Stellar Payment Network: Detailed Explanation

Okereke Innocent   |   

Dec 10, 2020

Dec 10, 2020

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. 

Also, read 5 Popular Consensus Algorithms Used In Blockchain.

Xord is a Blockchain development company providing Blockchain solutions to your business processes. Connect with us for your projects and free Blockchain consultation at https://xord.solutions/contact/

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