How Stellar Blockchain Works

How Stellar Blockchain Works

Stellar is an open-source, decentralized protocol mainly used for exchanging the money from digital currency to fiat currency using blockchain technology. Being open-source its code is present on GitHub. Stellar is the payment network which exchanges currencies within 2-5 seconds. Stellar is based on SCP(Stellar Consensus Protocol) consensus protocol. Digital currency name used by stellar is Lumens which is represented by XLM.

Stellar blockchain works on below concepts:-

1. Decentralized network

The stellar network consists of peers that run independently to each other. The information is distributed among the network of servers, not from a single source. The stellar network runs successfully if more independent servers are added into the network so that if any server fails other will help to run the network successfully.

2. Ledger

The Stellar ledger records the list of transactions transmitted from every single account over the network. Every stellar software keeps the copy of the global ledger on each and every server. These ledgers validated, while servers sync, through consensus protocols named as SCP protocol in the stellar blockchain.

3. Consensus

The stellar servers sync and communicate with each other to make sure that transactions are correct and must be applied to the global ledger. This process is validated through the majority of servers in the network before apply to the global ledger. This whole process takes around 2-5 seconds.

4. Anchors, trust, and credit

In the stellar network, anchors work as a trusted entity that holds your deposit and issue credits for those deposits into the stellar network. Anchors work as a bridge between different currencies and stellar network by issuing credit in place of existing currencies. We can use those credits for stellar transactions.

5. Distributed Exchange

On stellar ledger, offers are stored that people placed while buying or selling the currencies. Offers are public to interchange one type of credit to another on the pre-determined rate. Group of these orders makes an order-book in stellar which have currency/issuer pair. So if you want to exchange you have to look at the particular order book in the stellar ledger.

6. Multi-currency transactions

In a stellar network, you can send any currency you hold to any other currency by using the inbuilt decentralized exchange. Users receive any currency from an anchor they added.

For example, A wants to send B USD by using his euros. Stellar submits an offer into the order-book in distributed exchange selling EUR to USD. The stellar network will decide the best exchange rate for this transaction.

Stellar finds the suitable order on internal EUR/USD exchange for someone want to buy USD for EUR and automatically exchange between two parties.