A really simple guide to Stellar
By: Matt Hussey
Tags: Stellar, Crypto, Stellar Lumens, Cryptocurrency, Fintech

As we’ve explored in our guide to ‘RIPPLE’ , moving money across borders is something that at present is slow and expensive, but could be quick and fast thanks to blockchain.

Stellar has similar ambitions. But while Ripple wants to be the banker’s crypto, Stellar is focusing its efforts on being the bank for the everyman. We’ll explore their approach below.

What is Stellar? 🤔

Stellar is a cryptocurrency that wants to help the world’s unbanked population have access to financial services.

“Stellar connects people to low-cost financial services to fight poverty and develop individual potential.”

How is it planning on doing that? By making it cheaper and quicker to move money from one currency to another.

It’s important to understand the current financial system when it comes to sending money overseas.

Let’s give you an example:

💸Aysha wants to send its American friends some money.

🏦Aysha needs a bank or account to send that from, and the details of the bank and account they want to send it to.

💬In the present financial system, many international banks use a system called SWIFT, which is a messenger service for banks to tell other banks if they need to credit or debit money from one of their account holders.

✍️Aysha’s bank receives an instruction from Aysha: pay Aysha’s American friend £10.

📝Aysha’s bank changes the balance of Aysha’s account, and then looks up the bank Aysha wants to send money to, and sends an instruction via SWIFT to tell that bank to credit the account holder Aysha has mentioned in its request.

While this is happening there are several other aspects that we have to take into account:

🗣️In order for money transfers to work between banks, the banks need to have an agreement that allows them not only to talk to each other but to make requests to alter the balance sheets of clients of those banks.

⛓️If two banks do not have an agreement in place, they need to find one bank, two banks or even several banks to create a chain to allow the two unconnected banks to make these credit/debit requests.

💱On top of that because Aysha’s friend wants his £10 in dollars, a currency exchange needs to take place somewhere along that journey as well.

All of these steps incur costs. The more complicated the chain of banks involved, and the fewer exchanges there are willing to convert currencies, the more expensive this all becomes. Sometimes these transactions can take weeks.

Oh, and if you don’t have a bank account, things get a lot tricker still.

What Stellar is trying to do is to remove a lot of those steps and allow people without bank accounts in the traditional sense to be able to send money wherever they wish.

Who invented Stellar? 👩‍🔬

Jed McCaleb invented Stellar, who, as it happens was also the inventor of Ripple. He left the Ripple team in 2014 to focus on Stellar full time.

🤔 Did you know?

Stellar’s backers include the founder of WordPress, Angellist, Stripe and the president of Y Combinator.

A brief history 📜

🙅‍♂️2014: Jed McCaleb leaves Ripple to focus on the development of Stellar

📋April 2015: The Stellar Development Foundation releases a white paper for how Stellar will work.

⚡November 2015: The Stellar network goes live

🌎October 2017: Stellar and IBM agree to a partnership to increase the speed of global payments.

What’s so special about it? ✨

Stellar is a platform that can connect regular banks to a payment system that anyone can use to move money across borders, quickly and at virtually no cost. But before that, we need to understand that there are several different bits to Stellar.

Stellar is the payment network the team behind it are building to help people move money around the world, and Lumens is the cryptocurrency that was created as a result.

They are both overseen by a non-profit organisation called Stellar.org. To use Stellar, you upload funds to what they call an ‘anchor’, on the network. Think of it as a PayPal or bank that lives on the Stellar network.

Let’s say you wanted to send some dollars to a friend who lives in China. The anchor verifies you have uploaded your dollars to the network, Stellar then converts the currency into Chinese Yuan and moves the money to your friend’s Stellar address.

The friend can withdraw the funds from an anchor that supports Yuan and get access to the currency. This whole thing takes between 3–5 seconds!

The speed, paired with the cost — transaction fees are fixed at 0.00001 XLM per transaction — suddenly means sending money overseas is a lot easier.

Want to know more?

This is just the tip of the crypto iceberg. Aysha has a a whole host of easy-to-understand articles that make learning about cryptocurrencies, blockchain and DLT technology really bloody simple.

Click here to learn more.