Stellar is a peer-to-peer network for making payments over the internet using the Lumens (XLM). Just like the internet, Stellar is a network of decentralized servers across many different locations around the world that jointly maintain a blockchain. This is the distributed ledger or database in which every transaction is recorded. A full copy of the Stellar blockhain exists on every Stellar Server. Everyone can set up a Stellar server. The more servers, the more robust the network.
An important role of the servers is to communicate with each other every 1-5 seconds to verify and synchronize the ledger. This method of synchronization and verification of the blockchain sheet consensus and is laid down in the Stellar Consensus Protocol. The Stellar payment network is a consensus network within which all transactions are checked. It is an open network that everyone can use. Banks and other financial service providers can also use this network and act as a bridge between the world of fiat currencies and digital cryptocurrency. These players are called Anchors in the Stellar network. Various anchors that work with a different national banking payment system could also use the network to transfer money to each other cheaper and faster. A bank connected to the Stellar network may be able to transfer the funds in a customer’s bank account to an online wallet within the Steller payment network in order to transfer money almost free and immediately to someone else abroad.
Stellar has its own distributed exchange office, allowing you, among other things, as a Dutch person to immediately send American Dollars to your friend in Los Angeles with Euro credits in your wallet. The network will immediately exchange the amount for the lowest exchange rate. Your friend can withdraw the US Dollars as cash via an Anchor or have them credited to a regular Citibank bank account. A concrete example of a Stellar anchor is the French fintech company Tempo.
What is the value of the Stellar payment network?
A bank or fintech company could decide to use the Stellar payment network instead of the international SWIFT network to avoid certain costs for customers and to make an international transfer faster.
International transfers are still made via the existing old SWIFT payment system to facilitate cross-border payment transactions. The SWIF system is expensive, slow and not politically neutral. The SWIFT payment system can be used to isolate a country and exclude it from the global financial system. Iran was no longer able to use this payment system as part of the 2012 sanctions.
The value of the Stellar payment network has little to do with these geopolitical considerations, but has everything to do with micro-finance considerations for guest workers with often family members without bank accounts abroad. It is relatively very expensive for guest workers to transfer money via SWIFT to family members abroad and for family members to withdraw the money in their own country as cash using the mobile phone. A bank account is no longer required to receive money via the network and to withdraw it in cash. It is now possible to transfer very small amounts cheaply and quickly abroad. In countries in the Philippines, Nigeria and Thailand in particular, this is now super easy to do and made possible through Coins.ph, among others. For more info: transfer money cheaply abroad!
As a p2p network, Stellar aims to build a more open financial system for carrying out almost immediate and super cheap global micro transactions. The network as such is an ideal alternative international payment network for the older existing, unwieldy and expensive payment networks such as SWIFT. It was impossible for a guest worker to transfer a cheap and fast 5 euro to a family member abroad without a bank account. Now this is possible if the family member has a mobile phone! This is the revolutionary power of combining blockchain technology with fintech innovations and brave existing financial service providers and banks. A concrete and important bank in India the ICICI Bank is an Anchor in the Steller network and has rolled out a mobile wallet application for university students in India.
What is Lumen?
The Stellar network also has an inherent, independent built-in cryptocurrency. This is the Lumen (XLM). Lumens are the bitcoins of the Stellar network. Lumens does not have the objective of acting as an independent crypto currency that competes