Stellar Cryptocurrency, Explained: A 2018 Review

3 years ago

Do you think it’s possible to take one centralized cryptocurrency called XRP and turn it decentralized? Well, one of the Ripple founders said yeah, it is possible, and then he made his own cryptocurrency Stellar that works just as fast as Ripple but with fewer disadvantages.

In our review, we’ll discuss how much has been accomplished by the Stellar team as well as its potential for the cryptocurrency market.


From the very beginning, the crypto community did not accept the idea of Ripple cryptocurrency. It was created primarily for the banking system and is fully controlled by the Ripple Labs company. However, the proposed technical solutions were extremely interesting, because who wouldn’t want practically free and instant transactions.

As a consequence, it was decided to fork Ripple and create a new cryptocurrency, devoid of the shortcomings of the initial project. Jed McCaleb, the co-founder of Ripple, is the one responsible for launching the Stellar network in early 2014.

According to the official version, Jed McCaleb decided to quit Ripple, without leaving behind his several billion XRP tokens. He left because the development of the project did not coincide with his vision of using the blockchain. There could have also been other reasons for McCaleb leave: perhaps the company was going through an internal struggle between the developers which could have played a role in McCaleb rebellion.

Stellar took off without ICO: the Stripe company invested $3M in the project. Initially, it was almost an exact copy of the Ripple network, but in November 2015, Stellar switched to using its own consensus protocol. This eliminated the problem of blockchain centralization because, in the new protocol, each user can run a full network node and confirm transactions.


As with Ripple, 100B XLM tokens were issued at the time of the Stellar blockchain launch. In the same manner, the Stellar network uses a mandatory minimum fee for each transaction. Also, the initial funds of a user are frozen on the account before one can start using them. This is done as to prevent spam transaction and empty wallets.

The Stellar consensus mechanism allows any node to verify and send a transaction to the network. The operation is then forwarded to the other node and so on through the chain until 80% of the nodes in the network consider the transaction valid. To protect against dishonest users who can try to run their own node and send a false transaction to the network, the protocol may temporarily freeze the blockchain. If fraudsters control several nodes, they will simply be excluded from the transaction processing, but in the case of a massive attack on the blockchain, the payment processing will be suspended until the legit nodes reach consensus. From the perspective of ordinary users, this is not the most convenient protection because no one wants their payments to get stuck somewhere. However, there have been no such instances so far.


Stellar is a universal platform for exchanging any assets in real time. The internal network currency is called XLM or Lumens. With the currency, you can quickly exchange one asset for another at any distance. The system works thanks to the anchor services that convert the financial asset, say, US dollars into XLM tokens. Then, the cryptocurrency is sent to the recipient and the reverse conversion is carried out. The Stellar network can also be used as a regular cryptocurrency for payments, such as Bitcoin.

Stellar also has its own smart contracts. They are inferior in functionality to the Ethereum smart contracts but they are sufficient for holding ICO. Many companies choose this platform because it offers high performance and cheap transactions.

And at the end of September 2018, the decentralized exchange StellarX was launched. It provides commission-free trading and supports fiat currencies.

Pros & Cons

Time to assess Stellar by its advantages and downsides:

The pros are as follows:

  1. High scalability. The Stellar blockchain surpasses the speed of most existing cryptocurrencies and processes transactions almost free of charge.
  2. Decentralized network. Each user can run their node without requesting permission from the developers, as is the case with the Ripple network.
  3. Wide technological possibilities. The Stellar blockchain supports decentralized exchanges and ICO. It can also be adapted to make payments between banks, which is already implemented by IBM

Aaaand here’s the cons:

  1. Possible inflation. Every year 1B XLM tokens are generated which can cause an inflation.
  2. No motivation to run full nodes in the network. Due to the fact that transactions in the network are extremely cheap, the node support does not bring financial benefits.
  3. There are just over 18B XLM tokens in circulation, while their total number exceeds 104B tokens, which means more than 80% of the tokens are in the hands of developers.

Do note that the management of the Stellar network is carried out on behalf of the non-profit foundation to evenly distribute XLM coins between users of the network. But this process is extremely slow and ironically, Stellar developers control more of their tokens than their colleagues from Ripple.


Fast and cheap blockchain, a partnership with well-known companies and a strong development team. What else is there to kill Ripple? After all, this is what many view as the real purpose of the Stellar cryptocurrency. But if you look at the pure facts, Ripple has long overtaken Stellar by the bank and financial company adoption.

Betting on the universal exchange platform for general users has not yet accomplished anything. Stellar is sympathetic to the majority of the community but unfortunately, it is not in demand as a means of payment.

Don’t panic yet! Launching the payment system for banks by IBM and creating the decentralized exchange on the Stellar blockchain tipped the scales in favor of this cryptocurrency. For now, it is only a bedrock to gain a foothold in the top cryptocurrency rating, while all these features are yet to pay off.

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