Ever since Bitcoin came about, all we’ve been hearing is how this will save the common man from the clutches of the traditional banking system. And to be completely fair, the current banking system does have people at a significant disadvantage, because despite the digitalization, transferring money across the globe hasn’t been made remarkably cheaper or even as efficient, all things considered.

And in comes this platform that is on a mission to connect, individuals, institutions and the payment systems, all under the umbrella of its platform. Stellar paints itself as an open-sourced project with a distributed payments infrastructure that is specifically designed on the principle that is needed by the international community, which is “a worldwide financial network open to anyone”.

How Does Stellar Work?

Stellar is following the footprints of many other cryptocurrency platforms, by adopting the hallmark of the blockchain tech, decentralization. The Stellar network basically runs on a web consisting of decentralized servers, which are supported by an international association of different entities and individuals. The function of these servers is to provide support to the distributed ledger, which keeps tabs on the data and transaction of the network.

If you are an avid PayPal user, this will be all the more easier for you to understand because, in practice, the Stellar protocol works as an all-encompassing and flexible PayPal. Funds must be uploaded to an anchor on the Stellar network in order to begin with Stellar. This anchor, in turn, holds the money and issues credit cards to the virtual wallet. The need of exchanging debit for credit with an anchor arises because that very anchor functions as a bridge between the Stellar network and any other currency. The switch allows for a formal conversion of funds into the platform’s public ledger.

What this means for the whole process of sending funds is that instead of being cumbersome with the waiting for banks to complete the process, it becomes instant and efficient, all the while streamlining cross-border payments.

Distributed Exchange

The platform further provides its users with the option to place the exchange orders on the public ledger, in order to buy or sell other currencies. The bright side of this for the users is, that all rates are preset by the person who is placing the exchange order, which means they are free from the influence of the automatic exchange rate that is applied to personal transfers by Stellar.

Multi-Currency Transactions

The fact that Stellar allows people to send money freely across borders has already been established. However, in order to achieve this, the network follows through one of the following three things when a currency transfer is requested.

It automatically facilitates the exchange process by converting the funds with a previous offer on its order book.

The platform uses its native crypto, Lumens, as an intermediary, for the purpose of exchange. Firstly it converts the funds from any currency into Lumens on the global marketplace, later it takes those Lumens and converts them to the other currency for the user who will receive the funds.

Under the circumstances where there are no trading pairs in the exchange for two currencies, Stellar explores offers on the network that ultimately leads to a chain conversion into the wanted currency.

Consensus Protocol

Also referred to as ‘federated byzantine agreement’, this is the protocol that Stellar uses in order to validate the transactions.

The Stellar Protocol functions on the basis of the open membership system, whereby any user can serve as a validation node. Moreover, as a node, instead of relying on recommendations from a central authority, users have the freedom to select other nodes that they would want to follow. This builds a network that is even more decentralized.

The Stellar Org

This is a nonprofit project of the Stellar platform and is as good as free for use. So, from where does Stellar get the resources from? Well, aside from the initial Lumen sale, Stellar depends heavily on donations from corporations such as Google.com, BlackRock, FastForward and many more.

The Stellar Team

You can read the whitepaper here.

The Stellar Consensus Protocol white paper has the tendency to be a bit complex, most likely because it’s not blockchain, rather it is like an evolution of blockchain.