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Home » Crypto Classroom Lesson #7: Stellar Lumens (XLM) – Part 1

Crypto Classroom Lesson #7: Stellar Lumens (XLM) – Part 1

Stellar Lumens are the native asset of the Stellar Network. 100 billion lumens was created with the launch of Stellar network in 2014. Like  Ripple, Stellar Lumens is a mining-free crypto which allows near-instant and low-cost transactions. While Ripple was created specifically to appeal to banks, a huge market with a great deal of potential for profit. By contrast, Stellar’s creation was to extend the reach of financial services around the globe, helping the unbanked.

Lumens are used in transactions. Each transaction has a 0.00001 lumens transaction fee to prevent spam attack. All accounts also have to hold a minimum balance of 20 lumens.

Lumens’ supply is inflationary with a fixed inflation rate of 1% of Lumens each year. These new stellars will be generated on a weekly basis and distributed via a direct voting method.

In this article we will focus on the Stellar Consensus Protocol.

Stellar Consensus Protocol (SCP)

The Stellar Consensus Protocol (SCP) is the underlying consensus algorithm of the Stellar Network that functions as a provably safe construction of Federated Byzantine Agreement System (FBAS) and making Stellar a decentralized and permissionless network at the same time.

Federated Byzantine Agreement System (FBAS)

The Federated Byzantine Agreement System is a pair of 1) set of nodes V and 2) quorum function Q specifying one or more quorum slices for each node. It allows nodes to reach a universal agreement without knowing the trustworthiness of all other nodes. Nodes in the SCP can pick quorum slices with other nodes that they think are important and trustworthy. The FBAS guarantees four key properties: Decentralized Control, Flexible Trust, Low Latency and Asymptotic Security.

What is a Quorum and a Quorum Slice

A Quorum is a set of nodes sufficient to reach agreement while a quorum slice is a subset of a quorum that can convince one particular node about an agreement. An individual node can form quorum slices with nodes it trusts.

In the above example, Alice, Bob and Charlie form a quorum with each other as they are sufficient to reach an agreement themselves. However, the group (Bob, Charlie, Daisy) is only a quorum slice as Daisy will accept any statement if Bob and Charlie accept it, while Bob and Charlie will accept any statement only if Alice agrees to it as well. Hence, Daisy could not agree to any statement unless Alice agrees to it, i.e. it is insufficient to reach an agreement within the quorum slice. The smallest quorum that contains Daisy would be (Alice, Bob, Charlie, Daisy).

Tiered quorum slice

In reality, nodes and quorum slices will be in tiers where the most important and reputable nodes will be considered 1st tier by other nodes. Less important nodes will be considered 2nd tier and there can be multiple tiers. Universal agreement is not required for nodes to determine tiers as it is determined by market forces. The below example explains how a tiered quorum slice system works:

In this example, the market has decided that four major banks are considered 1st tier nodes. We also have three non-profit organization participating on the consensus protocol while the rest of the nodes are considered 2nd tier. Let’s look at how nodes in each tier form quorum slices.


1. Suppose the 1st tier nodes (banks) only knows and trust the other 1st tier nodes, each of the 1st tier nodes considered themselves and any two other tier 1 nodes constitute a quorum slice. In this case, the quorum slice would be a quorum as nodes are sufficient to reach an agreement within the slice.


2. Each 2nd tier nodes trusts not each other but the more reputable 1st tire nodes. They pick a quorum slice including themselves and two other 1st tier nodes. Note that this quorum slice is not a quorum as it is not sufficient to reach an agreement themselves, i.e. the banks will only agree to a statement only if another bank agrees to it. The banks convince the 2nd tier node on an agreement.


3. Each non-profits in this example pick quorum slice with two out of three of each other non-profits (including themselves), as well as three of the tier one nodes.


4. Suppose Charlie and Daisy are skeptical to the 1st tier nodes, they will only be convinced to an agreement not only depending on two of the banks (which the rest of the 2nd tier nodes do) but also one of the non-profits.
In this case, assume the banks are indeed bad actors and try to double spend. They attempt to pay Daisy 1 million XLM for equal worth of goods and then pay Charlie the same 1 million XLM for equal worth of goods. Within Charlie’s quorum slice, the corrupted banks will agree to the double spending transaction. However, as the previous transaction between the banks and Daisy is recorded with the non-profits’ ledger, the non-profits will not agree to this transaction as it contradicts with its previous agreement. Hence, Charlie will not get a consensus within his quorum and thus the double spending transaction will not go through.


In part 2 of this article, we will talk about how the SCP achieves safety and liveness with quorum intersection and V-blocking, as well as the federated voting process.


Written by Peter Chan
Trader @Genesis Block
For any queries please contact [email protected]