After our review of the Ripple (XRP) protocol, we are now tackling that of Stellar (XLM). This cryptocurrency also has the ambition to be a reference in the field of the exchange of currencies and assets of all kinds.
As we will see, the Stellar project shares many similarities with its main competitor Ripple. Indeed, it was initiated in 2014 by Jed McCaled and Joyce Kim. However, the first is none other than the co-founder of Ripple! He resigned in 2013 before deciding to create his own cryptocurrency… For the record, we could probably draw an amusing parallel here with smart contract-oriented cryptocurrencies. Indeed, Charles Hoskinson, the founder of Cardano (ADA) also participated in the creation of Ethereum (ETH) before slamming the door and leaving on his own project…
The Stellar Consensus Protocol
The SCP protocol (Stellar Consensus Protocol) is based on the principles of the federated Byzantine agreement. Unlike proof of work (which relies on the computing power of a node) and proof of stake (which relies on the staking power of a node), we rely here on the agreement between nodes of confidence.
In SCP, each participating node decides which set of other nodes it wishes to trust. This is the quorum set. He must also choose a threshold. It is the minimum number of nodes in a quorum set that must agree to achieve consensus.
This flexibility of trust allows for open network membership (anyone can become a central node) and decentralized control (no central authority dictates what vote is required for consensus).
There are no monetary rewards for being a validator on the Stellar network. It is only a contribution to network security and resilience that benefits products and services built on Stellar.
Consensus Priorities
Consensus mechanisms must support 3 essential properties:
- Fault tolerance: the system can continue to operate despite node failures or malfunctions
- Security: two nodes never agree on different values, ensuring that the nodes will produce the same block
- Liveliness: a node can produce value without the participation of misbehaving nodes
Only two of these properties out of three can be treated as a priority by a consensus mechanism, to the detriment of the third. SCP chose to prioritize fault tolerance and security over liveness. So blocks can sometimes get stuck waiting for nodes to agree.
The agreement is obtained by federated vote. A node reasons about the state of the network based on what it learns from its quorum set. Before a statement is accepted by each honest node in the network, it goes through three voting stages: voting, acceptance, and confirmation.
Lumens (XLM) and Stellar Transactions
Each Stellar transaction costs 0.00001 XLM fee. Since there is no reward in Stellar, this fee is only used to prevent spam attempts on the network. Each account must have a credit balance of at least 0.5 XLM.
A total of 105 billion XLM tokens were initially pre-mined by Stellar, which however decided in 2019 to burn half of its tokens. The current supply is therefore 50 billion XLM. The network is capable of processing 1000 transactions per second, with a validation delay of 3 seconds.
Assets
Stellar can be used to track, hold and transfer any type of asset: currencies, cryptocurrencies, stocks, gold and other valuable tokens. Any asset in the network can be traded with any other.
Holding assets in Stellar is, in effect, holding a claim on the issuer of that asset. The latter has agreed to exchange it for you against the corresponding asset, outside the Stellar network.
It is then necessary to explicitly trust the issuer to repay his loan correctly, by creating a line of trust. It is an entry that persists in the registry and defines the boundary for which the holder account trusts the issuing account.
Lumens (XLM) are the native currency of the network. It is the only type of asset that can be used on the Stellar network without an issuer or a line of trust.
Any account can issue assets on the Stellar network. They are called “anchors”. Assets are uniquely identified by asset code and issuer. It is up to the latter to define the code and ensure the liquidity of the asset.
The reversibility of the transactions in question
By default, anyone can create a trustline with an issuer to accept an asset. However, an anchor can explicitly multi-currency authorize and revoke user access to the asset by enabling the following flags on the issuer account:
• AUTHORIZATION REQUIRED: The anchor must approve anyone who wishes to hold their asset, allowing them to control who their clients are.
• AUTHORIZATION REVOCABLE: the anchor can freeze the asset held by another account. When an asset is frozen, that account cannot transfer the asset to another account, not even to the anchor. This setting allows the issuing account to revoke assets that it accidentally issued or that were obtained incorrectly. To use this setting, AUTHORIZATION REQUIRED must also be enabled.
This last indicator is truly an antithesis of what we are used to seeing in the world of cryptocurrencies, namely the irreversibility of transactions and the irrevocability of property transfers. A real heresy in the world of public blockchains like Bitcoin (BTC).
However, to inspire confidence in potential asset holders who fear that the issuer will freeze them arbitrarily, the issuer account can enable the IMMUTABLE AUTHORIZATION flag to prevent revocability.
An integrated distributed exchange
Stellar natively offers all the functionality of a decentralized exchange. It contains all the assets that the anchors have added to the network. Thus, a Stellar account can make offers to buy or sell assets. For a sale, he must hold the asset he wishes to sell. For a purchase, he must already trust the issuer of the asset in question.
The supply is then compared to the existing order book for that pair of assets. If the offer crosses an existing offer, it is executed. Otherwise, it is saved until it is taken by another offer or simply cancelled.
Here we find the behavior that we are used to seeing on traditional exchanges.
More friendly Stellar addresses
It is possible to map Stellar addresses to aliases resembling email addresses such as name*yourdomain.com. Which is much easier to manipulate than a traditional form such as GCCVPYFOHY7ZB7557JKENAX62LUAPLMGIWNZJAFV2MITK6T32V37KEJU.
Stellar addresses are split into two parts separated by *, username and domain. The at sign is allowed in the username. Which allows to use email addresses in the username of an address, like for example: [email protected]*stellar.org.
Like Ripple, which is emerging from its setbacks with the SEC, Stellar is in the race to offer a blockchain oriented asset transfers. The two networks look alike; Stellar being more geared towards individuals and small organizations whereas Ripple is more dedicated to financial institutions and large corporations. Proof that the two players target the same market, we will cite the case of Moneygram. The latter had reached an agreement with Ripple in 2019 to improve money transfers with the blockchain, but it was suspended a year later, probably because of the stir caused by the threat of the lawsuit with the SEC. Suddenly, it was Stellar who recently picked up the ante thanks to a new agreement with Moneygram.
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