Global payments, intricately weaving financial transactions across borders, link individuals, businesses, and institutions in cross-border trade, remittances, and international investments. The evolution from slow, centralized methods to efficient, decentralized alternatives, driven by the need for rapid, cost-effective, and inclusive payment solutions, is reshaping the financial landscape.
The Stellar network is like a digital system designed to move and manage money across different countries quickly and cheaply. Think of it as a sort of online banking network that can work with all kinds of money, like dollars or euros, and even digital money like cryptocurrencies.
Overview of Stellar Network
- Fast and cheap: Sending money through Stellar is very fast and doesn’t cost a lot.
- For everyone: Stellar aims to help people who don’t have easy access to banks, making it easier for them to send and receive money.
- Works with different currencies: You can use Stellar to exchange different kinds of money, from regular currencies to digital ones, all in one place.
Key Features and Characteristics
- Low Cost: Transactions on the Stellar network are very cheap, often costing just a fraction of a cent.
- Speed: Transactions are processed in a few seconds, making it much faster than traditional banking systems.
- Currency Agnostic: Stellar can handle any type of currency, including fiat currencies (like USD or EUR) and cryptocurrencies (like Bitcoin).
- Decentralized: Unlike traditional banks, Stellar operates on a network of computers across the globe, making it less reliant on any single entity.
- Accessible: Stellar aims to provide financial services to unbanked or underbanked populations, facilitating easier access to the global economy.
- Built-in Exchange: The network includes a built-in exchange where users can trade currencies directly without needing an intermediary, like a conventional exchange platform.
As per review by Immediate Peak Stellar’s architecture is distinguished by its utilization of the Stellar Consensus Protocol (SCP), ensuring decentralized validation and consensus among network nodes. This approach enhances security, reduces transaction costs, and accelerates settlement times.
How the Sending and Receiving Process Works on Stellar
Here’s a step-by-step look at how money moves from one person to another on the Stellar network:
Step 1: Setting up a Stellar Wallet
- User Action: Both the sender and the receiver need to have a Stellar wallet, which is a digital tool to store and manage their currencies.
Step 2: Loading the Wallet
- Sender: The sender adds money to their Stellar wallet. This can be any currency, such as USD, EUR, or a cryptocurrency.
Step 3: Initiating a Transaction
- Sender Action: The sender inputs the receiver’s Stellar wallet address and the amount to send. They can choose the currency the receiver should get the money in.
- Network Process: The Stellar network checks if the sender has enough balance and then locks the funds for transfer.
Step 4: Currency Conversion (if needed)
- Automatic Conversion: If the sender and receiver use different currencies, the Stellar network automatically converts the sender’s currency to the receiver’s currency using the best available exchange rate on its built-in exchange.
Step 5: Transaction Validation
- Network Consensus: The transaction is verified by other computers in the Stellar network (called nodes). This consensus process is quick and ensures that the transaction is secure and valid.
Step 6: Completing the Transaction
- Receiving Funds: Once the transaction is confirmed, the receiver’s wallet is credited with the amount in the chosen currency.
- Notification: Both parties receive a confirmation that the transaction has completed successfully.
Step 7: Access or Spend Funds
- Receiver Action: The receiver can now keep the money in their wallet, send it to someone else, or withdraw it in their local currency if needed.