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Stellar Blockchain has been in the news quite a lot lately primarily because of the fact that they have had a stellar (pun intended) 2017.

What is Stellar Blockchain Platform?

Pictured above: Stellar’s performance from January 1 2017 to December 31 2018 (Image Credit: Coin Market Cap)

The brainchild of Jed McCaleb and Joyce Kim was formed back in 2014 when it was forked from the Ripple protocol (This has changed now. More on this later). Stellar, according to their website, “is a platform that connects banks, payments systems, and people. Integrate to move money quickly, reliably, and at almost no cost”.

Using Stellar, one can move money across borders quickly, reliably, and for fractions of a penny. All that sounds pretty amazing, but how does it all work?

In this guide we are going to give you a deep-dive of the technology behind Stellar.

Image Credit: Ideamensch

Jed McCaleb is one of the most well-known figures in cryptocurrency because he was the founder (or a co-founder) of 3 pretty famous (or infamous if you will) projects.

Back in 2006, he founded the exchange Mt. Gox because, in his own words, he wanted a way to get more Bitcoins. He eventually sold it to Mark Karpeles, whose mismanagement brought about one of the biggest crisis in crypto history.

In May 2011 McCaleb founded Ripple, a cross-border payment system which enabled cross-border decentralized system without depending on mining. However, things quickly turned sour between McCaleb and Ripple. He realized that there was some fundamental misunderstanding between the two parties which was past redemption.

In 2014, along with Joyce Kim, they forked off from the Ripple protocol and founded The Stellar Development Foundation. Ever since then, Stellar has grown from strength to strength. Just looking at the names in their advisory board proves as much: Keith Rabois, Patrick Collison, Matt Mullenweg, Greg Stein, Joi Ito, Sam Altman, Naval Ravikant etc.

Features of Stellar Blockchain

Before we go into more details, let’s do a quick run through of the features that are available in Stellar. How it gets the features will be clearer in subsequent sections, but for now, it will give you a framework. Shoutout to Boxmining for the content.

Has a decentralized and open database.

Confirmation time: 3-5 seconds.

Can enable thousands of transactions per second.

Uses the Stellar Consensus Protocol.

Enables Multisignatures and Smart Contracts

The stellar token is called “Lumen” and denoted by “ XLM” . A 100 billion XLM has already been pre-mined.

Has a 1% fixed annual inflation.

So, How Does Stellar Blockchain Work?

Image Credit: Stellar.org

Now that we know how Stellar came about and its features, let’s look at how it actually works. First, let’s do a brief overview and after that, we can go in-depth.

Suppose, Alice wants to send money to Bob. Alice lives in the United States and Bob lives in Nigeria. She wants to send $100 USD to Bob which will be converted to Nigerian Naira. How will it work?

Suppose, Alice belongs to Bank A based in the US and Bob belongs to Bank B based in Nigeria. Both these banks are connected to the Stellar network and are “Anchors” (more on this later). Ok, so now let’s see what happens.

Alice sends Bob $100 USD and the transaction intent is sent to Bank B within seconds to see if Bob is compliant or not.

The moment Bank A gets the green signal from Bank B, they deduct the funds from Alice’s personal account. The USD is then moved to Bank A’s pool account and then moved into the Stellar network in the form of credits aka Lumens, the native Stellar tokens.

Once inside, the network looks for the best exchange rate to use in order to convert the Lumens into Naira.

The money then moves to Bank B’s base account which then gets credited to Bob’s account.

That is a general overview of how the Stellar payment system works. Now, let’s go deeper.

#1 A Decentralized System

The first that you need to know about the Stellar system is that it is a decentralized, peer-to-peer network. The diagram below gives you a pictorial idea of how a decentralized network works as opposed to a centralized network:

Image Credit: Stellar.org

In a decentralized network, there is no centralized entity which makes all the decisions in the system.

#2 Ledger System

Up next, we have the open ledger.

All the transaction details in Stellar are stored in the blockchain which acts as a transparent and open ledger. Anyone in the network can look at the ledger and see all the transaction details.

All the decisions and verification made by the network is done via consensus. Stellar uses the Stellar Consensus Protocol which will be covered later on. The process of coming to a consensus on Stellar happens every 3-5 seconds.

#4 Anchors and Credit

We have used the term “Anchors” earlier. What exactly does that mean? Anchors are entities in the Stellar network which can hold a deposit and issue credits as and when required.

As the Stellar website puts it, “They act as a bridge between different currencies and the Stellar network. All money transactions in the Stellar network (except the native digital currency of lumens) occur in the form of a credit issued by anchors.”

Stellar’s mechanism is heavily dependent on Anchors and one needs to completely and totally trust the anchors to do their job for you which are:

To hold your deposit.

Issue credit for you.

The “Anchors” are not really a new concept. Paypal is a very well known example of an anchor. Let’s take a look at how Paypal works.

Image Credit: Ebay

If we break down all the steps, it will look like this. Suppose Alice and Bob are transacting through PayPal:

Alice sends some money to her PayPal account.

Her PayPal balance gets updated (credits).

Alice decides to send some money to Bob, and sends him the money from her PayPal balance.

Bob’s PayPal balance gets updated. Bob can then withdraw the balance into his bank account.

This is pretty much how the Anchors work in Stellar as well…however, there is one major difference.

All the anchors share the same network aka the Stellar network. Because of this one difference, the system is faster and more powerful.

#5 Distributed Exchanges

Another important component of the Stellar system is the exchanges. In order to understand this, we need to know what “offers” are. Offers are “public commitments to exchange one type of credit for another at a pre-determined rate.” The Stellar ledger becomes a sort of marketplace which helps us buy and sell different currencies.

All the offers in the stellar ledger form an “orderbook”. The network has an orderbook for ever currency/issuer pair. Eg. there is an orderbook to convert ICICI bank/Indian Rupees to Bitstamp/Bitcoin.

#6 Multi-Currency Transactions

One of the biggest features of Stellar is its multi-currency transactions, meaning Alice can send her USD to Bob in the form of Euros. This seamless decentralized forex is the beauty of stellar. Transactions can happen in one of the following ways (for the sake of convenience, we will be taking USD/EUR as an example):

Direct Exchange: The stellar network can look in the USD/EUR exchange to see if someone wants to buy EUR for USD. If there is someone present then the transaction happens instantaneously.

Indirect Exchange: The network can also look for people who are looking to get USD in exchange of Lumens. They can connect that person to someone looking for Lumens in exchange of Euros and make the transaction go through.

Conversion Chain: Finally, if none of those conversions are available, then the network can go through a chain of conversions. Eg. USD/INR, INR/BTC, BTC/XLM, XLM/EUR.

The Stellar Consensus Mechanism

Consensus mechanisms are how things get done in a decentralized system. The main goal for a decentralized system to overcome the Byzantine General’s problem meaning, it must work even if certain actors behave in a malicious manner.

Since Stellar was originally a Ripple fork, they used to have the RPCA (Ripple Consensus Algorithm) system which was a Practical Byzantine Fault Tolerant (PBFT) algorithm.

To have a very general overview of how PBFT works:

There is a predefined set of validators who are chosen by a central authority.

These validators govern the system by agreeing on various things such as transaction verification.

66% of the validators need to reach a consensus which is then recorded in the blockchain.

As long as malicious elements don’t reach more than 33% consensus everything runs seamlessly.

Stellar had this system right until the point they went through a fork after which they found faults in the PBFT system which was stopping them from coming to a consensus. Professor David Mazières from Stanford was brought in to examine the problem and he realized that there were some fundamental issues with the PBFT system.

Firstly, he claims that the Fischer Lynch Paterson (FLP) impossibility result stated that any deterministic asynchronous consensus system can have two of the following three properties:

Safety.

Guaranteed termination or liveness.

Fault Tolerance

According to him, the PBFT was sacrificing Safety over the other two. He concludes “This means it prioritizes ledger closes and availability over everyone actually agreeing on what the ledger is—thus opening up several potential risk scenarios.”

Secondly, the issue of “Provable Correctness”. He researched the entire system and found out that the algorithm fails to be safe under all circumstances.

Stellar has since worked on their own version of consensuses algorithm based on Federated Byzantine Agreement (FBA). The algorithm is called “Stellar Consensus Protocol” aka SCP. Because of this the base of Stellar was completely recoded.

So, how does SCP work?

Note: The following data and diagrams are taken from David Mazières presentation on The Stellar Consensus Protocol which you can watch here if you so wish.

In order to understand that, we need to know two concepts:

Federated Byzantine Agreement

Optimal Failure Resilience.

Federated Byzantine Agreement (FBA)

From the SCP whitepaper: “In FBA, each participant knows of others it considers important. It waits for the vast majority of those others to agree on any transaction before considering the transaction settled. In turn, those important participants do not agree to the transaction until the participants they consider important agree as well, and so on. Eventually, enough of the network accepts a transaction that it becomes infeasible for an attacker to roll it back. Only then do any participants consider the transaction settled. FBA’s consensus can ensure the integrity of a financial network. Its decentralized control can spur organic growth.”

The FBA is a variation of the Byzantine’s Agreement Problem which we solve without actually knowing how many nodes are participating. One of the fundamental challenges of creating an FBA is picking a quorum in a decentralized manner.

In order to pick a quorum, each node v picks one or more quorum slices. A quorum slice must have one of the two following properties:

For a node v, any quorum slice that they pick must include v.

The set of nodes in v’s slice must be nodes that v feels are important and reliable enough.

So, if the entire slice agrees on a statement then it must be true.

So, now that we know what quorum slices are, we can define an FBA as well.

An FBA is a set of nodes v and a quorum function Q() such that Q(v) is a set of all slices chosen by v.

Now, we can also define a quorum:

A quorum U is a set of nodes V which contains at least one slice of each of its members.

To put in layman’s term. The nodes choose and become part of quorum slices and the slices become quorums.

Let’s see a visual representation of all these quorums and slices in action and make things clearer. Consider the following diagram:

Image Credit: David Mazières Presentation.

Consider a set of 4 nodes v1, v2, v3, and v4. The arrowheads represent the quorum dependencies.

Let’s take look at v2, v3, and v4.

If you look at the nodes v2,v3, and v4, they are all dependent on each other. Every one of those nodes is saying we will agree to something only if the other two agree to it as well. That’s why v2,v3, and v4 form a quorum since each of the nodes have their own quorum slice present in it.

Now, let’s look at v1,v2, and v3.

In this case, v1 is saying that their decision will base on the decision of v2 and v3. However, v2 and v3’s decision making doesn’t include v1. Hence, while v1,v2, and v3 is a quorum slice FOR v1 BUT it is not a Quorum since v2 and v3 don’t have their quorum slices in the quorum.

So, how can v1 be part of a quorum as well in the above example?

BOOM.

The only way that v1 can become part of the quorum is IF and only IF we include all the four nodes. This way each node has their quorum slice included.

This is a very simplistic node arrangement. Let’s up the difficulty a little bit and see a tiered example.

What you see above is a tiered version of nodes. We have a top tier, a middle tier and a leaf tier. In this example:

In the top tier each node can make a slice out of two of the other three nodes in the top tier.

In the middle tier, each node can make a slice with any of the two top tier nodes.

In the leaf tier, each node can make a slice with any two of the middle tier nodes.

The top tier is not decided by a central authority but by the market.

Let’s see a real life example of how this can work. Suppose we have a tiered structure of banks.

So we have banks like Citibank, Wells Fargo etc. on the top tier and suppose the nodes in the middle and leaf tier are customers/clients.

Now, let’s make a modification here.

Suppose the middle tier nodes don’t completely trust the banks, they don’t want consensus to be completely dependent on them. They can bring in a third party of financial organizations to become another parallel top tier.

Now, the consensus and quorum slices changes. We have a parallel top tier where a slice for each node in the top tier can be formed with another node in their tier.

Now, the middle tier forms a slice only with themselves, 2 of the 4 in the bank top tier and 1 out of 3 in the parallel top tier.

Just to reiterate:

Q(middle tier node) = { the middle tier node, node from bank top tier, node from bank top tier, node from third party parallel top tier}

Now, we are going to see how this structure and modification stops double spending from happening.

Suppose, Citibank told v7 that they are going to give them a billion dollars for their services.

In this case, let’s look at the three Quorum slices in action here:

3 out of the 4 banks in the bank top tier will form a slice.

2 out of the 3 nodes in the parallel 3rd party financial organization tier will form their slice.

The middle node will form a slice with themselves, 2 of the 4 in the bank top tier and 1 out of 3 in the parallel top tier.

All these slices will come together and form a Quorum.

The ones denoted by green tick marks are part of the quorum.

Now suppose Citibank wants to revert the transaction and send the money to v8 instead, in essence doing a double spend. And, suppose the banks that it was forming a slice with turned out to be evil as well.

The consensus won’t be achieved since the v8 will have to go through the same route as v7 and form quorums with both the bank top tier and the 3rd party parallel top tier. The 3rd party tier won’t agree to the transaction because they have already agreed to the same transaction with v7.

Now, you are wondering, v8 just needs to have one party from the parallel top tier to agree with them, so why can’t they go to ACLU (the third node in the parallel tier).

The reason why that still won’t work is because ACLU will still need to create a splice with one of the other two nodes and since those nodes have already refused the transaction, ACLU will have to refuse as well (since that’s the rule of quorum slices).

So, that is an example of how FBA works in real life.

Optimal Failure Resilience

Optimal Failure Resilience is all about how secure we can make the consensus protocol. In order to check our system for resilience, we need to check it for two scenarios where our system can break down. These two scenarios are Failure and Lack of Liveness.

Case 1: Failure

One of the most fundamental points of failure for this system could be the existence of two independent and disjointed quorums like this:

As you can see, there are two different quorums, and this possibility can cause havoc in a system. We can’t have two different final decisions in a decision making system.

So, what’s the solution?

The solution is called “Quorum Intersection.” Quorum Intersection basically means that two quorums in an FBA system will share one common node of contact, so that the above scenario will look like this:

In the diagram above, v7 is the Quorum Intersection.

Now, this obviously leads to a very valid problem.

What if v7 turns out to be malicious?

So, another property that an FBA must have is resilience i.e. a quorum intersection should be possible DESPITE there being malicious nodes. So, even if you delete these malicious nodes, a system should work flawlessly.

That will obviously not work in the diagram above, because the given node v7 is a single solitary node and if deleted, the system will revert back to its previous state like this:

Case 2: Lack of Liveness

Ok, so now what about the liveness and validity of each quorum? A node in FBA enjoys liveness if it can function without the participation of malicious nodes.

Suppose we have the above quorum.

Each node is dependent on itself and 2 out of the other 3 nodes to maintain a quorum. Now what if there is a scenario where nodes v3 and v4 becomes malicious?

And we have a situation like this:

Even if v1 and v2 are both honest nodes, they can’t create quorum slices because they won’t be able to trust v3 and v4 both of which happen to be malicious.

As shown in the diagram, the two possible quorum slices are:

Q(v1) = v1 and 2 of {v2,v3,v4}

Q(v2) = v2 and 2 of {v1,v3,v4}

As you can see, the common elements on both those slices are v3 and v4, and hence they are collectively called “v-blocking.”

“V-blocking” is defined as a set that contains at least one node from each of v’s slices.

This is why, in this scenario, this quorum fails the liveness test because it is getting v-blocked by malicious nodes.

Hence, we can safely conclude that only correct and non-malicious nodes should be v-blocking.

Final Conclusion on Safety

Now that we have seen both the cases what can we decide? Suppose there is set of good nodes A and a set of bad nodes B. Nodes A can be considered failure resistant only if:

A can enjoy quorum intersection despite B.

A is a quorum which is not getting v-blocked by B.

If A satisfies both these conditions, then A is called an “intact node.”

What is the Stellar Consensus Protocol (SCP)?

Now, we have seen how a FBA works and the problems that an FBA protocol must overcome to become a Failure Resilient, let’s finally take a look at what the SCP looks like.

SCP is an FBA protocol which guarantees that its well-behaved nodes enjoy quorum intersection despite the presence of malicious nodes. This means that it is Byzantine Fault Tolerant.

The way the SCP achieves this and the core idea behind it is Federated voting.

Federated Voting

Each node v in the ecosystem can vote for a statement “a” provided “a” is consistent with the past statements that have been agreed upon beforehand.

Now suppose we have a quorum U which includes node v, then we have the following two conditions of ratification:

U ratifies a if and only if every member of U ratifies a.

Node v ratifies a if and only if the quorum U ratifies a.

The theory behinds this is very straightforward. If we indeed have a Byzantine fault tolerant system, then despite having malicious nodes, the statement “a” can still be ratified.

However, even then we have two scenarios of failure:

Node v may not actually vote for a.

Some nodes that have voted for a may stop working.

So, what should the outcome of Federated voting look like? It is the same as the outcome for any simple daily voting should look like which is like this:

What is happening here?

In the beginning we have a mixed set of people. They either vote for “a” or “ā”. This mixed state which can vote for either of the two states is called a “bivalent” state.

Now we have three scenarios. Either majority of the nodes vote for “a”.

Or, majority of the nodes vote for “ā”.

Or, there is no clear majority and the entire system is stuck.

This is how it works in a centralized voting system and this is how the Federated voting outcome should look like.

However, we once again have two points of failures:

The whole voting premise works on the supposition that the system can’t fail. However, that doesn’t make it Byzantine Fault tolerant.

A node v in a quorum Q cannot just assume that the other quorums will be correct.

So, how do we know that a decentralized system in SCP is indeed going to vote for a statement “a” and make it a-valent? For that to happen, every node needs to have first-hand ratification.

In order to achieve that, we must answer the following two questions:

How can a node v come to consensus about the statement “a” even after voting against it?

How do you know that the entire system has come to consensus on “a”?

So let’s tackle these questions.

Answering Question 1

Firstly, let’s answer the first question: How can a node v come to consensus about the statement “a” even after voting against it?

For the statement “a” to be accepted by node “v”, it must fulfill two conditions:

The quorum that “v” belongs to must have voted for or accepted “a”.

Each member of the v-blocking set i.e. the nodes making a quorum slice with “v” must accept “a”.

The later point makes sure that node “v” accepts statement “a” even after voting against it.

However, we still don’t have clear consensus. We are still facing two more issues:

We don’t know if all the intact nodes will accept statement “a” yet.

We cannot guarantee the sub-optimal safety of the non-intact nodes enjoying quorum intersection.

Answering Question 2

In order to address both these issues, we have to answer the second question: How do you know that the entire system has come to consensus on “a”?

The solution for that is another vote. It is a vote to confirm the fact that the first vote succeeded.

How does this confirmation work?

The quorum U confirms a statement a, by ratifying that “we voted for a”.

The node v confirms “a” if and only if it belongs to the quorum “a”.

Now, how will this second vote solve both the problems outlined before?

Problem: We don’t know if all the intact nodes will accept statement “a” yet.

Solution: The intact nodes may vote against the statement “a” but won’t vote against the fact that their quorum voted for statement “a”.

Problem: We cannot guarantee the sub-optimal safety of the non-intact nodes enjoying quorum intersection.

Solution: The non-intact nodes are no longer suffering because of malicious v-blocking nodes since the ratification in this stage is first-hand and doesn’t depend on the decision of its quorum.

The underlying theory of confirmation goes like this: if one intact node confirms a statement then all the intact node will follow suit.

Bringing it All Together

Finally, let’s bring everything together and see what the final overview of the Federated Voting process looks like.

Pictured above, the two layers of voting in the federated voting system.

So, how does SCP measure up to other well known consensus mechanisms?

Image Credit: SCP white paper

What is stellar used for?

Till now we have seen how Stellar acts as a payment platform. How does it measure up when it comes to being an ICO platform? The Stellar foundation released a video detailing why Stellar could be the ideal platform for ICOs. When it comes to an ICO platform, there are four properties that one should look for:

Liquidity.

Performance.

Security.

Ease of Use.

#1 Liquidity

One of the biggest problems that most ICO creators have is token listing. Getting listed on a well-known exchange like Poloniex is the “end all and be all” of most ICO creators. However, it is not often that simple. An ICO creator can face one of the following issues:

The exchange can take a lot of time to list their tokens.

The exchange may ask for a hefty fee for the listing.

The exchange may not list the token at all.

Stellar has a built-in DEX (Decentralized Exchange). What this means is that ICOs will be able to list their respective tokens from Day 1 and they don’t need to be dependent on a third party exchange.

However, ICOs are limited to just the DEX. They have complete freedom to list their Stellar based tokens on third party exchanges as well.

#2 Performance

Let’s compare Stellar’s performance with the most popular ICO platform out there, Ethereum. If we are to break down what performance in this area means, there are two categories one must consider:

Speed.

Price.

As we have seen, thanks to the SCP, Stellar already has fast transaction confirmation time of 3-5 seconds.

When it comes to price, Stellar is incredibly cheap. More and more developers are getting disillusioned by the lofty gas prices and demands of Ethereum. Stellar can provide a low barrier for entry to new developers.

#3 Security

Ethereum smart contracts are written using Solidity which is a “Turing-Complete” language. A machine that can “calculate anything” given there is unlimited memory space available is called “Turing Complete”. Now, that sounds really cool on paper, but it also gives rise to lots of unneeded complications.

The fact of the matter is that most Dapps simply do not need a Turing Complete language. Instead of keeping things simple they needlessly overcomplicate everything, which leaves glaring loopholes.

The DAO and Parity hack both happened because of a glaring loophole in the smart contract code. Plus, one of the biggest reasons why Ethereum’s speed slows down is because each and every node in the system must individually process these complicated smart contracts.

The Stellar system will use a simple, Turing incomplete code which will in turn make the system more secure.

#4 Ease of Use

The Stellar system is extremely user-friendly. Firstly, the token creation for any Dapp developer will be extremely easy. They are claiming that simple tokens can be generated with a day.

Secondly, since the smart contracts won’t be coded by complicated languages like Solidity, ICO creators won’t need to spend money hiring expensive Solidity developers.

Finally, Investors won’t be forced to use Lumen to invest in Stellar ICOs. They have the freedom to use Bitcoin, Ethereum, and Lumen.

It looks like the ICO creators are already seeing value in the Stellar network. Eg. The CEO of Mobius Network, which is the largest ICO on stellar having raised $39 million, said, “We look at ethereum like AOL or Myspace.”

MAD Network also chose to build their ICO on top of Stellar rather than Ethereum citing the following reasons:

Stellar’s impressive evolution and ideals.

The low fees, high performance, and continual development

.The fact that Stellar has lots of blockchain trailblazers in their team.

The enthusiastic and loyal community.

Stellar and Lumen

As stated earlier, “Lumen” is the name of the token used in the Stellar ecosystem. Before the consensus code was changed in 2015, the tokens were called “stellars”. The Stellar lumens primarily serve two purposes:

To act as intermediary between multi-currency transactions: As we have seen above, if one wants to change their USD to EURO, then they will have to change it to XLM to interact in the ecosystem.

To stop spam transactions: Spamming a network with transactions to slow down the system can be very problematic. In order to stop this attack, Stellar does two things.

Firstly, Stellar charges a small fee per transaction. This will stop spammers from doing multiple transactions since it won’t be economically viable.

Secondly, every account in the Stellar network most hold a minimum of 20 XLM. This helps ensure the authenticity of the account.

As mentioned before, 100 billion XLM has already been pre-mined. The Stellar Development Foundation (SDF) is supposed to oversee the distribution of the 95 billion lumens (95%). The distribution will happen like this:

50% to be given in small increments to as many people as possible over 10 years. Wider the distribution, more decentralized the system.

25% to be given to other businesses and non-profits to reach people that Stellar wouldn’t otherwise be able to reach through the Direct Signup program.

20% will go to bitcoin and ripple holders

5% will be retained by Stellar for future development and other operation costs.

Stellar has a built in fixed inflation system. Ever year the total lumens count increases by 1%. Also, as explain above, each transaction also has some “spam fees” along with it. All this is added to inflation pool.

So, you are probably thinking, “What happens with the lumen in the pool?”

Anyone who holds lumens can vote on where the funds in the pool will go. Every week, the lumen is distributed to any account which gets more than .05% of the votes from the accounts.

Ripple vs Stellar.

So, what are the main differences between Ripple and Stellar? Let’s go through them:

Image Credit: Medium

Stellar Roadmap

Stellar plans to have a pretty ambitious 2018 which can be seen in their technical roadmap.

Firstly, they plan on executing the SDEX, Stellar Decentralized Exchange. The key properties of the SDEX will be:

Day One trading for any Stellar ICO token.

Atomic pathfinding to discover the cheapest rates between any two assets.

Very low trading fees.

End-user control of secret keys

The Second item on their list is to create a better ecosystem support. By “ecosystem support” they mean:

Better overall brand communication.

More implementation walk-throughs to help people get going.

Better technical documentation, including release notes.

Continued improvement to Horizon API and the surrounding SDKs

Thirdly, they want to implement Lightning Network by 2018.

The lightning network is an off-chain, HTLC style, micropayment system which is designed to make transactions work faster in the blockchain. It was conceptualized by Joseph Poon and Tadge Dryja in their white paper which aimed to solve the block size limit and the transaction delay issues. It operates on top of Bitcoin and is often referred to as “Layer 2”.

As Jimmy Song notes in his medium article:

“The Lightning Network works by creating a double-signed transaction. That is, we have a new check that requires both parties to sign for it to be valid. The check specifies how much is being sent from one party to another. As new micro-payments are made from one party to the other, the amount on the check is changed and both parties sign the result.”

So, let’s check out some of the features that are coming in thanks to the lightning network (the following advantages are specifically wrt Bitcoin):

Fast payments: Payments are almost instantaneous.

Not dependent on miners: Transactions don’t need to be approved and verified by miners for it to go through.

Micropayment friendly: Earlier micropayments were extremely inconvenient on the bitcoin blockchain. Now they are possible thanks to the lightning network.

Multi-signature friendly: The transactions will go through if and only if everyone present in the channel approve.

Reduces blockchain load: With so many transactions happening of the chain, it greatly reduces the load that the main chain has to take.

Decreases waiting time: Since the transactions are happening off chain and without miner intervention, there is little to no waiting time.Helps in scalability since it will increase the number of transactions happening per second.

Infographic on how Lightning Network works in Bitcoin. Image Credit: SpringRole

Bitcoin Core contributor Jeremy Rubin is the leading developer of Stellar’s lightning network. According to him, lightning is “a necessity for any platform that would like to remain efficient for payments.”

“Lightning is perhaps the most important protocol innovation happening in the cryptocurrency space right now. When bitcoin’s lightning network comes online fully, any community not preparing scalable off-chain solutions is going to get left in the payments dust.” Rubin said.

Finally, they want to achieve two more objectives in 2018:

Hardening: The attack surface will be reduced at the protocol layer by the addition of invariant support via constant validator checks. The checks will reduce the impact of bugs on the ledger state. This will make the network secure and help provide a stable base for further protocol improvements.

Further Decentralization: The Stellar team wants to make the nodes more reliable and self-sufficient so that node operators can spend more time doing other things. By making it easier to run a node, they plan to bring in more network validators and make the system more decentralized.

What is Stellar Blockchain Conclusion

Stellar has immense potential and its growth should be something to look out for. The quality of the partnerships that they have gotten is seriously impressive. The following pic is just a glimpse of their partner list.

image Credit: Stellar.

With their steady growth, amazing team, impressive advisors and partnerships, more adoption is surely coming their way. Let’s see how they get along with their development and see if they can indeed deliver on their lofty promises.