What is Stellar and How Does It Work?

Thomas Seattle
Thomas Seattle Crypto Economy
8 Min Read

Stellar (XLM) is a peer-to-peer (P2P) network founded in 2014 by the Stellar Development Foundation or Stellarorg. The network was launched in 2015 with the goal of unifying the world’s financial systems and creating a standard for payment providers and financial institutions. The platform aims to enable the efficient and cost-effective exchange of funds. Stellar connects individuals, banks, and payment service providers and allows users to create, transfer, and exchange various cryptocurrencies.

How does it work?

Stellar operates on its own protocol, the Stellar Consensus Protocol (SCP), which is a network of decentralized nodes. SCP serves as the algorithm for verifying transactions, with Stellar Core providing the necessary software. The speed of transactions is quick, with transfers taking place within 4-5 seconds and a standard fee of 0.00001 XLM (currently valued at $0.12). The nodes in the Stellar network work together to validate and execute transactions, guaranteeing the absence of any fraudulent activity. Running a basic Stellar node on a computer is possible as long as the machine can support the Stellar Core software and has a stable internet connection.

What are the features of XLM?

The network is powered by its own digital currency, XLM or Lumens. XLM is used as an intermediate currency of a transaction and to pay transaction fees. The protocol quickly converts currencies to XLM first and then to the preferred currency.

The Stellar payment system is based on an open-source, community-owned distributed ledger technology. Stellar’s crypto-asset simplifies international transactions by solving the problem of high fees and lengthy processes. XLM helps individuals, not institutions, transfer money. Thus, Stellar provides access to financial institutions and allows anyone to move money around the world quickly and inexpensively.

Stellar also acts as a decentralized exchange and marketplace with an integrated order book that tracks ownership of Stellar assets. The platform allows users to place buy and sell orders and select and organize the assets they choose for payment. XLM is a single currency that reduces transaction fees.

Is it secure?

A high level of network security is guaranteed. Active participation in the network requires ownership of at least one XLM token. This complexity achieves the global goal of cost-effective and efficient execution of network transactions. In addition, Lumens protects against flood attacks by making microtransactions costly for hackers, thus protecting the Stellar network from significant threats.

What are the benefits of Stellar?

Stellar is an open-source, decentralized platform for facilitating cross-border transfers of fiat and cryptocurrency. The following are some of the benefits of using Stellar:


Transactions on the Stellar network are processed in just a few seconds, making it faster than many other cryptocurrency networks.

Low fees

Transactions on the Stellar network have very low fees, making it an affordable option for small or frequent transfers.


Stellar is decentralized, meaning that it operates on a network of nodes rather than through a single central authority. This helps to reduce the risk of censorship, fraud, or hacking.


Stellar is designed to be compatible with multiple currencies, making it easier to transfer between different types of assets.


Stellar has been developed with the goal of increasing access to financial services, particularly for those who have been excluded from traditional banking systems.


Stellar has the ability to handle large volumes of transactions, making it suitable for use in high-volume applications such as micropayments and remittances.

Development community

Stellar has a large and active development community, which helps to drive innovation and improve the network over time.

These are some of the main benefits of Stellar, but it’s always a good idea to do your own research and consider your own specific needs and circumstances before deciding whether to use the network.

what is stellar and how does it work?

Who founded Stellar?

Jed McCaleb and attorney Joyce Kim founded Stellar in 2013 after McCaleb left Ripple due to disagreements over the future direction of the company.

In September 2020, McCaleb explained Stellar’s goals to CoinMarketCap as follows: “Stellar is based on the premise that fiat currencies and other forms of value can co-exist with crypto assets. This is very important for the dissemination of this information.

McCaleb’s goal is to ensure that Stellar encourages the conversion of cash into cryptocurrencies and reduces the friction that often accompanies international money transfers.

He is Stellar’s current chief technology officer and co-founder of the Stellar Development Foundation. The organization’s mission is to “unlock the world’s economic potential by making money more liquid, markets more accessible and people more empowered.”

What makes Stellar so different?

Stellar is different from other cryptocurrency platforms in several ways:

Focus on remittances

Stellar was specifically designed to facilitate cross-border transfers of fiat and cryptocurrency, with a focus on making it easier, faster, and more affordable to send money internationally.


Stellar allows for the easy exchange of multiple types of assets, making it possible to send, for example, USD to EUR, without the need for a direct exchange.

Decentralized exchange

Stellar includes a built-in decentralized exchange, which allows users to trade assets without the need for a centralized exchange.


Stellar has a strong focus on financial inclusion, with the goal of making it easier for people around the world to access financial services, even if they have been excluded from traditional banking systems.

Stellar is Speed and efficiency

Transactions on the Stellar network are processed quickly and efficiently, with a network that is able to handle high volumes of transactions.

Low fees

Transactions on the Stellar network have very low fees, making it a cost-effective option for small or frequent transfers.

Partnership with financial institutions

Stellar has partnerships with a number of financial institutions, including banks and payment processors, which helps to increase its reach and usability.

These are some of the key differences that set Stellar apart from other cryptocurrency platforms. It’s important to do your own research and consider your own specific needs and circumstances before deciding whether to use the network.

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I graduated from Lancaster University and currently working in the financial services industry. I’m a goal-driven journalist who tracks down personal and corporate finance stories and delivers on deadline and a reporter/editor with extensive experience in newspapers, magazines and the internet in public and private markets, equity and debt, M&A, banking, fintech areas.
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