Stellar | What is Stellar and how does it work

Stellar.org connects people to low-cost financial services to fight poverty and develop individual potential.

Stellar | Move Money Across Borders Quickly, Reliably, And For Fractions Of A Penny. Stellar is a distributed, hybrid blockchain that is fully open-source.
Stellar | What is Stellar and how does it work
It is infrastructure that exists to facilitate cross-asset transfers of value, including payments. With just one integration into the Stellar Network, you will join an open, global financial network where all actors – be they people, payment networks, or banks – have equal access & economic participation.

CUSTOMIZABLE PAYMENTS INFRASTRUCTURE 
- Transactions on the decentralized Stellar network resolve in 2-5 seconds.
 - Get started on the network quickly with developer-friendly software and tools.

FINANCE WITH A MISSION 
With a team of top technology and finance professionals, the nonprofit Stellar.org expands access to low-cost financial services to fight poverty and maximize individual potential.

USING STELLAR: INTEGRATION Stellar refers to the technical process of connecting to Stellar as integration. In general terms, integration means configuring your systems to talk to the Stellar network.

Read: TRON | What is Tron and how does it work?

INTEGRATION PROCESS 
The Stellar integration process is relatively straightforward. First, identify the use case that is most appropriate for your business. Next, your technical team will set up database tables, write code to listen to the Stellar ledger, conduct transactions, and test your integration.

Stellar offers software, tools, and documentation to assist the technical side of the integration process.

START-UP COSTS AND INTEGRATION FEES 
The Stellar network is free to use. All of the software necessary for integration is licensed under the Apache License, version 2.0. This license permits commercial use, modification, and/or distribution. Integrators will need to dedicate technical resources to integrating with Stellar.

It typically takes between 120-200 hours of technical development, depending on the size and experience level of your developer team.

COMMERCIAL RESTRICTIONS
There are no restrictions on any commercial use of the Stellar network. Please see Start-Up Costs and Integration Fees above for information on our open software license. 
  
STELLAR.ORG’S BUSINESS MODEL 
Stellar.org operates as a non-stock nonprofit organization. Our mission is to connect people to low-cost financial services to fight poverty and maximize individual potential. To that end, we don’t charge people or institutions for use of the Stellar network. Stellar.org covers operational costs in several ways: 
- 5% of the initial lumens are set aside for operational costs. 
- Stellar.org accepts tax-deductible donations from the public. 

Stellar receives an initial infusion of funding from the payments startup Stripe. Our corporate donors include BlackRock, Google.org, and FastForward. 
  
THE STELLAR NETWORK VERSUS STELLAR.ORG 
The Stellar network refers to the technology that processes financial transactions. The technology is open source, distributed, and community owned. Stellar.org is the nonprofit organization that contributes to the development of tools and social good initiatives around the Stellar network and financial inclusion. Employees contribute code to the Stellar network, but the technology is independent of the organization. 
  
STELLAR NETWORK STRUCTURE 
Horizon API 
An API is simply a set of tools and building blocks for creating software applications. Horizon is a RESTful API that allows you to submit transactions to the network, check the status of accounts, and subscribe to event streams. 
  
Stellar Core 
The distributed Stellar network is made up of servers running the Stellar Core software. These servers are maintained by different individuals and entities. Stellar Core maintains a local copy of the network ledger, communicating and staying in sync with other instances of Stellar Core on the network. 
  
SCALABILITY 
A transaction on the network consists of one or more operations. Payments, offers, and fees are all examples of operations that could make up a single transaction. Depending on hardware and network configurations, a conservative estimate of Stellar’s processing rate is 1000 operations per second.
  
TRANSACTION FEES 
There’s a nominal fee, referred to as a base fee, associated with each operation in a transaction. The base fee functions as a deterrent: Though nominal, it discourages users with malicious intentions from flooding the network with transactions (otherwise known as a DoS attack).

The base fee is currently set to .00001 XLM—a fraction of a fraction of a penny. The sender of the transaction incurs the fee. No one profits from the base fee. The ledger collects the fees and redistributes them in the process of inflation. 
  
RESOLVING DISPUTED TRANSACTIONS 
While transactions are irreversible on the Stellar network, it is possible to freeze the assets you issue. Freezing an asset renders the asset valueless to the user, ensuring that it can only be sent back to you.

For example, let’s say you accidentally credited the wrong customer account with ₦200. You can simply freeze those naira, preventing the customer from spending any mistakenly sent funds. Freezing an asset is a simple operation that takes effect within 3-5 seconds. 
  
RISK AND THE STELLAR NETWORK 
The Stellar network mitigates risk through a decentralized and distributed structure. If Stellar.org were to disappear, the network would continue to confirm transactions, and anchors could still integrate with the network at any time. All Stellar Core validators are run by community members external to Stellar.org. Stellar.org runs a pair of non-validating read replicas and archives history to our own Amazon S3 buckets. 
  
COMPLIANCE AND REGULATION 
Stellar is software—think of it as the middleware that sits between financial products and institutions. As such, we are not a licensed financial institution. If your organization plans to accept deposits and issue credits on the Stellar network, it is likely you will need to be a licensed money services provider (MSP) or mobile money operator (MMO). All integrators should heed the regulatory environment of their organization. 
  
KYC AND AML 
Integrators are responsible for implementing all KYC/AML identity verification requirements. However, Stellar has produced tools to help financial institutions with their integrations. Integrators may find the compliance protocol helpful. 
  
SENDING AND RECEIVING PAYMENTS ON STELLAR 
For more information on the KYC process mentioned in KYC and AML above, consult these diagrams: - Sending a payment with KYC - Receiving a payment with KYC 
  
PRIVACY OF TRANSACTIONS 
All transactions on the network are public. With third-party tools like Lightning, private transactions are possible. Consult your technical team on whether such tools would work for your implementation. 
  
SECURITY BEST PRACTICES 
STellar recommends design is to use at least two Stellar accounts: a base account and an issuing account. Issuing accounts can serve as the intermediary pool between the base account and customer’s accounts. A base account’s credentials should be kept on a computer that is not connected to the Internet and cannot be compromised. Ensure that all of your assets are marked AUTHORIZATION REVOCABLE so you can freeze them in an erroneous situation. 

Advise technical teams to follow the configuration recommendations outlined in the developer documentation. 
  
LOW-BANDWIDTH ENVIRONMENTS 
Though transactions require an Internet connection at the moment, tools for low-bandwidth environments are in development.

FREQUENTLY ASKED QUESTIONS ABOUT LUMENS 
One lumen (XLM) is a unit of digital currency, like a bitcoin.

What are lumens? 
Lumens are the native asset of the Stellar network. Native means that lumens are built into the network. Asset is how the network refers to an item of value that is stored on the ledger. One lumen is a unit of digital currency, like a bitcoin.

While you can’t hold a lumen in your hand, they are essential to the Stellar network—they contribute to the ability to move money around the world and to conduct transactions between different currencies quickly and securely.

Where did lumens come from? 
In 2014 the Stellar network launched with 100 billion stellars, the original name of the network’s native asset. In 2015, with the launch of the upgraded network, the name of the native asset changed from stellar to lumen to distinguish it from 1) the Stellar network itself and 2) Stellar.org, the nonprofit organization that contributes to development of the network.

Why does the Stellar network need a native asset? 
The Stellar network offers all of the innovative features of a shared public ledger on a distributed database—often referred to as blockchain technology.

The Stellar network’s built-in currency, the lumen, serves two purposes: First, lumens play a small anti-spam role. Each transaction has a minor fee—0.00001 lumens—associated with it. This fee prevents users with malicious intentions from flooding the network (otherwise known as a DoS attack).

Lumens work as a security token, mitigating DoS attacks that attempt to generate large numbers of transactions or consume large amounts of space in the ledger. Similarly, the Stellar network requires all accounts to hold a minimum balance of 20 lumens.

This requirement ensures that accounts are authentic, which helps the network maintain a seamless flow of transactions. Second, lumens may facilitate multi-currency transactions. Lumens sometimes facilitate trades between pairs of currencies between which there is not a large direct market, acting as a bridge. This function is possible when there is a liquid market between the lumen and each currency involved.

What is XLM? 
XLM is shorthand for lumen. Most currencies have 3-letter codes (USD, EUR, AUD, BTC) as an international standard. The technical term for these shorthand codes is ISO 4217.

Do I need lumens to use the Stellar network? 
The Stellar network is free to use. The code is open source, with an Apache license. If you plan to transact on the live network, you’ll need lumens to cover the base fees for those transactions. By design, transactions on Stellar are very low cost. As of 2016, one lumen will cover 100,000 transactions.

You may choose to purchase lumens as a supporter of the Stellar.org mission. Lumens are also available for purchase on markets and exchanges (see below).

Where can I get lumens? 
Lumens are available for purchase on several known markets and exchanges. Please be aware of the risk associated with all digital currencies, including complete loss of value. Digital currencies are very innovative but not insured by regulatory bodies such as the FDIC.

Before purchasing lumens, consult the Consumer Advisory brief by the Consumer Protection Finance Board (CPFB) on the potential risks associated with digital currencies.

What is the price of lumens? 
Please consult the available exchanges for the latest lumen price. What is the base fee? Who profits from those lumens? How does inflation work with lumens? Why is there inflation?

What is the lumen auction and how does it work? 
The Stellar.org mandate reserves 5% of the original lumens to support the operations of Stellar.org. Stellar.org covers its own operational costs via its own lumens in the following ways: Auction: We periodically offer portions of the reserved lumens at auction.

We refer to this public process as the lumen auction. The initial auction launched in March 2015 on Poloniex, Kraken, and Haste. Lumens entered these exchanges at the 30-day trailing average price. The current auction began December 2015 on the Kraken exchange.

We offer lumens in small amounts at the market price on the exchange at time of placement. As an ethical safeguard, no one formally associated with Stellar.org—e.g., Stellar.org employees, consultants, or board members—will participate in the auction. Batches.

We periodically auction larger batches of the reserved lumens to parties interested in supporting the Stellar.org mission. If you’re interested in acquiring a larger batch of lumens from the Stellar.org reserve, contact the foundation directly.

What is the lumen giveaway? 
95% of the lumens created when the Stellar network began will be given away to the world. 5% remains with Stellar.org for operational costs. Stellar.org designed the giveaway program to ensure that lumens are given away to diverse groups:
- 50% to individuals who want lumens
- 25% for nonprofits to reach underserved populations
- 20% to bitcoin holders For more information on this breakdown, see the Stellar.org mandate.

Why is Stellar.org giving away lumens? 
To achieve a more inclusive digital economy. Per our mission, Stellar.org works to connect people to low-cost financial services. Giving away lumens for free is an invitation to communities to design the services they need. To expand the reach of the network.

The availability and active use of lumens on the network will increase the network’s utility by many orders of magnitude. We have learned quite a bit about how to give away lumens effectively. Our first attempt gave lumens away to individuals—a different amount per user—but resulted in some abuse. In that time we gave away 1,694,618,200 lumens. We are working on a new prototype for the lumens giveaway, slated to launch soon.

Why should I buy lumens if you are giving them away for free? 
As an integrator or anchor (an integrator that is trusted to accept deposits and honor withdrawals, usually a licensed money services provider), you may need lumens to cover base fees for transactions on the network.

As a supporter or community member, you may wish to support the work of Stellar.org and invest in our future success. In the future, after we have given away all the lumens—which will happen over the next 10 years—everyone will need to procure lumens from exchanges.

How many lumens remain to be given away? 
For up-to-date statistics on the number of lumens given away, see the Stellar.org leaderboard.
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