New currency ‘Stellar’ intends to facilitate a worldwide network allowing anyone to send any currency and have it arrive as any other currency. It is a free open source software, and over 110,000 individuals have signed up for accounts. The project is run by a not-for-profit foundation and offers important advantages over bitcoin that may allow it to achieve greater success.
More currency is given to users if they actively send and receive stellars. This should allow consumers to use it more like a currency than an investment tool, as has been found with Bitcoin. To succeed long-term will require the mainstream banks and credit card companies to participate but this will necessitate greater regulatory certainty. The key is in balancing the necessity of meeting the regulatory standards whilst maintaining a system that is open to anyone, readily used by anyone and does not give one organization an advantage over another. Essentially, it should act like the internet. “Major infrastructure for the world like this,” says Kim, “shouldn’t be owned by a company.”
Digital Currency for the People
Like Ripple, Stellar aims to create a network for moving any currency across the globe, and it creates a new digital currency for facilitating trades, also called stellar. But unlike Ripple, Stellar is run by a not-for-profit foundation—an organization ostensibly outside the control of any one company—and the organization is giving away a vast majority of the currency generated by the system.
Ripple has said that it plans to give away 50 percent of XRPs to the user community. With Stellar, however, 95 percent will be given away. That leaves 5 percent set aside to fund the foundation, with about half of that going to foundation staffers such as McCaleb over a four-year vesting period. “We adopted this model because we don’t think internet infrastructure should be owned by any small group of people,” McCaleb says.
What’s more, Stellar is designed to move money at much higher speeds than bitcoin, and unlike the bitcoin system—which will eventually stop making more of the digital currency—the Stellar network will continue to generate more stellars until the end of time. Because it’s an “inflationary currency,” the founders of the project believe, people will be encouraged to actually spend it, rather than just hand on to it, as so often happens with bitcoin. “The motivation was, in part, to have people focus a bit less on digital currency as something to hoard or a store of value,” Collison says.
This change in the bitcoin model will likely have little effect—at least in the short term. After all, the number of bitcoins won’t stop expanding for another 125 years. People hoard the currency for other reasons. But Stellar’s overall approach could still encourage more people to actually use the currency. Rodrigo Batista particularly likes that the project doles out more currency to individuals if they learn to send and receive stellars. This, he says, will help people treat it more like a currency, rather than simply using it as an investment tool, rather than merely hoping that the value will go up.
In this and other ways, he says, Stellar can bring digital currency to a much wider audience. The bitcoin system doles out currency to people who help drive its worldwide network with rather complex hardware rigs, but Stellar gives its currency to people who merely show an interest. “If want to help people in Philippines sent money back and forth to their families,” says Joyce Kim, a venture capitalist and longtime friend of McCaleb’s who is overseeing the new Stellar Development Foundation, “we have to give them the opportunity to participate without ante-ing up a large amount of money first.”
The rub, says Tim Swanson, a market researcher and author who closely follows the progress of digital currencies, is that system may not be as fair as it seems. It may have trouble identifying scam artists who collect large amounts of currency by pretending to be multiple people. “Identity fraud is a hard nut to crack,” he says.
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