Stellar

The Stellar network is an open-source, community-owned platform designed to facilitate cross-asset value transfers. It aims to create an accessible financial system that offers low-cost services to individuals of all income levels. Stellar can handle exchanges between fiat-based currencies and cryptocurrencies. Unlike Ripple, which is similar in function, Stellar.org operates as a non-profit organization with an open-source and decentralized platform.

Founding of Stellar

Stellar was established in 2014 by Jed McCaleb, founder of Mt. Gox and co-founder of Ripple, along with former lawyer Joyce Kim. The technology behind Stellar seeks to connect financial institutions and significantly reduce the cost and time required for cross-border transfers.

Distributed Exchange

Stellar's intermediary currency Lumens (XLM) allows users to send any currency they own to someone else in a different currency. For example, if a user wanted to send USD to another person using EUR, an offer is submitted to the distributed exchange selling USD for EUR—this is known as an order book. The network uses the order book to find the best exchange rate for the transaction, minimizing the fee paid by the user.

This multi-currency transaction capability is made possible through "Anchors"—trusted entities that hold people’s deposits and issue credit. Essentially, Anchors act as bridges between different currencies and the Stellar network.

Lumens (XLM)

Lumens are native assets (digital currency) on the Stellar network that aid in facilitating multi-currency transactions and preventing spam attacks. For each transaction on the network, a small fee of 0.00001 XLM is charged—this fee is minimal enough not to significantly affect transaction costs but large enough to deter bad actors from spamming the network.

Prior to Protocol 12, Stellar had an inflation mechanism that enabled account holders to direct inflation-generated lumens towards projects on Stellar. However, as the network evolved and grew, it became clear that inflation was not working as intended. Therefore, a protocol change to disable inflation was proposed and adopted as part of a network upgrade.

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