Jed McCaleb, the founder of MT Gox, Ripple and e-Donkey, has finally revealed his much anticipated Secret Bitcoin Project. Stellar, a new payment protocol and currency, aims to bridge the gap between cryptocurrencies and fiat by allowing easy and instant exchanges between currencies.
The payment protocol, much like Ripple, is based on gateways, which act as banks, holding their user’s currency in return for an IOU. An IOU, of say Bitcoin, can then easily be exchanged for an IOU of say USD, via Stellar’s inbuilt decentralized exchange and without the gateway taking part. The holder of the new Bitcoin IOU can then redeem the IOU from the gateway. It is therefore a trust based system as you need to be sure that the gateway will redeem the IOU, but with low barriers to entry as anyone can become a gateway.
Stellar is also a currency in itself, which may gain value either through speculation or due to a demand for transactions, but it is meant to act as a “conversion path” for the payment protocol as each transaction burns 0.00001 stellars. Most of the currency, 95%, will initially be given out for free, 50% will be distributed to account holders who sign up for stellars and log in via facebook, 25% will be given to charities, and another 25% will be distributed to Bitcoin and Ripple holders.
We will take a snapshot of the Bitcoin blockchain at a particular date and will set up a claim page that will allow bitcoin holders to receive their pro-rata share of the stellars reserved under this program by verifying they control their address from that blockchain snapshot. For example, a user owning .001% of the bitcoins in the blockchain snapshot would receive .001% of the stellars set aside for bitcoin holders under this program, or 190,000 stellars.
Both the payment protocol and the currency differ substantially from Bitcoin as there is no “mining”, but rather a node consensus network, and furthermore the currency is inflationary in nature at a rate of 1% a year. There is little, if any difference, between Stellar and Ripple however. Indeed, the Stellar announcement suggests that Stellar is a continuation of Ripple for Jed McCaleb, who recently publicly announced that he was to sell all of his Ripple holdings due to what may have been an argument over the way the Ripple currency, much of which is still held by Ripple Labs, was to be distributed. Stellar aims to avoid this issue by distributing all of the currency, except for 5%, but it is yet to be seen how quickly the Stellar Development Foundation, a nonprofit organization, will be able to do so or to what extent Bitcoin and ripple holders will claim their share.
The reception of the new payment protocol and currency has been mixed. Stripe recently made a blog post stating that they had invested three million dollars on Stellar’s development and that Stripe believes “that a system with properties like Stellar’s should exist in the world”. Bitcoin holders however expressed much skepticism, pointing out that a central entity controlled the distribution of the currency and that trust was needed.
However, almost 2500 people have claimed their Stellars so far, amounting to 14 million out of 100 billion.