Stellar is an open-source protocol designed to facilitate fast, low-cost global value exchange. Founded in 2014 by Jed McCaleb and Joyce Kim, the network was initially based on Ripple’s protocol but soon evolved with its own unique consensus algorithm to ensure reliability and decentralization. By 2015, Stellar launched a new version of its protocol featuring a custom-built consensus mechanism, setting the foundation for a secure and scalable financial infrastructure.
At its core, Stellar enables seamless cross-border payments, asset issuance, and decentralized trading — all while maintaining minimal transaction fees and high throughput. Whether you're sending money across countries or issuing digital representations of real-world assets, Stellar provides the tools to do so efficiently and securely.
👉 Discover how blockchain networks like Stellar are reshaping global finance.
How Stellar Works: The Core Architecture
Stellar operates as a decentralized network of servers that communicate over the internet to maintain a shared global ledger — known as the Stellar Distributed Ledger. Each server stores a complete copy of this ledger, which records every account, balance, and transaction in the system.
The network achieves consensus — agreement on which transactions are valid and in what order they’re applied — through the Stellar Consensus Protocol (SCP). Unlike proof-of-work blockchains, SCP doesn’t rely on energy-intensive mining. Instead, it uses a federated voting model that allows nodes to reach agreement quickly and securely, typically finalizing transactions every 2–4 seconds.
This rapid consensus cycle ensures that all participants stay synchronized, making Stellar ideal for real-time financial applications such as remittances and micropayments.
Understanding the Stellar Ledger
The ledger is the backbone of the Stellar network. It represents a snapshot of the entire system at any given moment, containing:
- Account balances (in XLM or other assets)
- Trust lines between users
- Open orders (offers) in the decentralized exchange
- Account settings and metadata
Each time consensus is reached, a new ledger version is created, building upon the previous one. While current ledger states are stored by all nodes, historical data retention depends on individual node configurations.
To prevent spam and bloating, every account must hold a minimum balance of 20 XLM, and each transaction incurs a tiny fee — currently 0.00001 XLM. These mechanisms protect the network from denial-of-service attacks while keeping costs negligible for users.
Key Components of the Stellar Ecosystem
Accounts
Every user on the Stellar network is identified by a unique public address — derived from a cryptographic key pair. To perform any action (like sending funds or creating an offer), users must sign a transaction with their private key. The network verifies the digital signature before processing the request.
New accounts are funded when an existing user sends at least 20 XLM to the new address. Once active, accounts can:
- Hold and transfer XLM
- Issue custom assets (credit equivalents)
- Create trust lines
- Place trades on the built-in exchange
- Configure account settings
Accounts can also be merged back into others, effectively removing them from the ledger — useful for cleanup and consolidation.
Transactions
A transaction in Stellar is a signed package of operations that modifies one or more accounts. Each transaction can include multiple operations, such as:
- Payment: Transfer XLM or other assets
- Create Offer: Place a buy/sell order
- Change Trust: Establish trust in an issued asset
- Account Settings Update: Modify account flags or inflation destination
Transactions are submitted to the network, validated by nodes, and included in the next ledger update after consensus.
Built-In Decentralized Exchange (DEX)
One of Stellar’s standout features is its native decentralized exchange. Users can create offers — essentially buy or sell orders — directly on the ledger. Each offer requires a 5 XLM reserve to prevent spam.
When two offers match (e.g., someone wants to sell USD for EUR and another wants to buy EUR with USD), the trade executes automatically. Balances are updated instantly across both parties’ accounts.
But the exchange isn’t just for direct trades. It also enables multi-currency path payments. For example:
Alice wants to send euros to Bob, but only holds US dollars.
The network finds a path: USD → EUR via an active USD/EUR offer.
Alice’s dollars are exchanged automatically, and Bob receives euros — all in one atomic transaction.
This feature makes Stellar exceptionally powerful for cross-border payments without relying on centralized intermediaries.
👉 See how decentralized exchanges are transforming digital asset trading.
What Is XLM? The Native Asset of Stellar
XLM, or Stellar Lumens, is the native cryptocurrency of the Stellar network. The initial supply was set at 100 billion XLM, issued to the genesis account. Unlike tokens that can be minted arbitrarily, XLM cannot be created by users — only the protocol itself can increase supply through inflation.
Anti-Spam Mechanisms
XLM plays two critical roles in securing the network:
- Minimum Balance Requirement: Every account must hold at least 20 XLM to exist on the ledger.
- Transaction Fees: Each operation costs 0.00001 XLM — effectively preventing spam attacks.
These small costs make large-scale abuse economically unfeasible while remaining nearly free for legitimate users.
Inflation: A Unique Reward System
Stellar features a built-in 1% annual inflation mechanism, distributed weekly to eligible accounts. Users vote for an inflation destination by setting it in their account configuration. Votes are weighted by XLM holdings, and each week, the top 50 destinations receive their share.
This system supports several models:
- Self-Distribution Pools: Groups of users combine holdings to increase voting power and share rewards.
- Charitable Giving: Accounts redirect inflation rewards to non-profits or public goods.
- Service Funding: Platforms that host wallets or gateways may vote for themselves to sustain operations.
While inflation has slowed over time due to community governance decisions, it remains a distinctive feature promoting long-term participation.
Credit Equivalents and Gateways: Bridging Real-World Assets
Beyond XLM, Stellar supports tokenized real-world assets like fiat currencies, commodities, or securities. These are called credit equivalents — digital representations issued by trusted entities known as gateways.
Think of it like casino chips:
You give cash to a casino (gateway).
In return, you get chips (credit equivalent) marked “$10 – Golden Gate Casino.”
You can spend these chips freely within the ecosystem.
When done, you redeem them back into real money.
On Stellar, a gateway issues an asset like "USD/AnchorTrust", and users can send, trade, or convert it just like XLM — all backed by real reserves held off-chain.
This design enables fast, low-cost international transfers. For instance, someone in Europe can send EUR tokens to a recipient in Asia who instantly receives USD tokens — with conversion handled automatically through path payments.
Frequently Asked Questions (FAQ)
Q: What is XLM used for?
A: XLM serves as a bridge currency for cross-asset transfers, secures the network via minimal transaction fees, and helps prevent ledger bloat through account minimums.
Q: Can I mine XLM?
A: No. XLM is not mineable. All coins were pre-created, and new supply comes only from controlled inflation.
Q: How do I get started with Stellar?
A: Download a compatible wallet (like Freewallet or Lobstr), fund it with XLM, and start sending payments or trading assets.
Q: Is Stellar decentralized?
A: Yes. While some early nodes were operated by the Stellar Development Foundation, the network has progressively decentralized with independent validators worldwide.
Q: Are transactions really that cheap?
A: Absolutely. At $0.00001 per operation, even thousands of transactions cost less than a penny.
Q: Can I issue my own currency on Stellar?
A: Yes! Any entity can become a gateway and issue tokens representing fiat, rewards points, or commodities — provided they maintain proper backing and trust.
👉 Start exploring blockchain-based asset issuance today.
Final Thoughts
Stellar (XLM) stands out as a powerful infrastructure for inclusive finance — connecting banks, payment systems, and individuals through a fast, low-cost, and open network. From remittances to tokenized assets and decentralized trading, its capabilities are broad and practical.
With strong security, built-in scalability, and real-world adoption by companies like MoneyGram and IBM’s World Wire, Stellar continues to evolve as a key player in the future of digital finance.
Whether you're a developer building financial tools or an individual looking for cheaper international transfers, Stellar offers a robust and accessible solution grounded in decentralization and efficiency.