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Will Stellar Replace Existing Financial Institutions and/or Money Transfer Systems?

financlfreedomcjPosted for Everyone to comment on, 5 years ago5 min read

I discovered Stellar around May 2017 when the bull run for cryptocurrencies was about to start. To be honest with you, I was just trying to trade and accumulate coins and Stellar was one of them. I had to go back and look at how much Stellar coins I bought and sold and feel really ashamed of myself that I did not do much research. I had sold a lot of it. Fortunately, I had still held on to some which are tucked away in a hardware wallet.

Anyway for those that are not aware of the project called Stellar, Stellar just like Bitcoin is a peer to peer network. The difference is that Stellar consists of peers that run independently of each other. Bitcoin uses Proof of Work (PoW) for securing and validating transactions but Stellar uses Federated Byzantine Agreement Systems (FBA).

According to Prof. David Mazières whitepaper, “Stellar uses the Federated Byzantine Agreement Systems (FBA) as the consensus protocol. In FBA, each participant knows of others it considers important. It waits for the vast majority of those others to agree on any transaction before considering the transaction settled. In turn, those important participants do not agree to the transaction until the participants they consider important agree as well, and so on. Eventually, enough of the network accepts a transaction that it becomes infeasible for an attacker to roll it back. Only then do any participants consider the transaction settled. FBA’s consensus can ensure the integrity of a financial network. It’s decentralized control can spur organic growth.” The transaction times are 2-5 seconds and it network processes more than 1000 transaction per second.

One of the advantages of Stellar is what are called Anchors. To give an analogy Anchors is like what Square (Cash App) is to the traditional banking. Having the privilege of working in the logistics industry, payment between dispatchers and drivers has been a hassle. With the emergence of Square (Cash App), dispatchers transfer money from their banks and it goes as a credit to square which in turn credits the bank account of the trucker drivers. This transfer happens within minutes and has made a huge positive difference in these transactions. The big difference is that with Stellar, these Anchors perform these operations right on the Stellar network, they are faster and do not require centralized authorities.

Stellar also has a distributed exchange in which people are able to buy and sell traditional currencies. This foreign exchange market transactions all happen on the stellar network. With this digital exchange people are also able to send their currencies to other people in other countries and these currencies are converted by Anchors. The people in the other countries can receive the money in their native currencies.

With these innovations Stellar is trying to compete and eventually want to replace traditional financial institutions and money transfer institutions like SWIFT and Western Union. Most people might doubt that it cannot be done but if these institutions don’t innovate, it will be like the competition between buggies and cars. We all know how that turned out.

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