What is Stellar Lumens (XLM)? How the Stellar Consensus Protocol Works

Table of Contents

• What is Stellar Lumens (XLM)?
• Stellar Consensus Protocol (SCP)
• Federated Byzantine Agreement System (FBAS)
• Quorums and Quorum Slices
• Hierarchical Quorum Structures
• Federated Voting Process

• Stellar Ecosystem Developments

  • IBM World Wire Platform
  • StellarX Decentralized Exchange
  • Lightning Network on Stellar

What is Stellar Lumens (XLM)?

Stellar Lumens (XLM) is the native asset of the Stellar network, launched in 2014 with nearly 100 billion XLM created. Like Ripple, XLM is a non-mineable cryptocurrency designed for instant, low-cost transactions. While Ripple targets banks, Stellar aims to expand global financial inclusion for unbanked populations.

Key Features:

• Transaction Fees: 0.00001 XLM per transaction (spam prevention).
• Minimum Balance: 20 XLM per account.
• Inflation: Fixed 1% annual rate, with new tokens distributed weekly via voting.

👉 Learn how to buy XLM securely

Stellar Consensus Protocol (SCP)

SCP is the foundational consensus algorithm of the Stellar network, operating as a provably secure Federated Byzantine Agreement System (FBAS). It enables decentralization and permissionless participation.

Advantages:

• Decentralized control
• Flexible trust configurations
• Low-latency transactions
• Progressive security

Federated Byzantine Agreement System (FBAS)

FBAS consists of:

1. A node set (V)
2. A quorum function (Q) assigning quorum slices to nodes

Nodes can reach consensus without universal trust, relying only on their trusted peers.

Quorums and Quorum Slices

• Quorum: A node subset sufficient to reach agreement.
• Quorum Slice: A minimal group that can convince a specific node to agree.

Example:
If nodes Alice, Bob, and Charlie form a quorum, they can independently validate transactions. However, Daisy’s agreement depends on approval from Alice due to her trust hierarchy.

Hierarchical Quorum Structures

Nodes organize into tiers based on market-driven reputation:

1. Tier 1: High-trust nodes (e.g., major banks).
2. Tier 2: Nodes trusting Tier 1 (e.g., nonprofits).

Anti-Fraud Mechanism:
Corrupt Tier 1 nodes attempting double-spends are blocked by Tier 2 nodes referencing immutable records from nonprofits.

Federated Voting Process

SCP nodes achieve consensus through:

1. Vote: Initial preference submission.
2. Accept: Agreement if a quorum supports the proposal.
3. Confirm: Final validation after acceptance.

👉 Explore Stellar’s governance model

Stellar Ecosystem Developments

IBM World Wire Platform

• Enables cross-border payments using Stellar, stablecoins, or CBDCs.
• Supports multiple bridge assets (unlike Ripple’s XRP-only xRapid).

StellarX Decentralized Exchange

• Fee-free P2P trading for Stellar-native assets and fiat.
• Rebates network fees and inflation rewards to users.

Lightning Network on Stellar

• Off-chain payment channels for instant, low-cost transactions.
• Reduces mainnet congestion.

FAQ

Q: How is XLM different from XRP?
A: XLM focuses on financial inclusion, while XRP serves institutional cross-border payments.

Q: Is Stellar inflationary?
A: Yes, with a fixed 1% annual inflation rate distributed via community voting.

Q: Can I trade fiat on StellarX?
A: Yes, StellarX supports fiat/crypto pairs with no trading fees.

Q: What prevents double-spending in SCP?
A: Tiered quorums and immutable records from trusted nodes block fraudulent transactions.

For further insights into blockchain consensus mechanisms, visit our 👉 comprehensive guide.

Disclaimer: This content is informational only and not financial advice. Cryptocurrency investments carry risks.