Like Steve Jobs, Mark Zuckerberg, and many technology pioneers before him, Jed McCaleb, an American programmer, dropped out of college at UC Berkeley with the dream of developing new and innovative ideas to change the world. It didn’t take long for McCaleb to start his first venture in the year 2000, which would eventually lead him down a long and winding road of startups and business ideas. Now, McCaleb is hitting his stride with his newest venture, Stellar, which is quickly becoming one of the most well-known projects in the cryptocurrency industry.
A New Project is Born from Frustration
Jed McCaleb was always an out-of-the-box thinker, and one issue constantly kept coming up in his mind. “The world’s financial infrastructure is broken and that too many people are left without resources,” McCaleb remembers thinking.
After seeing the power of cryptocurrencies, McCaleb had the idea for a financial platform that could connect people worldwide and allow cross-border transactions and payments with minimal fees. So, in 2014, McCaleb started the Stellar Development Fund (SDF) with the goal of providing a cheap and efficient distributed ledger for banking and transacting all over the world, regardless of location or financial situation. The foundation decided to operate without distributing profits to employees or investors, and instead, run as a philanthropic organization.
In its infancy, McCaleb knew that in order for Stellar to work the foundation must, “seed it with use cases that will make a real impact on the global economy: savings, credit, and payments products for the 2 billion people without access to traditional finance.”
Why Are so Many People Unbanked?
McCaleb recognizes several factors which factor into why billions of people on the planet remain unbanked, and, in turn, perpetuates poverty poverty for such individuals. Currently, there are a myriad of fees, from deposit fees to transaction fees, which make banking financially impossible for those in poverty or in low income brackets. Those who are without government-issued identification and poor credit are often not given the opportunity to open an account, and the process and paperwork required to open an account in the first place assumes a baseline level of education which excludes many who are in need of these services.
Additionally, banks themselves are generally located in city or area centers, and not accessible for many people in rural areas who are not able to reach a bank during working hours. While the recent advent of mobile payment systems have opened up opportunities for many of these individuals, this system still requires an active bank account, something not always possible for the aforementioned reasons.
A Stellar Solution
Technologically, Stellar brought with it a great foundation to change the banking and financial industry. By operating on a public blockchain ledger, Stellar allows for transparent and permanent transactions that cannot be censored by any government or outside party. “With Stellar, our aim is to use an open source financial network to tie the disparate, siloed institutions together and move money cheaply and seamlessly,” notes Jed McCaleb.
With Stellar, foreign transactions can be completed in three ways:
- Conversion through an offer – uses a bank or other firm as an anchor to facilitate the transaction
- Lumens (XLM) as an intermediary currency – used if an anchor is unavailable
- Chain of conversion – uses an intermediary currency exchange to complete the transaction
To widely distribute its tokens, Stellar had a unique way of spreading 100 billion Lumens (XLM) which would benefit the public, while allowing the network to grow organically. The distribution schedule was as follows:
- 50% to users registered on the network
- 25% to partnerships with nonprofits and other businesses
- 19% to Bitcoin holders
- 1% to XRP holders
- 5% to operational costs
Additionally, an inflation rate of 1% would be used to mint new Lumens each year and distributed to users weekly based on a voting system.
For McCaleb It’s Not All About the Profit
While most, if not all, cryptocurrency projects are looking to profit from their ideas, McCaleb has the singular goal of bringing banking to the masses, and isn’t looking to build a corporate giant. As per the company’s website, the mission of the Stellar Development Foundation (SDF) is, “to promote global financial access, literacy, and inclusion. SDF accomplishes this by expanding worldwide access to low-cost financial services through the development and maintenance of technology and partnerships.”
Instead of profiting from fees for using the network, Stellar operates as a nonprofit, and in doing so only charges a nominal transaction fee, currently set at 0.00001 XLM (or, $0.0000031 at current market prices), in order to disincentivize malicious attacks that could negatively affect the network.
The idea to grow Stellar has been to widely distribute Lumens (XLM) to the public who can be active participants on the network. As the public becomes advocates for the technology a network effect would begin, bringing on more users, and more importantly, financial institutions which would support the infrastructure and cross-border transactions of the network.
Today the Stellar network is booming with activity, while still maintaining extremely fast 3-5 second transaction times. This, coupled with low transaction fees make it extremely valuable for users across the income spectrum.
In Nigeria, Stellar has been used in 200 rural areas with close to 300,000 Nigerians who do not have access to banking or other forms of financial services. Through this program, these Nigerians, the overwhelming majority of which are women, were able to conduct free financial transactions, and in turn, help improve lives.
Other initiatives include a partnership with IBM to use the Stellar network in conjunction with transacting 60% of its cross-border payments in the South Pacific region. Also, Mobius, a protocol for connecting consumer applications and high-fidelity oracles to the blockchain economy, launched its ICO on the Stellar platform, coming away with $39 million.
With a market cap greater than $1 billion and continued praise and recognition for its efforts, Stellar, and Jed McCaleb, still have much work to do if they want to create a completely democratized financial world with resources and education for all. But for now, they are certainly off to a good start.