In the United States and Europe, we take financial services for granted. Opening a bank account or getting a credit card isn’t hard if you have a little money. In many countries, the situation is very different. Only a minority of the adult population has bank accounts. People use informal channels to transfer money, with all their risks, or pay high transfer fees.
An open payment protocol
The lack of a financial infrastructure slows down economic growth in these countries. There ought to be a better way — and blockchain technology can provide it. The Stellar Development Foundation has created a system to facilitate transfers and exchanges at a very low cost.
Stellar isn’t itself a financial institution. It’s an open payment protocol, facilitating exchange between any two currencies. SDF’s mission is to develop the protocol and reference implementation software for it. The open-source software is freely available under the Apache license.
Stellar uses an electronic currency called the “lumen.” It was originally called the stellar, but the foundation changed the name to avoid confusion. SDF has generated and is distributing an initial supply of lumens. Each account must hold at least 20 lumens (currently about a dollar), and each transaction costs 0.00001 lumens. Stellar uses lumens as a bridge currency in conversions, but it’s also a fairly strong currency in its own right.
An API lets clients use custom code to integrate with Stellar. This allows the development of many kinds of applications to perform financial transactions.
Client applications are available from various developers. Mac, PC, and Android apps let users make trades and hold lumens. Users can send gifts or payments anywhere. A number of exchanges exist for buying and selling lumens.
Generally, though, people won’t just move lumens around the way they use Bitcoins. A distinctive feature of Stellar is the role of anchors, which are entities that hold assets and engage in transactions on people’s behalf. These may be recognized financial institutions or small-scale organizations. Stellar provides the means for them to interact efficiently with each other.
Stellar differs on some important technical points from Bitcoin. Its underlying computational system is the Stellar Consensus Protocol (SCP), which eliminates the need for “mining” blocks and allows much faster transactions. It uses “asymptotic security,” which can grow in strength as the potential for high-powered attacks grows. Stellar’s concept of trust is more flexible than Bitcoin’s.
If you’re a comics fan and can deal with mildly technical discussion, there’s even a graphic novel that explains SCP in interplanetary terms.
Expanding Stellar’s reach
On May 11, 2017, Stellar spun off Lightyear.io to work with new and existing partners and expand Stellar’s services. Lightyear is a for-profit corporation with the backing of the payment giant Stripe. Its principal founders are Jed McCaleb of Stellar and Brit Yonge, formerly of Palantir.
Lightyear will build on Stellar’s existing partnerships in the Philippines, Africa, and India. Stellar will focus on its development mission while Lightyear expands the network’s reach.
Many of Stellar’s projects are more local in reach. One helps women in South Africa to deposit their savings securely, building on the Vumi messaging application. Without financial institutions, they often have to keep their money at home or invest it in risky assets such as livestock. In the Philippines, BloomNet will network remittance centers, allowing transfers using the Stellar protocols.
The possibilities for the Stellar network look strong. Lightspeed is poised to reach into many developing areas where financial infrastructures are lacking. Many people in these places are eager to save and invest their money, even if they have little by western standards. Given reliable ways to save and move money, they can live more secure lives and start their economies growing.
Yours in writing,