Stellar Architecture: How It Our Works

Overview

Stellar is an open-source protocol that allows users to exchange money or tokens using the Stellar Consensus Protocol. The Stellar architecture supports a distributed ledger network that connects banks, payment systems, and individuals. The goal is to facilitate low-cost and cross-asset transfers of value.

Stellar's open-source payment technology possesses a few similarities with Ripple, a real-time gross settlement currency used for remittance and payments. Jed McCaleb, the co-founder of Ripple, and Joyce Kim are the founders of the Stellar network. At first, both Ripple and Stellar shared the same protocol. However, when Stellar created the Stellar Consensus Protocol (SCP), it resulted in foundational differences between the two platforms. The SCP made Stellar an open-source system, while Ripple remained a closed system.

Stellar has a native asset called Lumen (XLM), which powers the Stellar network and its operations. This article will provide you with a deep dive into Stellar architecture and how it works.

The Basics of Stellar Blockchain

Stellar is a decentralized network distributed among interconnected nodes (servers) in the Stellar network. Using the Stellar Core, anyone can set up a verification node (server). Stellar Core acts as a backbone to the Stellar network. It is responsible for carrying out verifications using the Stellar Consensus Protocol (SCP). The Stellar Consensus Protocol serves as the algorithm to verify transactions on the Stellar network.

Unlike the Bitcoin network, where miners verify transactions, the trusted nodes known as verification nodes run the Stellar Core and verify transactions. Therefore, the Stellar network consists of a series of Stellar Cores that work together to verify transactions and ensure everything is up-to-date.

The Features of Stellar Blockchain

Before we go further to explore the Stellar architecture, let's do a quick run-through of Stellar's features.

It has a decentralized and open database.
Transaction confirmation time is between 3-5 seconds.
Stellar can enable thousands of transactions per second.
It adopts the unique Consensus Protocol.
Used Multi signatures and allow Stellar based Smart Contracts.

The Stellar smart contract is an open-source network for storing and moving money, whereas the Ethereum smart contract is an open-source network for decentralized applications. Ethereum is more decentralized and slower, while Stellar is less decentralized but faster.

Stellar token (Lumen denoted by XLM) powers the network. There are 100 billion XLM already pre-mined.
It has a 1% fixed yearly inflation.

Stellar Architecture and How it Our Works

Nodes that help in the smooth functioning of the Blockchain and the ledger's publishing make the Stellar network. Before we go any deeper, let's do a brief overview. Let's say that Shinzo wants to send money to Nakamura. Shinzo lives in the United States, and Nakamura lives in Japan. Consider that Shinzo needs to convert from USD to Yen for Nakamura to receive and spend the money in Japan. The rigorous process resonates with a question- how will this transaction work?

Assuming Shinzo belongs to Bank "A" based in the US and Bob belongs to Bank "B" based in Japan. Both banks are connected to the Stellar network. Once Shinzo sends the $100 through his bank connected to the Stellar network, the transaction intent is sent to Bank B (on the same Stellar network) within seconds to ascertain if Nakamura is compliant or not.

Immediately Bank "A" gets the green light from Bank "B," they deduct the funds from Shinzu's personal account. The USD will be moved to Bank "B" pool account and then moved into the Stellar network in the form of credits (Lumens), the native token of Stellar. Once inside, the network searches for the best exchange rate to use in order to convert the Lumens into Yen. The money will then be moved to Bank B's base account, credited to Nakamura's account.

This is the general overview of how the Stellar network works. Now, let's go deeper into the architecture of Stellar. Different components make up the Stellar network. These components come together to ensure the network is up and running. These components include the following.

A Decentralized System

The Stellar system is decentralized and peer-to-peer. Therefore, there is no centralized entity that makes all the decisions in the system.

The Ledger System

The Stellar architecture incorporates an open ledger system. The Blockchain that acts as a transparent and open ledger system stores the transactions. All users on the network can look at the ledger and see all the transaction details.

Stellar Consensus Protocol

Every decision carried out on the Stellar network is done through consensus. The process of reaching consensus on the Stellar network happens every 3-5 seconds.

Anchors And Credit

In the Stellar architecture, Anchors hold deposits and issue credits when they are required. They act as a bridge between different currencies and the Stellar network. The Stellar network is heavily dependent on Anchors. The work of the Anchors includes:

Holding deposits for users
Issuing credits to users

Multi-currency Transactions

This is arguably one of the biggest features of the Stellar architecture. It means Shinzo can send his USD to Nakamura in the form of Yen. The beauty of Stellar is this seamless decentral forex. Transactions happen in many ways, but we will focus on the USD/EUR exchange for the sake of convenience.

Direct Exchange

The Stellar network looks in the USD/EUR exchange to know if someone wants to purchase EUR for USD. If there is someone available, the transaction takes place instantaneously.

Indirect Exchange

The Stellar also searches for people looking to get USD in exchange for Lumens. They can connect the person to someone searching for Lumens in exchange for Euros and then ensure the transaction pulls through.

However, if none of the conversions are available, the network can go through a conversion chain. Examples of such conversions include BTC/XLM, XLM/EUR, etc.

The Aim Of Stellar Architecture

Stellar is designed to solve the following problems:

The architecture is designed to help users transcend their local economy so they can be able to interact with the global market.
It is designed to handle any asset.
Transactions are almost free; hence it can be used for micropayments.

Conclusions

The Stellar architecture has made Stellar useful and valuable as a global exchange network. The Stellar network has the capacity to host thousands of exchanges between currencies and tokens. Although exchanging between crypto and fiat or vice versa can be expensive, Stellar makes it swift and cheap.

Also Read Stellar Payment Network: Detailed-Explanation

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Stellar Payment Network: Detailed Explanation

Overview

The Stellar payment network is an open-source protocol for exchanging money or tokens. This exchange uses the Stellar Consensus Protocol. GitHub hosts Stellar's source code. The servers run a software implementation of the protocol, using the internet to connect to and communicate with other Stellar servers. Each of these servers stores a ledger of all the accounts by the Stellar Development Foundation, in partnership with other 21 organizations, thus providing for a total of 66 validator nodes. Transactions do not occur through mining; it happens through a consensus process among accounts in quorum slice.

Alternatively, we can define Stellar as an open-source, decentralized payment protocol that offers fast cross-border transactions between any currency pairs. As it operates using Blockchain technology, it has a native digital currency known as Stellar lumen (XLM). This XLM is responsible for powering the Stellar network and its entire operations similarly that ether (ETH) powers the Ethereum network.

All transactions that take place on the Stellar Payment Network are added to a shared ledger. This shared ledger is a database accessible by anyone anywhere in the world. To reach consensus on transactions so quickly and correctly, it adopts its unique consensus method.

How Does Stellar's Consensus Mechanism Of Stellar Payment Network Our Work?

The Stellar consensus mechanism allows for cheap and fast transactions. Participants on the Stellar network reach an agreement about the validity of transactions within a few seconds. Any participant (also called a node) who helps to add Stellar transactions to the global ledger chooses its mini-network of several trusted participants that it agree with. Provided that these mini-networks, also known as "quorum-slices overlap, the overall Stellar network very quickly. They agree on which transactions are valid and can be added to the ledger.

There are four aspects of Stellar when it comes to adding transactions to the ledger or Blockchain network. These aspects include the following:

Freedom Of Participation:

Anyone can be part of the consensus protocol process, and no single individual or group has all or majority of the decision-making power.

Low Latency:

The transactions are fast and cheap and can be confirmed within a few seconds.

Freedom Of Trust:

All nodes participating in the consensus system choose their own set of trusted nodes. These nodes can also revoke trust from bad actors at any point in time.

Safety:

The safety of the Stellar network hinges on its consensus mechanism, a proposed solution to the Byzantine Generals Problem (BGP). With such a solution, it reaches consensus even when there are malicious actors in the network.

Byzantine Generals Problem:

The Byzantine Generals Problem is a when an army is attempting to conquer a resistant city and collectively decide on the attack time. Due to the army's size, they are led by many generals who must coordinate through messengers. The problem lies in communication failures and the trustworthiness of generals and messengers, some of which may be traitors.

Solution To BGP:

To resolve the BGP problem, one requires Byzantine Fault Tolerance (BFT). BFT is when all the trustworthy generals reach the same conclusion, irrespective of a small number of traitors and failures. The consensus mechanism of the Stellar Payment Network is a type of federated Byzantine Agreement (FBA) referred to as Stellar Consensus Protocol (SCP). On the Stellar payment network, faults come in different forms. It can be in the form of faulty or malicious participants (nodes).

Stellar consensus protocol guarantees the desired outcome and ensures undesirable events like the network's fork will never happen. The nodes or participants can continue to vote for the desired outcome until they reach a consensus. If a quorum, the number of nodes sufficient to reach consensus, cannot reach a consensus on what should be in the ledger, the entire network suspends operations until a consensus is reached.

However, this scenario is improbable because of how nodes choose a set with other trustful nodes to belong to. Like we have highlighted above, this subset of honest nodes refers to a quorum slice. A quorum slice is a small piece of the overall quorum that must reach an agreement to close the ledger. Closing a ledger implies adding a block of transactions to the global ledger. The individual trusted nodes will convince each other to reach an agreement within a quorum slice. As long as quorum slices intersect, the Stellar network consensus mechanism guarantees that the overall network can reach consensus fast.

Real-world Applications Of The Stellar Payment Network

In 2015, Stellar partnered with a cloud-based banking software company called Oradian to integrate this network into Oradian's banking platform. The goal was to add microfinance institutions (MFIs) in Nigeria. In 2016, Deloitte announced its partnership with Stellar to build a cross-border payment application called Deloitte Digital Bank. Late 2016 announced that Stellar's payment network expanded its operations to include Coin.ph, a mobile payment startup in the Philippines, ICICI Bank in India, African mobile payment firm Flutterwave, and the French remittance company Tempo Money Transfer.

In 2017, Stellar partnered with IBM and KlickEx to facilitate cross-border transactions in the South Pacific Region. The cross-border payment system that is developed by IBM also includes partnerships with banks in the region. In December of 2017, TechCrunch announced that Stellar partnered with SureRemit, a Nigerian-based non-cash remittance platform.

Where Does Stellar Drive its Value From

Stellar is valuable because it serves as a global exchange network with the capacity to host thousands of exchanges between cryptocurrencies and tokens per second. Ordinarily, exchanging between cryptocurrencies and/or fiat takes time and is costly. This payment network makes the exchange fast and cheap. The native token or digital asset Stellar (Stellar lumen or XLM) will be supported within the Blokchain.com Wallet and is used to pay transaction fees and maintain accounts on the payment network.

Conclusion

Since its launch in 2015, the Stellar payment network has processed more than 450 million transactions. Over 4 million individual accounts made these transactions. Both large enterprises and even single-dev startups have chosen this network to move money across new markets. The payment network has been cryptocurrency-adjacent since the onset. However, the software has always been intended to enhance rather than undermine traditional financial systems.