What is the Stellar network, and how does it work?

The Stellar network allows users to store and transfer money. You could use the network to create, transfer or receive digital representations of all forms of money, including cryptocurrencies.

Stellar relies on anchors to facilitate the movement of fiat currencies from traditional banking systems to the Stellar network and vice versa. An anchor is a bank, fintech company, or any such financial institution that issues fiat currency, like the Dollar, Euro, and so on. These anchors integrate with Stellar. 

People initiate a transaction through the anchor using traditional methods (like an online transfer or a cheque). The anchor accepts this deposit of a fiat currency and then converts it to equivalent digital tokens (Lumens) on the Stellar network.

If you were sending a payment from Australia (in AUD) to India (in INR) over Stellar, for example, here’s how it would work:

• You would initiate the transfer of AUD from a bank or financial institution that’s an anchor
• The anchor will accept this amount, convert it to equivalent Lumens, and send it over the Stellar network
• The Lumens will then be accepted by an anchor in India, converted to INR, and transferred to the recipient

Because of how Stellar operates, this entire operation (from anchor to anchor) happens in seconds, making it a fast way to transfer money across borders.

According to Stellar’s website, the network can “reduce the friction and costs of the traditional financial infrastructure.” It also claims to make cross-border payments fast and efficient. One of the ways this is achieved is by using a proprietary Stellar Consensus Protocol (SCP) that is faster and less energy intensive than the Proof of Work (PoW) consensus used by popular crypto networks like Bitcoin.

PoW utilises more resources and takes longer to reach a consensus, whereas SCP has a much lower latency and reaches consensus faster. SCP, therefore, facilitates faster transactions, often processed within 2 to 5 seconds.

Stellar Lumens was created for three reasons.

1. One was to prevent the blockchain ledger from being treated as a generic database and spammed by bad-faith actors. People transacting on Stellar are required to maintain a minimum of one Lumen in their account, which acts as a barrier to prevent spam account creation.
2. The second reason is to prevent any singular national currency from being the preferred currency for transactions. As a new and autonomous currency, Lumens aims to remain impartial in its value and independent of political and economic influences. All transfers are only subject to local conversion rates at the time of the transaction.
3. The third reason is to maintain a standard, universal fee for using Stellar.

The process of buying and selling Lumens crypto is similar to any other cryptocurrency. Here’s a broad outline of the steps involved in the process.

• Compare cryptocurrency exchanges to find one that lists Lumens. Different crypto exchanges may charge different types of fees and have varying features. Make sure to analyse the features, fees and benefits of various exchanges before signing up with one.
• Once you’ve selected a crypto exchange, create an account and complete the mandatory Know Your Customer (KYC) process.
• Now you could transfer funds using a payment system supported by the platform to start using your crypto wallet.
• Once you’ve transferred the funds, you can buy and trade Lumens or other cryptocurrencies on the exchange platform. 

Before buying Lumens or any other cryptocurrency, make sure that you learn about the risks associated with trading cryptocurrencies and other crypto assets like NFTs. Crypto is a volatile asset class, and you might want to limit the amount you invest in it to something you can afford to lose. You may also find it helpful to learn about other investment options or speak with a financial advisor to build a diversified investment portfolio that matches your risk appetite.