What is Stellar (XLM)? How Does Stellar Work?

What is Stellar (XLM)? How Does Stellar Work?

Stellar( XLM ) is a blockchain-based network that supports trades between crypto and fiat currencies. Stellar’s protocol is pretty much similar to Ripple (XRP) but it’s focused on fixing the problems of peer-to-peer cross-border transactions. Although it’s not quite popular in the crypto space, it’s playing a vital role in the adoption of cryptocurrencies.

Stellar has made steady growth over the years and has the potential to become more popular with the mass adoption of cryptocurrencies.

What is Stellar (XLM)?

Like several other blockchain-based crypto projects, Stellar allows cross-border transactions between different currency pairs. The unique thing about this project is that it provides a fast, reliable, and affordable solution to transfer assets between banks, traditional payment systems, and digital wallets.

Unlike older blockchain networks, Stellar can process thousands of transactions per second. On average, it takes around 3-5 seconds to confirm a transaction and add it to the ledger. It has a very low transaction fee compared to other networks. Furthermore, the network supports Multi-signatures and smart contracts as well.

Image source: Stellar

Difference Between Stellar Network and Stellar.org

Stellar is an open-source distributed ledger that facilitates financial transactions and maintains a record of transactions that have occurred over time.

On the contrary, Stellar.org is a non-profit organization responsible for fundraising, tool development, and continuous growth of the Stellar network. Stellar Development Foundation (Stellar.org) has a professional team of developers who write the code for the Stellar network. However, the organization can’t influence the operations of the network.

Difference Between Stellar Network and Stellar.org

Stellar Lumens (XLM) Brief History

Jed McCaleb, the co-founder of Ripple, and Joyce Kim, former executive director of the SDF, laid the foundation of Stellar Network in 2014. Soon after, the nonprofit Stellar Development Foundation was launched in collaboration with Patrick Collison, the CEO of Stripe. After evaluating the potential growth of the project, Patrick’s organization invested $3 million in this project.

By the end of the first year, Stellar had a user base of more than 3 million people. Half of the outstanding tokens were burnt in 2019 and the company announced that it won’t generate any more tokens for stabilizing its market. Over the years, Stellar has partnered with popular firms like Moneygram and Flutterwave due to which its reputation has increased significantly.

Stellar Vs. Ripple

As it’s mentioned above, Stellar (XLM) has a protocol similar to Ripple (XRP) but there are a few key differences that make it a better option than Ripple.

Both networks have identical blockchain codes and they charge almost zero transaction fees while providing fast transaction speed. Furthermore, these networks don’t allow mining at all. McCaleb adopted most of the useful features of the Ripple network and made a few advancements to provide a better experience to the users.

Unlike Ripple, Stellar doesn’t only provide fast transaction solutions for banks but also facilitates the average users. It provides a fast, simple, and easily affordable transaction solution allowing users to access the global economy independently.

Ripple is a centralized payment system managed by a single entity whereas Stellar is an open-source blockchain network that allows users to transfer money anonymously.

Stellar waives off the censorship issues as it’s governed by the community members whereas the Ripple is governed by a single entity. Thus, Stellar provides better decentralization compared to Ripple.

Stellar Vs. Ripple

How Does Stellar Work?

Investors have to go through a lengthy process when they’re trying to exchange cryptocurrencies for fiat currencies. Stellar has introduced a consensus protocol that allows users to trade fiat currencies with cryptocurrencies. A distributed public ledger keeps a record of the transactions processed through the Stellar network.

Unlike Bitcoin, Stellar uses a federated Byzantine agreement that distributes responsibilities among node operates. The node operators act as Basic Validators, Watchers, Full Validators, and Archivers in this network. These operators can vote on the transactions to fulfill the required quorum.

How Does the Stellar Payment System Work?

If a US resident wants to send payment to a supplier in the UK, the amount is converted into Pound Sterling (GBP).

Both the users need to have an account in a bank that has a pool account dedicated to stellar XLM. The US resident will initiate the transaction request from his US bank account. The network will verify compliance with the supplier’s UK bank account within a few seconds.

After the verification, the funds are deducted from the US resident’s account and added to the Pool account dedicated to XLM. The Stellar network then finds the best exchange rate to convert the funds to GBP. The amount is transferred to the UK bank’s pool account which is then added to the recipient’s account.

Multi-currency Transactions on Stellar

The multi-currency transaction is one of the prominent features of the Stellar network. For instance, the users can transfer funds globally without disclosing their identity.

Direct Exchange – The stellar network facilitates users who want to trade fiat currencies. For example, if someone wants to exchange the USD for GBP, the network will find a buyer and execute the trade instantly.

Indirect Exchange – The network connects the buyers are sellers who are willing to exchange fiat currencies for XLM. For example, if a person wants to convert XLM tokens to USD, the network may connect him to another person who wants to buy XLM with GBP.

Conversion Chain – The network enables users to convert fiat currencies into cryptos or one crypto asset into another. EUR/BTC, XLM/EUR, USD/EUR, and BTC/XLM are some popular pairs available on this chain.


Stellar is a decentralized network that allows users to trade fiat currencies and cryptocurrencies anonymously. The network is designed to provide fast, reliable, and low-cost transaction solutions to users worldwide. We’ve highlighted details about how the Stellar network works. Feel free to leave a comment if you need more information about the Stellar network.

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