Stellar is a blockchain network that enables its users to store and transfer currencies. Its network does this by leveraging anchors. Anchors are financial institutions such as banks and fintech companies that issue fiat currency like the Dollar or Pound for example. These anchors integrate with Stellar to facilitate the movement of the fiat currencies between traditional banking systems and the Stellar ($XLM) network.
A transaction sending GBP from the UK to IDR in Indonesia over the Stellar network would look like this for example:
- Initiate the transfer of GBP from your bank which acts as an anchor.
- The anchor then accepts the deposit of GBP and converts it into Stellar’s native token called Lumens ($XLM).
- The Lumens are then sent over the Stellar network.
- An anchor in Indonesia accepts the $XLM, converts them to IDR and transfers the equivalent amount to the recipient.
The key asset of Stellar is its speed. Due to its underlying technology the entire process from one anchor to the other occurs within seconds, and has significantly reduced friction and costs associated with the traditional finance system. This impact is particularly beneficial for its customers in less developed countries who often face high fees when sending money to their families across borders through services like Western Union. In some cases these fees can account for more than 20% of the total amount sent.
How Stellar achieves its network speed is via utilizing the ‘Stellar Consensus Protocol’ (SCP). SCP is designed to be faster and less energy-intensive than the usual Proof of Work consensus mechanism. Compared to PoW, SCP consumes fewer resources and reaches consensus more swiftly resulting in transactions being processed usually within 2 to 5 seconds. Show Less
