Intro to Stellar

The Stellar network launched in 2014. Since then it’s processed more than 2 billion operations made by over 6.5 million individual accounts. Large enterprise companies and companies as small as single-dev startups have chosen Stellar to move money and access new markets.

From the beginning, Stellar has been cryptocurrency-adjacent, but the software has always been intended to enhance rather than supplant the existing financial system. Whereas the Bitcoin network was made for trading only bitcoins, Stellar is a decentralized system that’s great for trading any kind of value in a transparent and efficient way. 

The Stellar network has a native digital currency, the lumen, which is required in small amounts for initializing accounts and making transactions. But beyond those requirements, Stellar doesn’t privilege any particular currency. It’s specifically designed to make traditional forms of value more useful and accessible in the digital realm.

For example, here’s what you can do with Stellar. You can create a digital representation of a U.S. dollar, or a “dollar token,” and tell the world that whenever someone deposits a traditional dollar with you, you’ll issue them one of your new tokens. When someone brings that “dollar token” back to you, you promise to redeem it in turn for one of the regular dollars in that deposit account. You’ve set up a 1:1 relationship between your digital token and a traditional dollar. Every one of your tokens out in the world is backed by an equivalent deposit. So while people hold the tokens, they can treat them just like traditional money, because they know that they’re exchangeable for traditional money in the end.

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This might seem unexceptional — issuing electronic credits for dollars is what any local American bank does everyday. But in a global system, this 1:1 promise of a token for a currency has important implications. For instance, no matter how a token moves through the economy, the underlying dollars never leave that bank account in the United States. Suppose someone loans their tokens to someone else, who then uses them to buy a car. No bank has to settle the purchase or approve the loan. Furthermore, it doesn’t matter if the seller of the car lives in Mexico or Singapore or elsewhere; they can still own the tokens and trade them however they please. The Stellar network makes money borderless.

Digital dollar tokens also mean people all over the world can own, buy, and sell the value of a dollar without owning a U.S. bank account. A Chilean can hold some of his family’s net worth in dollars. A Filipino expat can send dollars back home, and the recipient can hold them, safely and digitally, until she’s ready to exchange it for local fiat. An American company can pay a Mexican vendor in dollars, and the vendor can pay its suppliers in turn, settling in a few seconds. Because the dollars represented by the digital token never actually move as the value changes hands, these transactions sidestep the friction and expense often seen in traditional financial services. 

This exact dollar token example is in fact live on Stellar right now, through stablecoins such as USD Coin (USDC) — millions of dollars of value move quickly and cheaply through USDC every day. Of course, Stellar works for any form of value, not just dollars. And when you can tokenize pesos, naira, yen, pound, bitcoin, euros, and everything else, you have a truly unified monetary system that keeps the best parts of what exists today.

Who builds on Stellar?

For end-users, Stellar is a fast, efficient network for trading, saving, and spending digital money. For builders and institutions, it’s open financial infrastructure. Anyone can access Stellar and the digital assets living on the network; there’s no permission or application needed, thanks to Stellar being open-source. 

In addition to anybody being able to access the Stellar network, anybody can issue an asset on Stellar. For instance, a financial institution can issue new digital tokens to fill a market need, say, for the Swiss Franc, without joining a proprietary “association” or dealing with a gatekeeper. To ensure that these digital assets are ready for use, the respective issuers, called anchors, handle deposit, redemption, and compliance, so that application builders can create products and services that leverage said assets while focusing on end-user experience. The power of the Stellar network and ecosystem grows with each new company and developer. See our robust SDKs and documentation to get started with your own wallet, app, or token.

The ongoing development of the basic Stellar technology is guided and supported by the Stellar Development Foundation, a non-profit company based in the U.S. The Foundation helps maintain Stellar’s codebase, supports the engineering and business communities around Stellar, and is a speaking partner to regulators and institutions. The Foundation has no shareholders, so it can be purely dedicated to the success of Stellar as a neutral, equitable, and public network. 

Transparency is a tenet of the network. Stellar’s code is open-source and available to anyone’s audit or contribution. Many of SDF’s current employees were first inspired to get involved with the technology in their free time or for their own projects.

How does Stellar work?

At its most basic, Stellar is a system for tracking ownership. Like accountants have for centuries, it uses an immutable ledger to do so, but Stellar’s innovation is that there is no actual accountant. Instead there’s a network of independent computers each checking and rechecking the work of the others. Stellar is a system without a central authority,meaning no one can stop the network or secretly adjust the numbers to his or her liking. Yet, even without a central authority, the Stellar ledger is verified and updated every five seconds.

This is made possible by a unique algorithm called the Stellar Consensus Protocol (SCP), which keeps everything in sync via Proof-of-Agreement (PoA). There are many ways to get agreement, or achieve consensus, across a decentralized system—Bitcoin's visionary Proof-of-Work method was the first and is still the most famous. But, like many first drafts, Proof-of-Work left room for improvement. PoA and SCP strive to be better by being configurable, fast, and highly energy efficient. If you’re interested in the details, you can read our Proof-of-Agreement explainer to see how PoA works or the SCP peer-reviewed paper, published by SOSP (the oldest and most prestigious systems conference), for complete technical details.

To give a high-level overview of SCP, here’s how it works. For every account holder, Stellar’s ledger stores two important things: 

1. What the account holder owns (account balances, like “100 USDC” or “5000 XLM”)
2. What the account holder wants to do with what he/she owns (operations, like “send 100 peso tokens to so-and-so’s account”) 

All the balances and operations are broadcast to the entire network and resolved every five seconds. In order to accomplish this, computers called nodes run Stellar’s core software and therefore publish and check the ledger.

For example, when you send someone an euro token on a Stellar-built app, the nodes check that the correct balances were debited and credited. Then each node makes sure every other node sees and agrees to the transaction. Once consensus has been achieved, the details of the transaction are published to the ledger. 

Stellar is currently verified by hundreds of nodes across the globe; the nodes and how they communicate is public information, and anyone can install Stellar Core – an implementation of SCP – to join the consensus process. This is different from how accounting works at a centralized institution, where a single authority unilaterally decides what happens, more or less in secret.

Right above this core layer sits a powerful API called Horizon so that you don’t have to understand the particulars of SCP in order to build on Stellar. Simple, well-documented functions allow you to move digital assets using models that you’re used to. It’s very easy to transact between accounts, make markets, and issue assets.

Where is Stellar going?

Put simply, Stellar provides access to a future of opportunities. The Stellar Development Foundation believes the true power of the modern digital economy can only be unlocked when value flows unencumbered around the globe. That’s what Stellar is built for, and that’s what Stellar is going to do. 

A legion of developers, enterprises, and users share this vision. If you share it too, we’d love to hear from you. Get in touch here, or keep learning.