A brief introduction
Most of us will know Stellar’s story by now. Originally a fork of Ripple in 2014 but completely re-written by Jed McCaleb and co, the Stellar Development Foundation and its native digital currency – Stellar Lumens – has cemented itself within the top 10 of coinmarketcap’s cryptocurrencies rankings, and as a major player in the distributed ledger and digital currency space. An examination of Stellar’s main partnership achievements will demonstrate why they are a protocol that shouldn’t be ignored.
Lumens (XLM) operate on a hybrid blockchain – Stellar’s Decentralised Exchange (SDEX). They are the only digital, trustless asset on the exchange, and provide key liquidity between tokens on the network, as well as paying for transactions and populating minimum account balances (currently 2 XLM).
Rather than using proof of work/stake like Bitcoin or Ethereum, Stellar’s ledger operates on something called the Stellar Consensus Protocol (SCP), based on a federated Byzantine agreement. Essentially, different parties can choose to trust or not trust other actors within the network. This creates interlocked and liquid networks, without the prerequisite to mine transactions for validation. I would thoroughly recommend having a look through these graphics and watching this short video – an excellent further explanation of this particular protocol.
The result of the SCP is that the ledger is able to sync in 3-5 seconds, and process 1,500 tx/s at present. This amount has already reached over 10,000 tx/s in a cloud test with Barclays, and will increase further still with lightning interoperability. One stand-out feature of the Stellar Foundation’s Protocol is the completely open source code, meaning that anyone has permission to develop on the network, and even fork it (see Kin’s recent forking of the Stellar protocol). As the Foundation have developed an open source network and set of SDK’s and resources, the organisation takes on a non-profit form. The reason? To increase adoption and significantly lower the financial barrier to entry (it’s technically ‘free’ to develop, as no fees are incurred for use of the software). As Jed McCaleb, the co-founder and CTO of Stellar stated:
“If you just imagine the internet created by a for profit company, it would not have worked. It would be a very different world.” [source]
There are many features to Stellar’s decentralised exchange and native asset, Lumens. Firstly, the network allows any asset, physical or virtual, to be digitised through an anchor. An anchor is like a bank or PayPal account, except anyone or any organisation can technically become one. It’s merely up to the members on the network to ‘trust’ the particular actor. This process is called ‘setting up a trustline’ and plays a pivotal role in how the network and byzantine agreement functions.
One of Stellar’s main advantages is cheap and fast cross-border transfer and realisation of these assets, due to the quick ledger syncing time, and digitisation of any asset type. They want money to ‘move like email’. Super low fees are a particular feature of this cross-border ability, with $1’s worth of Lumens currently servicing 100,000 transactions on the network. Whilst some cryptocurrencies offer zero fees, McCaleb’s rationale was to incorporate minimal fees to help prevent spam attacks. A further advantage of Stellar’s cross-border ability is atomic swaps– an automatic swapping of assets, on chain, to contribute to a liquid environment. A simple example would be the conversion of £’s to $’s. Whilst this route will probably be a simple exchange on the order book, it may be cheaper to swap £’s for € and then € for $. The chain would look like this :
- £ -> € -> € -> $
Up to six ‘swaps’ can occur on chain. Things get ‘freaky’ when you start to swap £’s for bricks, bricks for sheep and sheep for $’s. How can you do that? Again, any asset, digital and real, can be represented on the network. Ingeniously, the failsafe within the atomic swaps mechanism means that neither party are left with unwanted assets – the chain either completes or reverts back to the original medium.
Lastly, the Stellar protocol is not Turing complete, unlike Ethereum. Whilst this does have limitations for complex applications, it means that simple smart contracts and a reduced attack surface are a key attraction of Stellar’s underlying protocol. Recent moves from Ethereum to Stellar, most notably projects like Mobius, demonstrate the advantages of dropping the Turing complete code.
Key Partnerships – Deep Dive
In the world of cryptocurrency and distributed ledger technology, FUD and rivalry are rife. Therefore, the Stellar Development Foundation’s key partnerships are a quiet but glowing validation of not only their technology, but also the teams professionalism and achievements to date. Firstly, old but nonetheless still relevant and huge Stellar Lumens news – IBM.
IBM took the entire market by surprise in partnering with Stellar in October 2017. The surprise was partly due to the relative stealthy nature of their project, and controversial forking by Jed McCaleb of the Ripple protocol. However, this didn’t stop IBM, and since then they have been working closely together in order to provide IBM’s new and existing clientele with a blockchain payment-layer protocol. The exact nature of this partnership had alluded both followers and critics – with exact clarification of the working relationship only recently coming to light.
For example, IBM’s vice-president of Blockchain technology, Jesse Lund, held a reddit AMA on the Stellar sub to explain that corporate projects had already been conducted on Stellar’s network, and that more companies were coming online in Q2. Not only this, but a follow-up tweet indicated that IBM were waiting for the 2018 Consensus conference to conclude, before ‘fully launching’ their cross-border payment ‘very soon’. Lund’s vocal commitment not only of the foundation, but also of the value, price, and utility of Lumens, has proved pivotal in cementing the relationship publicly.
Central Bank Backed Currencies
Arguable one of the holy grails of cryptocurrency adoption (unless you’re a died-in-the-wool Bitcoin maximalist) – state validation and support of technology, leading to widespread adoption, and presumably increase in value of the digital asset. Incredibly, there is a reported ‘race’ between South-Eastern states, such as Hong Kong and Singapore, to facilitate the Central Bank backing of a digital currency. Even more incredibly, this race is being conducted as a result of the IBM-Stellar partnership, and is due to launch by the end of 2018.
One reason for this race is that IBM have offered to do all of the supportive compliance and legislation for free – with one condition – only the first party to successfully apply will win this fee-free deal. CBDC-backed assets will not only be a game-changing validation of Stellar and IBM, but also of Distributed Ledger Technology and the cryptocurrency space as a whole. It has been regularly discussed by pundits and those working in the space that it is highly unlikely that one coin or interledger will rule them all – think Google, Amazon, Apple and Samsung now. It is much more likely that we will see similar giants grow from cryptocurrency projects, with each company carving out their own market share. One exception to this rule will be that interoperability of ledgers will be crucial to market success, so expect a bit more collaboration than the current tech giant climate. Whatever happens, widespread adoption and state backing would likely provide a stimulus in growth that the market hasn’t experienced to date.
Another key partnership, albeit one still in development, is FairX – the much lauded and hyped mystery project from now ex-CTO at IBM Michael Dowling. A lot of cloak and dagger misinformation surrounds this project, potentially due to NDA’s and regulatory bodies watching cryptocurrency projects much more closely. Recent, but infrequent updates from Dowling include ‘extraordinary events’ developments, regulatory delays, and a full-time, ‘full steam ahead’ commitment to the project.
One lauded element hindering cryptocurrency adoption is the difficulty regarding entry, lack of available funding avenues (think ETH/BTC etc on Coinbase), not to mention losing secret keys and being hacked. Analysis of FairX’s barren Github potentially indicate some form of bank-backed crypto account. This would certainly tie in with Dowling’s need for secrecy, and explain the GitHub’s seemingly missing updates. FairX’s ‘cash for crypto’ slogan would also fit in with an easy user experience and potential exchange mechanism. Could this be a challenger to Coinbase? Or is it something new altogether? Whatever ‘cash for crypto’ entails, it would be foolish to not expect further major use of the network and XLM when the project eventually debuts.
If the above partnerships weren’t enough for the speculating public, the foundation has even found time to link up with eToro (the world’s largest social trading platform) In March, the CEO of eToro, Yoni Assia, co-hosted a TLV fintech ‘The Future of Blockchain’ with McCaleb, and heavily hinted at full adoption of the Stellar networks capabilities, digitising all assets on the network for the trading platform. Considering the scale and size of eToro’s operations, this would be yet another quiet victory for the foundation. Imagine a multi-million dollar trading platform able to shift assets around the world, at will, within 3-5 seconds and for fractions of a cent. Stellar’s price and utility would certainly be positively affected by any such development!
Whilst the above is very much money-centric, the social implications and hindrance that finance at large experiences is still a problem. Distributed ledger projects and global citizen movements have sprung up as a result, attempting to solve the problem of an immutable identity, voter fraud and corruption.
Following this announcement, the foundation tweeted their new and close relationship with communications network Keybase. Their ‘small’ aim? To co-develop a global, immutable cryptocurrency identity – a ‘global venmo’, whereby users can send/transfer assets to each other with either a name, email, phone number or other identity. They aim to tackle the huge hurdle to adoption regarding losing private keys, identity problems and online wallets.
Big, ugly addresses within cryptocurrency are a massive hindrance. It’s also dangerous (you can get it wrong) and annoying (why is it so long?!) Pasting private keys into web pages and browser extensions also opens the user up to fraud and having their funds stolen. This again hinders adoption. And lastly, multi-device wallets should be the cornerstone of any serious DLT protocol. If you have to log in to a new wallet every time you change your shopping/location/mood then it will put you off using the technology altogether. Seamless, even invisible functionality seems to be the ultimate aim of most crypto evangelists/enthusiasts. Although further details of the Keybase/Stellar project are still under wraps, expect exciting things to develop at the end of Q4.
But I don’t own XLM – Wanchain/EOS/ETH do it better
And here we arrive at the true ‘opinion’ bit of the article. It’s true – the longer cryptocurrencies and projects are around for, the more competition there will be and the better the competition will become.
It may very well be the case that the above do it better than the Stellar protocol, and I have no doubt that in some cases it’s true. What we have to bear in mind is that in most instances the very best technology isn’t always a guaranteed win.
See Apple (I’m writing on one – it’s more expensive than its rivals, but beautifully built and lovely to use) vs Samsung or Google. Samsung’s smartphones have arguably bested their iPhone counterparts over the years when it comes to specs, however iPhone sales have helped make Apple insanely wealthy ($900 billion and counting).
This is just one example of how owning the best technology doesn’t automatically make you or your company a winner – or indeed the ONLY winner.
Then there’s the issue of interoperability and adoption. For cryptocurrency and DLT to survive, it has to be able to talk to and communicate with competing or co-existing ecosystems.
Take atomic cross-chain swaps as a case in point. The protocol that allows you to instantly swap Ethereum for Monero, and then Monero to Starbucks points will win. To take that analogy further, all the above and more will have to happen at the click of a button, or the swipe of an immutable ID card.
The general public don’t care which is the best, or who started first. They only care about how easy something is to use, and get very annoyed when hindered (think queuing for the British – they don’t actually enjoy it!).
Corporate partnerships and sponsorships will also probably play a very big part in adoption. Time and time again, the porn industry have helped shaped technological change by picking a side. VHS vs Betamax, Bluray vs HDDVD. Even the propulsion of the internet was sped up because of porn.
Whilst it might not play out in exactly the same way, it would be foolish to ignore the current incumbents power over what is adopted and how quickly. Think Nike teaming up with Dash (great slogan potential, huh?) or McDonalds with Nano.
Despite all of this, the teams, the sides, the races, the adoption battles, the Reddit arguments – what matters most is that the tech is useful, solves a pain point (or four) and hopefully creates new opportunity and helps rebalance broken economies along the way.
So whilst it is partisan, and you are probably furious at Stellar being worse than ‘your’ cryptocurrency, bear in mind that if one coin or protocol is significantly adopted- and that very protocol can help your coin or protocol also become adopted – well, then more of us will be winners than seems obvious at this moment in time.
I just so happen to have a hunch it might be Stellar.