Press "Enter" to skip to content

On the Stellar Network and Lumens (XLM)

Stellar is a value-transfer network that functions similarly to Ripple. Stellar strives to be a fast and cheaper way to send money. Stripe invested into the project’s seed round from payment giant Stripe, and has also forged a partnership with IBM. Stellar’s native token is the Lumen  (XLM). Jed McCaleb, who WSJ called “the reclusive bitcoin pioneer”, founded Mt. Gox and Ripple before hitting upon the idea for Stellar. 

Stellar is meant to be a user friendly blockchain product encouraging of mainstream adoption. By the time Stellar was announced, Bitcoin had begun behaving more like a store of value. While Bitcoin is a deflationary currency, Stellar has a built-in inflation rate of 1 percent indefinitely. 

Stellar is designed for sending and receiving money between currencies pairs. It’s goal is to facilitate transactions in all kinds of currencies, like the yen, dollar, and the euro, as well as other emerging-market fiat currencies. 

Keith Rabois, the PayPal cofounder and Khosla Ventures partner, supported Stellar’s non-profit organization early on. Other big names supporters include Stripe CEO Patrick Collison, YCombinator president Sam Altman, Mt. Gox creator Jed McCaleb, AngelList co-founder and CEO Naval Ravikant, cofounder of Dogecoin Jackson Palmer, and Matt Mullenweg, founder of WordPress. 

Stripe provided $3 million funding to get the startup off the ground and received 2% of the Lumens in existence. 

“The unexpected tragedy of our financial system is that the less money you have, the more expensive it is to send money around,” said Joyce Kim, executive director of the Stellar Development Foundation, a small non-profit to back Stellar’s mission of creating a new, inclusive infrastructure for the global financial system.

Stellar is a public protocol that acts as “the connective tissue” between currencies and payment systems. 

“[This has the potential] to fundamentally democratize access to these systems so that more people can build to them and more people can connect to them,” said Kim. 

She added: “What Stellar wants to do is to help bring the per transaction infrastructure costs globally down so low that people can create sustainable business models to serve these communicates. That means it actually has to be thought of as a public good that I like to say is owned by everyone and owned by nobody. I think of the Internet that way, can you imagine what the world would be like today if it were owned by a company? The way to move this forward can’t be a win lose, it has to be a win-win.”

Stellar employed an early strategy of giving out Lumens to new users. Kim argues this is a more egalitarian approach than Bitcoin’s model of mining. Stellar sees mining as limiting for a network. It means that only people with high technical skills or the capital to operate now-expensive mining hardware get access to newly-mined Bitcoin. Stellar, contrarily, distributed coins to anyone who signed up. McCaleb might have been inspired to giveaway coins after his experience with Ripple, which faced accusations of being called a pre-mined scam. 

In order to own other digital currencies,  “you either put money in or you have to mine for it,” Ms. Kim explained, arguing this eliminated most of the world. Stellar’s goal, instead, is to make it cost-free for people to acquire a virtual currency.

At the time of launch, Stellar planned for a quarter of Stellars in existence to go to nonprofits through an ‘increased access’ program, while another 20 percent would go to existing Bitcoin holders. The remaining 5 percent were set aside for operational costs. 

The Stripe-Stellar Connection

Collison had been thinking of an agnostic online payments network since 2011 –– not long after he and his brother John had started work on Stripe. 

“Even before Stripe launched, we were thinking about what crypto-currencies mean for Stripe and in particular, how we can take advantage of them in order to accomplish the things we want to do,” Collison told Fortune

Collison began talking to McCaleb on the topic. “We were having these conversations, and it was so clear what Stripe thought should exist, and what he thought should exist, and they almost precisely [matched up],” Collison said. “So it made sense to decide to do something together.” They decided they need a non-profit separate from Stripe. 

“We felt the basic parts shouldn’t be controlled by one single entity,” said Collison. 

He added later: “The motivation was, in part, to have people focus a bit less on digital currency as something to hoard or a store of value.”

Collison lamented living in a world of closed, un-interoperable networks –– all of the credit card and payment networks that now move money across the net are siloed. “Whether it’s bitcoin or Stellar or some other technology, it’s really important—and, I hope inevitable—that something comes along and unifies them.”

As Stripe crypto specialist Greg Brockman wrote in a company blog post:

“Stellar’s goal is to build a great transport layer for transmitting monetary value. Figuring out how to efficiently move money is something we support very strongly: Stripe spends a lot of effort integrating different banking and finance protocols in various countries (17 at last count). We’ve always considered it unlikely that these systems would be just as fragmented in twenty years. Bitcoin has already changed the world by drawing attention to the value of open, distributed protocols that enable the transmission and storage of money. Stellar aims to advance this success by providing a way to transact in one’s currency of choice, whether that currency is fiat or digital.”

Stripe said in 2018 it might add support for the cryptocurrency. “…[W]e may add support for Stellar (to which we provided seed funding) if substantive use continues to grow,” Stripe product manager Tom Karlo wrote in a blog post.

The Stellar Algorithm and Network

The Stellar algorithm, called the Stellar Consensus Protocol (SCP), was designed by David Mazières. This consensus algorithm, a federated byzantine agreement, builds trust in a different way than Bitcoin and proof-of-work.

When you join the Stellar network, participants gravitate to other participants they know and trust. When the system shows that no small ‘quorums’ are separated from the rest, the larger whole can be trusted. 

“As an individual, I choose users that I can trust and those users do the same,” said Dan Boneh, a computer science and electrical engineering professor at Stanford specializing in cryptographic systems reviewed Mazières’s system.”If we can achieve that combinatorial property, we can achieve consensus.”

SCP runs software that communicates via the Internet. Instead of trust enforced by mining, 

each person running the software must identify a few other trusted participants to apply the cryptographic rules needed to validate transactions. Trusted parties and their affiliations on the network are public to other participants. Instances of Stellar’s software recognize transactions after a set majority fraction of trusted partners have signed off. 

According to Mazières, the math shows that those rules enable his consensus method to verify transactions faster and with less electricity than proof-of-work. 

“The security proposition of Bitcoin is that the people who invested in mining infrastructure can be trusted, but that may not be true,” said Boneh. “Here I can choose for myself who to trust.”

He adds: “It can serve any system that’s based on quorums, where we must all agree on what the state of the world is. It can be used for payment transactions, the exchange of property rights, financial trading, all the standard applications of a trust ledger.”

The ultimate goal is to make interoperability between financial institutions and different payment networks possible and easy. 

In order to start building the network, Stellar first began working on a project called, which would make cross currency and cross asset payments faster and more efficient, as well as less costly. The app leveraged Stellar’s open financial protocol would to settle payments in 3-5 seconds for fractions of a cent, in a safe, and secure network. The project’s website now redirects to, which, according to the website, is tasked with growing the Stellar ecosystem. 

Stellar’s Lightyear acquired blockchain startup Chain in 2018, and they merged under the new name, Interstellar, which would be run by Chain Chief Executive Officer Adam Ludwin and based in San Francisco. The companies didn’t disclose terms in a statement announcing the deal.

In other partnerships, Stellar partnered with banking-software company Oridian to use Stellar platform in its core banking software for microfinance institutions (MFI). 

“There’s no way for microfinance companies to communicate with each other,” said Kim. 

Oradian’s Stellar implementation allowed microfinance companies to quickly send money to each other. 

“There’s something like 100,000 microfinance institutions, how do we connect them? How do they get the kinds of efficiencies that will change their lives?” Kim wondered.

Alongside blockchain startups, such as BlockCypher, Bloq, Consensys Enterprise, Loyyal, Stellar partnered with Deloitte.

A new Deloitte system would use Stellar as a payment rail. The firms focused on cross-border payments for a pilot started in Nigeria with the goal of reducing the cost and the time of cross-border payments. 

“Deloitte is building an entirely new system, and Stellar is a payment rail,” said McCaleb. “A big part of the cross border stuff is that there is a lot of friction between parties. But there shouldn’t be. Just like you are able to send an email from a Google domain to a Yahoo domain, we are aiming to do the same with payments. There’s a lot of stuff today out there utilizing this technology [blockchain] at various degrees of solidness. Some of it doesn’t work, some of it is solid. With this partnership, you can start using Stellar tomorrow.”

Deloitte and Stellar developed a mobile app, aimed at making cross-border payments “as easy as Venmo,” Deloitte Partner Eric Piscini said. 

Stellar has taken a global approach. Stellar partner, a blockchain-based mobile payments startup, caters to the Southeast Asia market, will now allow people to send remittances to the Philippines through the Stellar network.

Stellar is also partnered with ICICI Bank, one of the largest private banks in India. India is the world’s largest remittance market, with $70 billion in remittances last year, according to data by the World Bank.

Latin America exchange owners have celebrated the usefulness of Stellar. “It gives you something that’s missing in other projects,” said Rodrigo Batista, the CEO of Mercado Bitcoin, the first Brazilian bitcoin exchange and one of the largest digital currency operations in Latin America. “It’s very, very powerful.”

McCaleb, Stellar’s cofounder and chief technology officer, told Fortune of his desire to connect everyone in the world with the Stellar network. “We’re trying to be an Internet-level protocol for payments,” he said, referencing SMTP, a standard for email transmission.

He added: “We want everybody to plug into it and for money to float seamlessly.”

McCaleb said anyone running their own business on Stellar will be incentivized to run their own node. “And because it’s lightweight, asking people to run it is not a big thing.”

Cover Photo: Jed McCaleb, founder of Stellar, and Michael Terpin, founder of the Transform Group, discuss Stellar.

Be First to Comment

    Leave a Reply

    Your email address will not be published. Required fields are marked *