Growing pains: Stellar stumbles briefly amid its launch of a new crypto-currency platform
Last week Ripple Labs and Mt. Gox founder Jed McCaleb introduced a new crypto-currency and payments protocol called Stellar that looks to build on the foundation of bitcoin and Ripple’s XRP while correcting what many perceive to be several design flaws in each. The open-source, non-profit project is backed by Stripe CEO Patrick Collison and Khosla Ventures partner and former Square and Paypal exec Keith Rabois, and counts professor David Mazières among its lead developers.
Like bitcoin, Stellar is based on a decentralized public ledger or blockchain that records transactions. Like Ripple, and its native currency XRP, the Stellar platform and the currency by the same name (aka, STR) are meant first and foremost to be a payments railway rather than a transactional currency. Thus, the platform allows users to convert between STR and fiat currencies (dollars, euros, et al) as well as other crypto-currencies (like bitcoin).
Where Stellar differs from these predecessors is that unlike bitcoin, the Stellar ledger is maintained by a select number of “gateway” institutions, rather than individual miners -- in this case, banks and financial firms. It’s not quite the fully-decentralized vision that Bitcoin creator Satoshi Nakamoto described, but it’s not as if any central authority has the ability to print (or mine) any additional currency, or unilaterally remove any from circulation to create inflationary or deflationary pressure.
And unlike Ripple, 95 percent of the total 100 billion STR are being given away for free to early adopters, gateways, and philanthropic organizations promoting economic development. Stripe, for example “contributed” $3 million to fund development of the project and in return received 2 percent of all stellar coins (2 billion STR). By contrast, Ripple has earned criticism – including from McCaleb, who left the company amid this dissatisfaction – for holding onto the bulk of its XRP currency and using it for fundraising and other company purposes.
So far, so good. TBI Daily creator Ryan Selkis, for example, crowned McCaleb “the reigning champion for the ‘I've got the best vision for bitcoin’ award,” and called Stellar “banking 2.0.”
But Stellar hasn’t been without its challenges in what are still the protocol’s very early days. Early adopters have been met with delays and server errors in opening accounts and receiving their $10 free Stellar coins – in exchange for linking an account to Facebook, verifying an email address, and completing an initial transfer. Many observers have also complained that Stellar’s distribution model is arbitrary and unfair, when compared to mining.
One user, Everett Forth, managed to game the system and amass more than 2 million STR in just 24 hours – several hundred times the number allotted to each users. Forth simply paid overseas Mechanical Turks a nominal amount to open accounts in their own name and transfer their free coins to his account. Unaware or unimpressed about the notional future value of these purely digital assets, it apparently wasn’t a hard sell – until word got out and the prices started to rise. I’m sure this is not what McCaleb and crew had in mind, but then again it’s very much the free market “working.”
At current exchange rates, 1000 STR is worth approximately $2.34. Put another way. 250,000 STR is equivalent to one bitcoin. This makes Forth’s haul worth a somewhat underwhelming $4,680 at today’s rates, but not too bad for a few hours work and a few dollars in outsourcing fees. Moreover, if Stellar becomes a meaningful platform and currency, this value could conceivably grow significantly. Stripe’s coins, for what it’s worth, hold a theoretical value of $4.68 million, more than 50 percent above its cash contribution.
Stellar is just getting out of the starting blocks so some manner of stumbling is to be expected. But the volume of discussion on crypto-currency forums suggests that it's at least capture the attention of this early adopter community. If McCaleb’s track record of skating to where the puck is headed in the crypto world holds true, then this will be but a small footnote in the grand scheme of things. It’s not that hard to start a new currency, but creating one that survives into adulthood is another matter entirely.