If you have been learning about altcoins and are interested in Ripple’s XRP token, you may find the Stellar coin even more intriguing. These cryptocurrencies are often mentioned in the same breath, as they have a number of similarities. Both focus on facilitating fast, cheap cross-border payments. They have both won the backing of establishment heavyweights–IBM partnered with Stellar in October 2017, and Moneygram announced its adoption of Ripple’s payments solution technology in January 2018. One of the founders of Ripple, Jed McCaleb, left the company in 2014 to create Stellar, envisioning a more open, decentralized platform that would serve a broader client base. Combining many of the capabilities of Ripple with a flexible, grassroots development approach focused on fighting poverty, Stellar’s associated coin, Lumen, has seen jaw-dropping price increases in the past year.
Ripple and Stellar Compared
As we’ve discussed elsewhere, the Ripple platform and associated XRP token are optimized to enable “frictionless” transactions between banks and other financial services providers, without compromising the desire of these entities for centralized control. Both Ripple and Stellar eschew mining to verify transactions, and began by creating huge supplies of their associated tokens–100 billion of each. By eliminating the need for mining, both cryptocurrencies enjoy enviable transaction times and low costs relative to the other coins out there–measured in seconds and cents, sometimes mere fractions of a cent.
Non-Profit Status and Promotion of Social Good
Both of these cryptocurrencies are well-designed for settling payments. But while 60% of Ripple’s XRP tokens are held by one company, Ripple Labs, only 5% of Stellar’s Lumens are held by Stellar.org, which is structured as a non-profit and partially funded by tax-deductible donations. This organization develops core tools for the platform and promotes initiatives for social good–such as reducing the cost of access to financial services and remittances payments for farmers and small business owners in the developing world.
Distributed and Open-Source
Another important distinction is that the Stellar network and the underlying software are open-source and distributed, unlike the proprietary and heavily centralized Ripple network. As a result, anyone is free to contribute code to the project and build their own systems to integrate with the Stellar network. Even if Stellar.org ceased to exist, these systems and the network they depend on would continue to function, as the distributed nodes on the network each maintain a copy of the Stellar Core protocol. Stellar thus combines the speed and low cost of Ripple with the redundancy, egalitarianism, and community-based development ecosystem that characterizes the bitcoin and Ethereum platforms.
Despite being non-profit, open-source, and oriented towards social justice, Stellar embraces private enterprise–the Stellar software license does not restrict commercial use, so for-profit companies are free to build their own integrations with this next-generation payments system. Stellar.org does not charge anyone for use of the network, although there is a nominal base fee for each operation in a transaction (equivalent to fractions of a cent) designed to prevent bad actors from carrying out denial-of-service (DoS) attacks on the system. These base fees accumulate on the ledger, and are then redistributed during the inflation process, not collected as profits by any entity (the Stellar network has a fixed rate of 1% annual inflation).
Legal Status and Privacy
Stellar.org provides open-source software as a tool to facilitate payments, but it is not a financial institution. Any entities who use the network to process payments in regular currencies, however, will likely have to comply with whatever regulations govern financial services providers in their jurisdictions.
Stellar has a built-in capability for users to freeze erroneous transactions. The ledger is public, but the Stellar network supports integrations that use third-party tools to enable private transactions.
Combining many of the advantages of Ripple with a non-profit structure, idealistic leadership, as well as the security and flexibility of a distributed network and an open-source development license, it is no wonder that Stellar has attracted so much interest. With more corporations catching on to the importance of sustainability and social justice to an increasing share of their customer base, it is likely that Stellar will continue to attract big-name partners as well as a plethora of NGOs and small businesses seeking to benefit from its platform.