Just as bitcoin picked up attention last year, there were other cryptocurrencies and blockchain sites that racked up more remarkable advances and momentum among developers. One of them – Stellar.

With its price soaring by nearly 41,900 percent in 2017, Lumen, Stellar’s cryptocurrency, was among the top performers of the last year. The sterling success has persisted this year. In a environment characterized by steep declines, cryptocurrency has produced growth of 5.26 percent since the beginning of 2018 and had a market cap of $7.5 billion at the time of writing.

Stellar can deliver a fascinating opportunity for traders seeking to diversify their assets away from Bitcoin. Here’s a short guide to the coin and its market prospects.

What’s Stellar?

Stellar is an open-source payment system that has a variety of similarities with Ripple. Its chairman, Jed McCaleb (pictured), has also co-founded Ripple.

Like Ripple, Stellar is also a payment system that seeks to bind financial institutions and dramatically reduce the cost and time taken for cross-border transactions. In addition, both payment networks initially used the same protocol.

Jed McCaleb Stellar chairman

Yet this is where the parallels end.

A Stellar protocol fork ended with the development of the Stellar Consensus Protocol (SCP) in early 2014. Both structures do have underlying variations. While Ripple is a closed system, Stellar is an open source system.

They have different clients, too. Ripple partners with existing financial institutions and consortiums to streamline their cross-border transmission technologies. Stellar, on the other hand, focuses on emerging economies and has several applications of its services, including cash remittances and the delivery of bank loans to the unbanked.

How does Stellar work?

The basic process of Stellar is close to that of other decentralized payment technologies. It operates a network of shared servers with a distributed ledger that is updated every 2 to 5 seconds for all nodes. The most important distinguishing factor between Stellar and Bitcoin is the consensus algorithm.

The Stellar Consensus Protocol does not rely on the entire mining network to accept transactions. Alternatively, it uses the Federated Byzantine Agreement (FBA) algorithm, which allows for quicker handling of transactions. That is how it uses quorum slices (or part of the network) to authorize and verify a transaction.

Growing node on the Stellar network selects another group of “trustworthy” nodes. If the transaction has been accepted by all the nodes within this package, it is accepted. The condensed process has made Stellar’s network incredibly fast and is estimated to handle as much as 1,000 network operations per second.

How Does Stellar Expedite Cross-Border Transfers? 

The actual procedure for cross-border transactions is difficult. It allows domestic banks to retain local currency accounts in international jurisdictions. Their respective banks have to run a separate account in their country of origin.

The Nostro-Vostro method, as it is called, for cross-border transactions of fiat currencies is a lengthy one involving the transfer and reconciliation of accounts. As it allows simultaneous authentication, Stellar’s blockchain will reduce or remove the delays and complexities involved.

The cryptocurrency of Stellar’s Lumens can also be used to provide liquidity and streamline the operation. According to some sources, banks will use their own cryptocurrency to enable these transactions in the future. According to David Mazières, professor at Stanford University and author of SCP, the technique has “modest” computational and financial specifications. This encourages organisations with limited IT budgets, such as non-profits, to invest in their network.

How Many Institutions Are Using Stellar’s Blockchain? 

Stellar came to the spotlight in October 2017 following an announcement of a partnership with IBM. The agreement envisages the creation of several currency corridors between the countries of the South Pacific.

The goal of the project is to handle up to 60 percent of all cross-border payments in the region, including countries such as Australia, Fiji and Tonga. This will require partnerships between small enterprises, non-profits and local banking institutions to expedite commercial transactions. For example, a farmer in Samoa would be able to communicate and trade with a buyer in Indonesia.

In 2016, Deloitte, a major technology consultancy company, has announced a collaboration with Stellar to create a payment app. At the 2017 meeting, McCaleb announced that 30 banks had signed up to use Stellar’s blockchain for cross-border transactions. Wallet service Stripe eliminated bitcoin and left Stellar’s door open on its website.