Matthijs Renders


A Simple Guide to Understanding the Stellar Blockchain Network

Stellar is a blockchain platform that is geared towards banking and cross-border financial transactions. It intends to address issues with remittances, mobile payments, and micropayment. A big objective of the Stellar network is to provide affordable financial services at a lightning pace.

Stellar Consensus Protocol

The Stellar network was launched in 2014 as a fork of the Ripple protocol. Jed McCaleb, co-founder of Ripple and founder of Mt. Gox, along with lawyer Joyce Kim. However, since Stellar architecture has been restructured to solve various problems it is now significantly different from Ripple. In the beginning, the cryptocurrency on the network was called “Stellar” as well. But it has since been changed from stellars to lumens (XLM) to avoid any possible confusion with the Stellar network.

Stellar solves a consensus protocol problem that plagues other blockchains or digital ledger technologies. Blockchain uses Byzantine Fault Tolerance (BFT) to maintain the reliability of records and transactions. Most blockchains use what is known as Practical Byzantine Fault Tolerance (PBFT). A blockchain network that uses PBFT needs 66 percent of the validators to agree on transactions to attain quorum or consensus. In order to maintain the validity of the network, the number of malicious nodes needs to stay below 33 percent. Systems like Hyperledger and Ripple use PBFT.

Researchers found out that the PBFT of the Ripple protocol was not fault tolerant enough. Also, the selection of validators makes PBFT systems become centralized. So PBFT was replaced with Federated Byzantine Agreement (FBA). In an FBA system, there is no need for predefined validators. Nodes make the decisions individually about who to trust. It decentralizes the system. Instead of the whole quorum or a preset number of nodes, FBA systems use “quorum slice” or a subset of the quorum.

In an FBA system, nodes broadcast to each other on which quorum slices they trust. Nodes individually determine which quorums to trust and build their own quorum based on the information they have at hand. The ideal situation is to have quorum intersections or quorum overlaps. This ensures there is consensus throughout the network. If there are no intersections, then there will be disjoint quorums which can lead to the recording of contradictory transactions. It is the biggest risk of using the Stellar network.

Stellar Consensus Protocol uses FBA to have a more decentralized system. The network is more open to new nodes and FBA also makes the network more reliable in case of failure.

Achievements of Stellar Network

Stellar is gaining ground over Ethereum because it is cheaper and faster and asset exchange is a built-in feature of the Stellar protocol. While users normally have to use third-party exchanges in order to deal with Ethereum transactions, this ease of use has made Stellar popular with a lot of projects.

IBM is one of the biggest names that has multiple projects currently using the Stellar blockchain. It has launched the Stellar-based payment system called “Blockchain World Wire.” IBM has also streamlined the previously complex and cumbersome process of carbon credit trading with Stellar based system set up to offset environmental damage by supporting a patch of Indonesian rainforest.

The Future Roadmap

Stellar Development Foundation (SDF) has acquired Chain, a blockchain firm, in September 2018. The firm is backed by Visa, Nasdaq, and Citi Ventures. Also, Stellar has recently implemented the Stellar Decentralized Exchange (SDEX) and work is in progress on the Stellar Lighting Network. Even though Stellar might not yet have the big brand recognition of Ethereum, but the advantages described above and the support of some major industry players ensure it is becoming more and more prominent in the blockchain ecosystem.

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