To those who have been in the blockchain industry for a while now, Ethereum’s name is synonymous with platform development, the creation of custom tokens, and the launch of crowdfunding campaigns through initial coin offerings (ICOs).
While that pretty much sums up Ethereum’s functionalities, it is still cryptic enough to confuse those that are new to this space, and thus could benefit from a descriptive guide about the famous platform and its associated cryptocurrency.
In contrast, another platform which remains highly usable in the real world has unfortunately not seen the same level of adoption and fame as Ethereum, is Stellar.
Stellar, which is primarily a payment solution platform that also doubles as a development solution, has been in operation for a few years now.
However, until recently, Stellar has been slept on, not too many people really knew about it or paid too much attention to the platform. Even now, many do not know about the many offerings that can be deployed by Stellar.
Since both platforms share the purpose of development solutions, let’s go ahead and take a look at how similar they really are, what sets them apart from each other, and if one is really better than the other when it comes to an overall value proposition.
What is Ethereum?
Ethereum is a blockchain development platform, built to supplement the creation of complex decentralized applications and blockchain platforms. It has since been popular due to its capability of creating customized tokens for new projects and platforms and paving the way for distributing tokens through ICOs.
Prior to 2013, and the introduction of Ethereum, there was no effective implementation of programmable money or a virtual machine for use cases that the Ethereum project leaders were proposing.
The idea of the platform was proposed by Vitalik Buterin, then 19 years old, who had been associated with Bitcoin Magazine before he delved into Ethereum. While Ethereum was Buterin’s first blockchain project, it quickly went on to become a success due to the unprecedented capabilities that it offered to new and old developers alike.
The platform also offered its own cryptocurrency by the name of Ether (ETH), which functions both as a means of transaction and to fuel network operations such as the creation of new applications. When ETH is used in such a capacity, the amount being paid to the Ethereum network is simply referred to as gas.
Ethereum quickly gained traction and went on to have a successful crowd sale in 2014, followed by its launch in 2015.
Ethereum slowly garnered use from the cryptocurrency community over the years as it allowed projects to create their own platforms and host their own token sales. The platform saw a massive rise in use in 2017 when cryptocurrencies had a tipping point.
Ethereum remains as a truly decentralized public blockchain, which can be joined by anyone who wants to help run the network’s operations. Being the world’s first truly complete blockchain development platform, Ethereum is to this segment what Bitcoin is to cryptocurrency: a pioneer and trendsetter.
Due to its mass adoption and capabilities, Ethereum is deemed as a sought-after solution when it comes to the blockchain industry. This is evident by the creation and subsequent operations of the Enterprise Ethereum Alliance (EEA), an organization joined by the likes of Microsoft, Samsung, J.P. Morgan, and the CME Group; that focuses on creating an enterprise version of the Ethereum blockchain that could be utilized by financial and technological corporations.
The project also has its non-profit called the Ethereum Foundation, which works on the promotion and further development of the Ethereum blockchain.
How Does Ethereum Work?
Ethereum was built on its own codebase and did not only hold that distinction from other cryptocurrencies (as many would Bitcoin forks), but it also introduced its own programming language by the name of Solidity, which supplements the development operations on the platform to this date.
By using Solidity, programmers and developers can explore virtually unlimited possibilities through the platform’s Turing complete smart contracts. Whereas, the Ethereum Virtual Machine (EVM), the platform’s runtime environment for smart contracts that run isolated from the main blockchain, supports these operations.
As a result, the development efforts are completely capable of resulting in applications and platforms that are not limited to operating in financial capacities.
This means that while the platform allows the creation of custom tokens that can be created with applications layered on top of it, they do not necessarily have to fulfill the role of a cryptocurrency, and can function according to their own respective blockchain and what it has to offer.
These tokens can be utilized for crowdfunding operations through their use in ICOs, and distributed and used in the specified application’s own, respective use case. The tokens are called ERC20 tokens, named after their development standard.
Support for these tokens is widely available through ERC20 wallets and other supporting applications throughout the blockchain and cryptocurrency industry.
In simpler terms, Ethereum is the one stop shop for any developer and creator who wants to launch their own decentralized applications or blockchains, with the added ability to raise capital to fund their future operations. This is essentially why Ethereum is one of the top contributors in terms of adding new digital assets/coins to the global market.
What is Ether and How Does It Work?
As described above, Ether (ETH) acts as a cryptocurrency for means of a transaction as well as to fuel the development operations on the Ethereum blockchain, and thus, it is integral to the operations of Ethereum. Ether is also referred to as Ethereum itself, (not the technically correct name for the cryptocurrency) but is widely used nonetheless.
ETH operates on a proof of work (PoW) consensus algorithm which also provides mining rewards like Bitcoin, but the network soon plans to shift to a proof of stake (PoS) consensus algorithm. This switch which will eventually make ETH mining to be obsolete and would cause the network to consume less power than what it currently does with the PoW algorithm.
ETH currently has a total supply of over 99 million. In addition, the cryptocurrency does not have a hard cap, which means that ETH has an unlimited supply at the time of writing. ETH is also the second largest cryptocurrency in terms of market cap, being only behind Bitcoin.
ETH rose rapidly in terms of value in 2017 before it dropped with the dip in overall market value in January 2018. It has since been fluctuating and might be seeing a continuous uptrend.
The price of ETH at the current moment.
How ETH has fared over the course of a year.
Ethereum and Its Scalability Issues
Ethereum has established itself as a behemoth of individual blockchain development within the industry through the accessibility and ease of use.
The accessibility and utility have proved to be a double-edged sword.
With the increasing interest in blockchain and cryptocurrency operations, more entities are tapping into this space to establish themselves as early adopters of the technology and benefit from this moniker, with Ethereum naturally being deemed as the easiest portal into the blockchain world.
The rise in interest has contributed to congestion in the network.
This especially held true during 2017, when Ethereum was arguably the only stable development solution which provided capabilities without limitations.
This network congestion was first noticed during the popularity of Cryptokitties, a blockchain based digital pets game which was widely played by interested individuals for collectible cats (think of virtual Beanie Babies or Tamagotchi). The high number of transactions between the users of this game led to overall slow rates of transaction execution in addition to high transaction fees over the network.
This network congestion continued to go on until the Cryptokitties craze died down on its own.
However, that mania was immediately replaced by the fervor towards cryptocurrencies in December 2017 – January 2018. While Ethereum sustained transactions with slow performance, it was not long before cryptocurrency exchanges started noticing the lag in Ethereum’s performance, and exchanges such as Bitstamp and Kucoin informed their customers about the delays and asked them to use NEO instead.
With the decreased usage in overall cryptocurrency transaction afterward, these issues were temporarily resolved on their own. However, these incidents did leave burning questions about Ethereum’s AOL – esque buffering problems.
These scalability issues have been acknowledged by Ethereum, and Buterin and the other core developers on the network are currently working to deploy solutions to resolve its scalability issues. One such solution is Plasma, which is an on chain scaling solution that was developed by Buterin and the creator of Lightning Network, Joseph Poon.
While Ethereum tries to fix these scalability issues, the interim period provides an opportune moment for Stellar, the more economical and faster alternative to basic development solutions.
What is Stellar?
Stellar is a payment transfer protocol which executes cross-border payments by the usage of multiple currencies including its own cryptocurrency, Lumens (XLM).
Apart from being a payment transfer platform, Stellar also works acts a development solution for non-complex applications through simple smart contracts.
This means that while dedicated development solutions such as Turing complete Ethereum and NEO could provide capabilities that are used to develop complex applications, Stellar provides that functionality for basic yet faster development solutions.
Due to McCaleb’s association with Ripple, Stellar was initially based on Ripple’s codebase. However, that similarity did not last for long, since Stellar soon announced that it has forked away from Ripple due to some issues found in Ripple’s codebase which could affect the network’s performance and security in the future. However, such claims were denied vehemently by Ripple.
Once it had become a true entity of its own, Stellar announced its own consensus algorithm by the name of Stellar Consensus Protocol (SCP).
This new protocol eradicated the use of any mining operations for the verification of transactions. The algorithm instead sought consensus through communication between servers that complete the process in a few seconds.
By basing these operations on a blockchain-based distributed ledger technology (DLT) and not being solely dependent on blockchain technology itself, Stellar set itself apart from most of the other cryptocurrency networks due to being faster than them.
In instances such as Ripple, where DLT was being used in the same capacity, Stellar stood apart by supporting a truly decentralized network whereas Ripple remained company-controlled.
This particular distinction in addition to the solutions that Stellar provided for peer-to-peer payment transfers garnered the network the sort of attention which nabbed it a $3 million investment from payment solution provider Stripe in 2014, as well as revered advisors in the form of Stripe’s CEO Patrick Collison and WordPress’ Founder Matt Mullenweg, among others.
Due to these factors and the partnerships that it has found in the likes of IBM, Stellar has gradually made a mark for itself in the blockchain industry as one of those projects which hold great potential for success.
How Does Stellar Work Anyway?
Apart from holding a great profile on paper (as demonstrated by the aforementioned introduction), the solution that Stellar provides has real-world use cases with easy to understand execution processes.
Simply put, Stellar’s aim is to provide payment solutions across the world. These solutions are transparent, easy to use and also cost-effective.
In order to use Stellar’s payment solutions, everyday users do not have to be proficient in blockchain or DLT either, since Stellar provides the option of executing the transactions through payment facilitators called “Anchors”.
These Anchors (that could be set up online or through physical locations in remote areas) will act as liaisons between the Stellar network and the end user. By contacting these Anchors and utilizing their services, any customer can deposit their native currency onto the Stellar network.
All that they have to do is to pay the Anchor the amount online or in cash, and from there, it is the Anchor’s job to transfer it onto the Stellar ledger, where the amount immediately reflects under the customer’s account for them to use as they wish.
You can think of this process as using PayPal and transferring funds to your PayPal account, which are then reflected there and are yours to use however you want.
Users can then utilize these funds on the Stellar network to transfer them to another Stellar user anywhere in the world, regardless of the currency in which they want the payment to be received.
For example, if the sender has funds denominated in USD, they can still send them and funds would be converted to the desired currency. Whether it was a USD to GBP or USD to EUR transaction, it would not matter.
Stellar makes this seamless conversion possible by the usage of its distributed exchange that is built within the network. Stellar makes this seamless conversion possible by the usage of its decentralized exchange built into the network.
For instance, if someone wanted their USD to be converted into GBP, the Stellar Distributed network would try to convert as quickly as possible. The network would process this by searching for another request that is looking for a transfer to USD from GBP, a match would be found, and the transaction would be completed.
If the system is not able to find suitable offers or request to match, then it would look to another solution, multiple currency conversion.
The system would look to convert between multiple currencies to complete the transaction.
An example of this would be if the request is posted for a USD-EUR conversion and a close match is not available, then the exchange looks to check if a conversion from multiple requests. From USD to GBP and then from GBP to EUR, it then executes the transaction. While the process requires additional steps to be completed, it is all performed seamlessly for the front end user without taking significant additional time.
XLM also come in handy during these transactions, since it can work as the neutral currency of the network where transactions in USD to XLM, and then from XLM to EUR to reach the end goal of a USD-EUR transfer.
This method of peer-to-peer currency conversion between two or more parties without the involvement of a third-party exchange is what makes transfers through Stellar very economical.
Once this exchange is completed, the recipient receives the amount in their Stellar account over the network. They can then use it to make their own transfers, or virtually or physically visit an Anchor in their area to withdraw the amount.
Despite the usage of these “Anchors” that facilitate payments to and from the real world to the Stellar ledger, the Stellar platform remains decentralized because Anchors are not controlled by the platform itself.
Anyone that meets certain regulations can apply to become an Anchor. They would then go through initial procedures, be vetted and then given the responsibility to facilitate the transactions in their area.
The method can also be used by corporations and businesses alike that are looking for fast payment transfers without having to go through cumbersome procedures.
What Is Lumens (XLM) and How Does It Work?
As described above, Stellar Lumens (XLM) is the network’s native cryptocurrency, which can be used as a regular cryptocurrency for transactions between users and also as a facilitating instrument between cross-border transfers.
In addition to this, XLM also helps in supplementing network operations, such as paying the network fee when someone is using it to create smart contracts.
Being a non-mining cryptocurrency, all of the XLM was created at once with its total supply being over 103 billion, with over 18 billion currently in circulation.
It is trading at $0.42 at the current time, with a history of being affected by and fluctuating with market trends.
Over the past day.
How Does Stellar Work As A Development Platform?
The development solutions from Stellar remain simpler and faster than those provided by complex development platforms. This simplicity and speed serve as a unique selling point for the platform.
The smart contracts provided by Stellar are non-Turing complete, which means that they can only provide simple functionalities for basic applications.
However, this actually adds value to Stellar’s offering as a development platform for those developers and organizations which seek simplicity. In addition to simplicity, lowers costs and higher speeds also prove to be beneficial.
This unique differentiation of Stellar’s offerings as compared to platforms such as Ethereum can give Stellar a significant edge.
This is not just all talk, the market seems to be responding favorably. In a recent development by Kik, a messaging platform foraying into the blockchain industry with its Kin token has adopted the Stellar blockchain for its operations.
On March 21, 2018, Kik announced that it is going to use Stellar in addition to Ethereum, which was its original choice to run its token operations. Kik’s CEO Ted Livingston cited that the decision was taken due to the “faster confirmation times, low transaction fees, and scalability that digital services in the ecosystem require.”
The Stellar Combo
Stellar can also prove to be beneficial because of its comprehensive solution. Projects can utilize the Stellar platform to create and run token sales, and then (here’s the kicker) list the tokens on the Stellar Decentralized Exchange.
This means that projects can go full circle with the Stellar platform, they can create, issue and list the token to complete the entire process in no time.
Giving projects simplicity, end to end solutions and providing liquidity in the process.
Of course, it is important to note that there are only a few projects that are currently listed on the Stellar Decentralized Exchange and that there isn’t as much activity on the platform as of yet, but if it grows and attracts more participants, Stellar would certainly be a platform to contend with.
Which One Is Better?
Before comparing both platforms side by side, one should note that while Ethereum is solely a development platform with the added capability of a functioning cryptocurrency, Stellar acts as a development platform as an added feature with its primary focus being cross-border payment solutions.
Therefore, as put by Stellar itself, while the platform cannot provide complete development capabilities to the extent of Ethereum, it is a very viable solution to develop and launch basic applications, tokens, and subsequent ICOs.
The platform can serve as the perfect solution for those who are looking for simplicity, speed and cost effectiveness across the board.
In contrast, if one is looking to develop more complex applications, (applications which require Turing complete smart contracts with more computational capabilities), then it is safe to assume that they would be willing opt into Ethereum’s offerings.
Speaking from the perspective of looking at the bigger picture, Ethereum and Stellar both remain as exemplary solutions in their respective segments. Ethereum is arguably the best at what it does in development (save for its scalability issues), and the same can be said for Stellar when it comes to being a cross-border payment solution for peer-to-peer networks.
Meanwhile, Stellar has to address its somewhat laidback marketing and PR approach. Stellar certainly needs more market penetration to be seen as a true end-to-end platform.
While comparing these two is not fair (at the current moment), it is safe to say that if these two platforms can resolve their respective issues, they can easily be considered as a force to be reckoned with in their own sectors and continue providing top-notch solutions to their end users.
If Stellar can attract more participants to use the developmental solutions and decentralized exchange that it offers, it can certainly take market share from Ethereum and others. When will that be?
2018 should provide some hints.