enhance cross-border remittance transactions. While Ripple targets established financial institutions and banks, Stellar targets emerging markets, including the world’s 1.7 billion unbanked.

How Does Stellar Work? #

Cryptocurrencies such as Bitcoin’s BTC or Ethereum’s ETH were designed to trade their native digital currency. In a sense, they offer themselves as alternatives to fiat currency. But Stellar’s design follows a different approach, linking digital currency with fiat currency.

To achieve this, the Stellar network relies on tokenization. In this case, a Dollar or Euro is held in the network as a form of a token; for example, the Euro becomes EURT. The beauty of this is that currency tokens are backed by actual fiat currency maintained by Anchors (Financial institutions or money service or Fintechs)The ratio of digital currency to fiat currency is 1:1. When a payout takes place on the Stellar network, the receiver gets the equivalent in the fiat currency value.

If you are wondering, the transaction costs are pretty low, 0.00001 XLM per transaction. Since the Stellar network is open source, the transaction fee is only set to prevent scamming. Interestingly, the network can handle 1000 transactions within one second. A trade can go through within 5 seconds, which is impressive by cryptocurrency standards. And incredibly fast if you compare it with traditional payment transfers, which take up to 5 days because of the reconciliation, conversions, etc.

The Stellar network achieves faster trades because of its consensus protocol. Most blockchains run on the proof of work (POW) or Proof of stake (POS) consensus protocol. The Bitcoin network popularized the proof of work consensus protocol, while proof of stake was an attempt to improve the POW’s shortcomings.

On the other hand, the network relies on a different consensus protocol, the Federated Byzantine Agreement (FBA), referred to as Stellar’s consensus protocol.

Instead of the entire network agreeing on a consensus, the Stellar consensus protocol relies on quorum slices representing a portion of the network. The quorum slices are mini networks where transactions are approved when all the nodes in the quorum slices come to a consensus.

Where Do You Buy And Trade XLM? #

You can easily buy XLM within GetPaid.africa platform with mobile money or bank account Once you have bought it you can send  XLM to almost all the major crypto exchanges. Below is a list of the crypto exchanges that support XLM.

How Can Individual Users Benefit from Stellar?

The Stellar network has several use cases that we will highlight in the next sections. Anyone can essentially integrate with the Stellar Network. Common examples are fintech and marketplaces. Which can have a clear advantage to build Stellar into their solutions the benefits roll over to their Users.

Generally said, to individuals users using blockchains such as Bitcoin and Ethereum, Stellar has practical advantages:

• Speed; because of the FBA consensus protocol, the Stellar network has quicker transactions compared to other blockchains. Lower fees; the cost of Stellar’s transactions is low at 0.00001 XLM. If we consider the current rate of XLM to the Dollar, the prices are low. 
• Multiple currencies are supported on the Stellar network, including the Euro, Dollar, Pesos, Nigerian Naira, Kenyan Shilling, Tanzanian Shilling, and Rwanda Franc etc.

Stellar Lumens (XLM) Use Cases #

Payment System For Fintech #

Fintechs worldwide needs payment solutions that would link financial institutions, banks, and individuals in a fast and reliable way. Stellar offers this kind of solution. The Stellar network provides fintech with an excellent platform to build upon their financial solutions.

1. As an open-source, decentralized financial structure, it allows fintech to build robust financial solutions leveraging a suite of tools supported on the network. One can, for example, embed stablecoins USDc and ride on this network. Fiat conversion and access to cash is another benefit borne through the Stellar network.
2. Stellar is focused on emerging markets. The Stellar network utilizes its anchor network of financial institutions, Fintech companies, or money services to give access to emerging markets. Stellar shortens borderless transfers while reducing the cost.
3. Stellar offers peer-to-peer payment flow and more straightforward conversion to local currencies through the platform. Further, it provides new cash-out destinations such as mobile money in Kenya or SEPA in Europe.
4. Fintech can develop solutions for the underbanked using the network through Tokenization through financial inclusion.
5. It is designed for interoperability with global payment systems making it a reliable payment infrastructure.

Remittance #

The amount of money sent back home by workers in western countries grows year in. Typically, traditional remittance methods take several days, and a large percentage goes to the money transfer operators.

Anchors issue Stellar-based fiat tokens and back them with actual fiat currency, enabling a receiver to get the money in their local currencies through the bank. When a sender sends money, it is reflected as a token on the Stellar network, which converts it to the local currency per the best conversion rate. 

Use In Cross Border Payments #

It’s estimated that $2 trillion exchange hands through cross-border payments. Usually, the process is left to banks and financial institutions that charge exorbitant fees in conversion rates. Not only that, but the process is tedious and slow. 

Regardless of the type of cross-border payment, Stellar Lumens streamlines this process and eliminates international wires, and SWIFT, while transmitting and converting the currencies in a single transaction.

Remember, this eliminates high conversion charges and makes the process faster.

Stellar and Stablecoins #

Stablecoins are digital currencies backed by fiat currencies such as dollars, the Euro, or the Kenyan Shilling. The most popular stablecoin is the United States Dollar Coin (USDc) and USDT, also known as the tether. Stablecoins offer stability in the highly volatile crypto world because of the dollar backing.

You can leverage the fast Stellar Networking and stability of the USDc since the latter is now on the network. If you are a fan of stablecoins, the Stellar network gives you the opportunity. 

Other use cases #

As the Stellar Network is open source there are many other use cases possible for example marketplaces and other apps.

Final Thoughts #

Stellar is an underrated blockchain with a potentially progressive utility. Bridging the gap between fiat currency and crypto has not been easy. The network has gone a step further with its financial inclusion mantra. They are being run by a non-profit means that they are out to reach regions earlier ignored by financial institutions.