Understanding Stellar Consensus Protocol and how it can power XLM in 2023
The bear market of 2022 tested the resilience of the crypto-market to its limits, prompting naysayers to question the sustainability and demand for blockchain technologies. However, the rally witnessed since the beginning of 2023 has piqued the curiosity of businesses and governments, who are looking to capitalize on the technology’s potential to promote transparency and efficiency. Here’s where the Stellar Consensus Protocol comes into the picture.
Apart from networks working on proof-of-work (PoW) and proof-of-stake (PoS) consensus algorithms, another technology to look out for could be the Stellar Consensus Protocol (SCP) on which the payments-focused layer-1 solution, Stellar is based.
Read Stellar (XLM) Price Prediction 2023-24
The Stellar Development Foundation (SDF) recently released its Q1 2023 report, outlining its accomplishments and stats of some of its key performance indicators (KPIs) measuring general usage of the network. One of its largest growth areas was the total operations processed on the network which went past 1 billion during the quarter, reflecting an year-on-year (YoY) growth of 21.7%. The total number of accounts also saw a significant hike of 15.8% from Q1 2022.
However, the area of concern was the sharp decline in the total payments on the chain, more than 60% on a YoY basis. For a technology positioning itself as a viable alternative for facilitating cross-border payments, this drop has been alarming.
What is SCP?
Stellar is an open-source, decentralized network and protocol that allows for the exchange of any sort of currency, including fiat money such as USD and cryptocurrencies such as Bitcoin [BTC]. Using Stellar, people can send and receive money nationally and internationally, irrespective of the currency type.
Like other blockchains, Stellar also relies on a consensus algorithm to verify the validity of transactions. The SCP is an open-source system that offers a unique way to reach consensus without relying on a closed system to record financial transactions accurately. This approach does not require validation from all the miners in the network. Rather, it relies on the collaboration of trusted nodes.
Using the Federated Byzantine Agreement (FBA), nodes select other nodes they think to be trustworthy, and then collaborate to create and validate a set of transactions to change the state of the ledger. This technique results in speedier transaction processing, making Stellar an appealing medium for sending funds across borders.
However, the network is yet to realize its full potential as it was processing just 38 transactions per second (TPS) at the time of publication, according to Blockchair data.
Stellar’s roadmap for 2023
As part of its strategy for expansion in 2023, Stellar stated that its prime focus will be utility. This, to attract real users, developers, and businesses looking to harness the growth potential of blockchain technologies.
The ecosystem intends to focus its efforts on three key components in order to boost network utility – Making innovation easy and scalable, attracting developers looking to solve real-world problems, and building trust with stakeholders.
And Stellar looked committed in making its network more attractive to prospective builders. Recently, it integrated with AI-powered cyber security company, AnChain.AI, to boost security for its cross-border payments. Security is one of the foundations on which the edifice of decentralized solutions stand. Hence, better security is bound to attract more developers.
— Stellar (@StellarOrg) May 9, 2023
However, a look at Stellar’s development activity indicator didn’t evoke much optimism. After climbing to 2-month high in the first week of May, it fell precipitously as the month progressed. Development activity is a measure of a project’s efforts in polishing and upgrading its features. A significant drop could possibly deter new players from entering the system.
Gauging XLM’s performance in 2023
Stellar’s native cryptocurrency called Lumens, or XLM, is one of the pillars of the payments network. Apart from paying transaction fees on the network, XLM also acts as the intermediate currency that allows Stellar users to execute trades.
How much are 1,10,100 XLMs worth today
At the time of writing, XLM was exchanging hands at $0.08831, as per CoinMarketCap, representing an year-to-date (YTD) growth rate of 21%. While this is an impressive feat, the coin faced a significant price correction over the last month, driven by broader market conditions. On a monthly basis, it has plunged by nearly 17%.
Evidently, this has impacted demand as the transaction volume has tapered off since the massive surge in the latter part of March, according to Santiment data. The drop in prices has eroded investors’ confidence for the token as the weighted sentiment plunged into the negative zone.