Introduction
Stellar is a decentralized payment system designed to bridge blockchain technology with traditional centralized financial institutions. Rather than creating an entirely new financial model, Stellar focuses on integrating blockchain with existing financial ecosystems, facilitating seamless coordination between payment and banking systems.
This article explores:
- The architecture and design principles of the Stellar network
- Core concepts that define Stellar’s financial framework
Architecture
Stellar enables the development of mobile wallets, online banking systems, and payment services through two primary components:
1. Horizon API
- Facilitates interaction with the Stellar network via HTTP services
- Connects to Stellar Core for transaction processing
2. Stellar Core
- Acts as the network backbone, validating transactions via consensus algorithms
- Comparable to Bitcoin nodes, where interconnected Stellar Cores form the decentralized network
👉 Explore how Stellar compares to other blockchain networks
Unlike Ethereum (which prioritizes smart contracts), Stellar offers built-in asset issuance without requiring additional protocols like ERC-20.
Anchor (Anchor): The Backbone of Trust
An Anchor in Stellar is a trusted entity that:
- Holds deposits
- Issues credit into the network
- Functions similarly to central banks
Key Roles:
- Issuance Account: Dedicated to creating/destroying assets
- Base Account: Manages transactions with other Stellar accounts
Payment Flow Example:
- A client initiates payment via Anchor’s interface
- The Anchor’s bridge service processes the transaction
- Compliance checks verify recipient details
- Upon approval, the transaction is broadcast to the Stellar network
- Balances update after network confirmation
Core Concepts
1. Accounts
- Store public-key-linked data on the ledger
Fields include:
accountID(unique identifier)balance(XLM holdings)seqNum(transaction sequence number)
2. Transactions
- State-changing actions (e.g., payments, orders)
- Structured as atomic operations (all succeed or fail together)
3. Assets
- Represent issuer-backed credit (e.g., currencies, commodities)
- Require trustlines for holder authorization
4. Distributed Exchange
- Enables peer-to-peer trading of assets
- Orders function like traditional limit orders
5. Inflation
- XLM supply increases by 1% annually
- Funds distributed to accounts with >0.05% network votes
Why Stellar Stands Out
Stellar prioritizes regulatory compliance over anonymity, making it appealing for:
- Banks
- Financial institutions
- Payment providers
Its architecture balances decentralization with real-world financial requirements, offering a pragmatic approach to blockchain integration.
👉 Learn more about Stellar’s use cases
FAQ
Q1: How does Stellar differ from Ripple?
A1: While both focus on payments, Stellar is open-source and targets cross-border transactions for individuals, whereas Ripple serves institutional clients.
Q2: What’s the role of Lumens (XLM)?
A2: XLM is the native currency used for transaction fees and spam prevention, with a fixed supply (excluding inflation).
Q3: Can anyone become an Anchor?
A3: Yes, but Anchors must maintain compliance infrastructure and be trusted by network participants.
Q4: How fast are Stellar transactions?
A4: Transactions settle in 3–5 seconds, with fees as low as 0.00001 XLM.
Q5: Is Stellar environmentally friendly?
A5: Its consensus mechanism consumes minimal energy compared to proof-of-work blockchains.
Conclusion
Stellar’s focus on practical decentralization—combined with tools for regulators and financial institutions—positions it as a unique player in blockchain-based payments. Its built-in features for asset issuance and compliance make it a compelling choice for modern financial systems.
By leveraging Stellar, developers and institutions can create interoperable solutions that merge the efficiency of blockchain with the stability of traditional finance.