Stellar (XLM) Review – Competition to Ripple and Ethereum?

The cryptocurrency currency industry has seen a rapid increase in growth. This growth in the deployment of various projects shows significant competition in the cryptocurrency space.

As each quarter progresses we will see the separation of wheat from the chaff. It is crucial to understand what sort of coins and tokens bring value to the industry and why they matter.

To understand the value, one must delve into the nuances, the history and the difference in ideology and technology of the project. Then, one must watch the project and see how it progresses.

Investors have to see if the project is meeting goals, deadlines and focusing on crucial tasks like creating an ecosystem and catering to real-world problems.

The same holds true for even established cryptocurrencies, that in one way or another, were left behind by stern competition.

An interesting cryptocurrency is the Stellar network and its native cryptocurrency, Lumens (XLM).

While the network and its XLM provide real use cases and have demonstrated their ability to deliver on what they promise, Stellar sometimes gets overlooked for its more famous and flashier counterparts, namely Ethereum and Ripple, respectively.

What is Stellar?

When it came to light in 2014, the Stellar network was originally based on the Ripple protocol. The Stellar network intended to provide decentralized payment solutions that would allow the facilitation of instantaneous cross-border payments.

However, the project’s founders, Jed McCaleb and Joyce Kim, soon determined that the consensus implemented in the Ripple protocol posed some flaws, and the network was forked from Ripple soon after.

Afterward, Stellar developed its own consensus model called the Stellar Consensus Protocol (SCP), one of the core mechanisms employed by the network that set it apart from other platforms.

However, that did not drive the open-source Stellar away from its initial objective of providing cross-border payment solutions. Yet, the network went on to provide much more than that.
Decentralization
A key component of Stellar is the fact that it heeds to the principles of decentralization. Anyone is able to join the Stellar network and help to run its operations.

Stellar ensured that the network would always remain self-sustainable without the governance of a central organization.

Stellar Decentralized Transfer of Value

Building upon that idea further, distributed and decentralized transfer of value into its network.

This decentralized transfer of value enables its users to send and receive cross-currency payments from all over the world at a fraction of the cost.

The transaction fee still remains to be a fraction of the cost as compared to conventional payment transfer systems.
This means that

To ensure that such transactions remain secure, transparent and safe, for its users, Stellar uses the distributed ledger technology (DLT). DLT ensures that all offers, transactions, and executions are recorded in a manner where everyone can see them but no one can tamper with them.

That covers Stellar’s payment transfer solutions. Let’s look under the Stellar hood a bit more and see what else is there.

But more on that, later. For now, let’s get into Stellar and payment transfers.

What is its strength? Let’s Review how Stellar Works for Payment Transfers

As a payment transfer platform, Stellar uses a few methods to execute its operations.

Use of Anchors

To carry out the cross-currency transactions that we mentioned above, Stellar makes use of “Anchors”, who act as exchange facilitators with whom users can deposit their fiat to have it reflect on the Stellar ledger.

How It Works:

For example, if you have 100 USD that you wanted to deposit to your Stellar network address, you may physically visit or go to the website of the designated “Anchor” in your area, pay the 100 USD, and have the money deposited into your Stellar account. This way, you do not have to buy Lumens, and you do not need a cryptocurrency exchange near you.

Stellar enables this to ensure that even in locations and countries that do not have cryptocurrency exchanges available to their citizens, people could still benefit from this cross-border payment facility.

Stellar itself defines it in a very simple manner: you may think of this operation akin to how you deposit money into your PayPal account. It is still your money and you still use it the same way as before, but at least for the duration of the payment transaction, the money remains with PayPal because it is facilitating the transfer.

That is how it works with depositing money into your Stellar account.

Once you have the money in your account and it shows on the Stellar ledger, you can use it to send the same amount in other currencies to anyone else in the world who has a Stellar network address. They can then go to their Anchor and withdraw cash in their currency if they want to do so.

It is as simple as that on the front end or the user interface side.

How Currency Exchange Happens Behind the Scenes

Once you deposit your desired currency into your Stellar account and make a cross-currency transfer through it, it goes through the distributed exchange where people have made requests to exchange currencies such as USD for EUR, or EUR for JPY.

The exchange matches the request of your currency transfer with one of these requests that match the criteria, resolving the transaction at the backend to allow a seamless transfer of your funds.

This works even if the transaction is complicated. For instance, you might be performing a transaction from USD to EUR, but the exchange might have orders for USD to JPY, for JPY to CAD, and for CAD to EUR.

The exchange will then go through all these transfers for you to achieve the end goal in a similar seamless manner. However, even while ensuring that such actions are performed through the decentralized exchange and maintained on the transparent and secure ledger, the Stellar network delivers the solutions in one of the fastest ways possible while staying within the limit of the cheapest transaction fee possible.

Stellar Lumens Can Also Be Used for Other Transactions

Other transactions can get facilitated by Stellar Lumens (XLM) as well. For instance, when someone wants to use USD to send payments in EUR to someone else in another country, the distributed exchange can look for pairings from USD to XLM and XLM to EUR in order to make the operation even faster and cheaper for its customers.

The XLM powered transactions are especially beneficial for larger amounts and industry-level fund transfers, which once again makes Stellar a powerhouse in the payment solution industry.

Stellar enables of transfers of value in variety of ways, making it useful for retail individuals as well as larger institutions.

End to End Solution? Stellar as a Development Platform and Completing the Picture

Smart Contracts, ICO’s and DApp Functions

The Stellar network also doubles as a development platform and allows its users to create decentralized applications (DApps) through its smart contracts.

With these smart contracts, users can also run functions such as the creation of their own cryptocurrencies or tokens through the Stellar platform. This crucial aspect makes the Stellar platform viable to host initial coin offerings (ICOs).

Stellar has hosted a few initial coin offerings and will be hosting more in the future. Key players that have worked with Stellar has been Kin (for improved scaling), Mobius, Smartlands, SureRemit and soon to be deployed, FairX.

By now, you may have seen why Ripple and Ethereum were mentioned at the start of this article. See, Stellar performs almost the same functions as Ripple when it comes to payment solutions, and delivers almost the same service as Ethereum when it comes to being a developmental platform.

However, the word “almost” is key here, because while that word means that Stellar provides objectively superior services to Ripple for peer-to-peer transactions, it also means that it is a tad bit behind Ethereum when it comes to developmental services.
As stated earlier, the smart contracts that Stellar offers for development purposes are easy to execute and offer a wide range of options from the creation of DApps to ICOs.

This takes Stellar network a step further from other payment solution providers, as the functionalities that come through this aspect coupled with the faster transaction rate of the network opens doors to an array of possibilities.

So far, Stellar has had a few successful ICOs launched through its platform and the list keeps growing at press time. Whereas, the applications that have been built through the platform range from wallets to exchanges.

The Stellar network is interesting because it brings an end to end solution for a variety of users. Since Stellar is designed from to connect financial institutions like banks, payment providers and individuals it seems to be designing a platform that makes sense for each party in the bigger picture. Stellar caters to developers and projects by designing for liquidity, performance, security and simplicity.

Liquidity

Stellar incorporates liquidity into their network by providing projects with the ability to create and deploy tokens through Stellar while also listing their newly created tokens on the Stellar Decentralized Exchange.

These two functions allow projects to avoid two things, waiting and paying. Currently, projects have to wait for centralized cryptocurrency exchanges like Binance and others to list them to obtain liquidity. In many cases, projects have to pay a steep price to be listed as well. Waiting and paying are not necessarily a good use of the resources that a project has.

Thus, a platform like Stellar, solving this from the outset provides a significant benefit. Yet, one current shortfall of the distributed exchange is lack of volume. A problem that can only be solved through an increase in users.

Performance & Security

In regards to performance, Stellar users will be able to see quick transactions and incur minimal costs for these transactions, giving Stellar, another reason to capture market share in the ICO and DApp sectors. In addition to this, due to the consensus protocol algorithm of Stellar and other aspects of platform design, Stellar is more energy efficient than other blockchain based platforms.

Through their federated byzantine consensus method, Stellar is able to also provide for significant security. Developers are only able to deploy smart contracts written in simple code that meet a certain criteria, hence minimizing potential hacks.

Simplicity

The aspect of simplicity is an important one. As many mobile applications and websites have learned, if tools aren’t easy to use, people leave. Stellar has made it to where developers will be able to simply create tokens using simple coding language providing for savings on development costs.

KYC/AML Compliant Blockchain

Yet another important aspect in the wild west world of cryptocurrency is the aspect of regulation and compliance. A KYC/AML compliant blockchain provides an additional benefit of streamlining the process of issuing tokens in a compliant manner, making life more simple for the token issuer.

Users who have been able to pass know your customer and anti-money laundering checks are the ones who will be able to purchase the tokens initially. Then, only, people who have gone through this process on the secondary markets too, will be able to purchase and sell these tokens.

Removing regulatory headaches, at least in that regard, for the issuer.

End-to-End Solution evidenced by Irene Energy

This end to end solution was highlighted by a recent project which chose Stellar over Ethereum. The project, Irene Energy, chose Stellar because of the micropayments feature that it provides as well as the simple smart contract features. Irene Energy also sees benefits with Stellar in transactions that costs a fraction of the time and a fraction of the price, all while remaining public.

Irene Energy shows that, projects are able to benefit from two components of Stellar, the payments infrastructure and the packaged deal of creating, issuing and listing new tokens through Stellar smart contracts and their decentralized exchange.

Lastly, it is important to note that the Stellar decentralized exchange provides key benefits in almost instant trading once listed, atomic path finding (contributing to discovery of most cost effective rates), minimal trading fees, and end user control of secret keys.

What is Stellar Lumens? Let’s Review how does the XLM Cryptocurrency Work

Stellar Lumens has a total supply of over 103 billion coins, with a currently circulating supply of over 18 billion.

With $0.19 a piece, the cryptocurrency has a total market cap of over $3 billion and ranks at number 8 in terms of total market cap at press time.

Statistics provided by CoinMarketCap

All of the XLM coins were generated at the time of inception of the project. Being a non-mining cryptocurrency, the XLM uses the Stellar Consensus Protocol for transaction verification by the utilization of direct servers.

Now, Stellar Development Foundation (SDF), the non-profit which looks over the development and further enhancement of the Stellar network, is the one in charge of distributing the initial Lumens to the world.

The SDF has segregated the ways through which it will distribute XLM.

The methods comprise of the following:

  • The Direct Sign-up program, where 50 percent of the initial XLM will be distributed all over the world through different initiatives.
  • The Partnership program, where 25 percent of the initial XLM will be distributed among partners who agree to use the cryptocurrency towards the development of the Stellar ecosystem.
  • The Bitcoin program, where 19 percent of the initial XLM are distributed to holders of Bitcoin and 1 percent to the holders of Ripple’s XRP (XLM not claimed by Bitcoin holders would go to the Stellar Build Challenge, which would reward developers and community members who contribute towards the Stellar ecosystem and its increased adoption).
  • Whereas, 5 percent of the initial XLM supply will be utilized to supplement the SDF’s operations.

Despite its offerings, the XLM has not had much luck in terms of maintaining an increasing market value through most of its lifetime. It did see a hike during the last few months of 2017 that led up to the start of 2018 as well, but since then, market conditions have affected XLM’s run towards its increase in value.

Statistics provided by CoinMarketCap

 

That being said, if community chatter is to be believed, the proponents of the Stellar network are not losing hope, and actually look forward to the upcoming opportunities that await the network.

Stellar vs. Ripple

As noted above, the competition between Stellar and Ripple can be naturally drawn due to how both networks plan to provide worldwide payment solutions. Also, the fact that Jed was involved in Ripple and then started Stellar, is another reason why the two platforms are compared.

However, what makes Stellar different from Ripple is the fact that the Stellar network is truly decentralized not just by its use of servers, but also because of how it is not controlled by a central organization.

Ripple, on the other hand, remains largely company operated at the moment. While the firm plans to slowly release its hold on the platform, that day is still a long way to go.

The current “corporate” structure of the Ripple network gets a bad rap from the community due to it not being an actual decentralized cryptocurrency.

Furthermore, while Stellar focuses on peer-to-peer payments with the added advantage of being used as a corporate solution for payment transfers, Ripple has got this in reverse: it focuses on industry-level payments and also facilitates users who want to use basic peer-to-peer functionalities from time to time.

Stellar vs. Ethereum

As a payment transfer platform, Stellar uses a few methods to execute its operations.

While Stellar does provide smart contracts, they remain to be a step behind in terms of developmental capabilities.

Ethereum offers smart contracts that are Turing complete, which means that they have more development features than Stellar in its current format.

However, as described in this post by Stellar itself, Ethereum has started facing speed and scalability issues on its platform. These issues arose due to an increase in use, which has turned out to be a blessing and a curse for the Ethereum platform.

The high demand shows that Ethereum is valuable and that there is a strong use case that the platform caters to, but it also shows the limits of the Ethereum platform, the lack of scalability. The excess demand and utilization have caused issues for the currently running platforms and ICOs on the network.

Therefore, while Stellar confirms that its development capabilities are not as “expressive” as Ethereum, it advocates how it can provide a good home to ICOs that do not require intricate smart contract functionalities.

It is not just because Stellar wants to be the better platform, but whether you term it to its currently limited use or just the way that is built, the fact remains that the Stellar platform does offer lesser transactions times (a median confirmation time of 5 seconds) as compared to Ethereum (with a median confirmation time of 3.5 minutes).

To put it simply, while Ethereum can provide virtually unlimited possibilities with its smart contracts, that functionality is taking a toll on the network’s speed. Whereas, while Stellar provides limited capabilities with its smart contracts, for now, it does provide features such as no gas costs for computations along with lower transaction times.

Yet, it is again important to note that Stellar has not experienced significant use like Ethereum and one can only truly compare the two when they both have a similar user base.

The Future of Stellar – Where Can it go From Here?

Stellar has a variety of strengths in regards to functionality and technicals and these are quite impressive but the partners that they have been working with as of late might be even more interesting.

Partnerships with notable organizations like IBM, Stripe, Deloitte, Keybase, and others make for a potentially bright future.

From what we have seen so far, the Stellar network has provided immensely effective solutions in terms of being a payment network and pretty decent ones when it comes to being a development platform.

While it means that Stellar could be one of the major payment platforms in the near future and provide tough competition to the likes of Ripple.

It also alludes to how Stellar could prove to be a secondary solution to those don’t need the extensibility or can’t bear the costs of Ethereum deployment.

This makes Stellar one of the most prominent networks to watch and Lumens one of the most promising cryptocurrencies to monitor.

With planned updates such as the Stellar Lightning Network reducing the transaction time and fee even further, Stellar holds a lot of promise for the near future.

Strong support from a prominent advisory board also contributes to a stellar future.

The advisory board contains prominent names such as Patrick Collison, the CEO of Stripe; Matt Mullenweg, the founder of WordPress; and Greg Stein, the Director of the Apache Software Foundation.

Furthermore, financial backing from projects such as Stripe that contributed $3 million to Stellar in 2014 makes it seem like Stellar is sitting on something big.

As Stellar gears up to further tackle aspects like remittances, mobile branches, micropayments and services for the underbanked, the biggest hurdle is utilization.

It seems that the only boost that the Stellar network needs are more adoption of the various platforms that it provides. Yet, this can only come with effort, time, and patience.

Stellar Rating: 4.5 - Review by

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