21 October 2014

Stripe backs Ripple founder's latest digital currency project

01 August 2014  |  4292 views  |  0 World in hand

Mt. Gox and Ripple founder Jed McCaleb has unveiled Stellar, his latest stab at a decentralised payment network and digital currency. Payments firm Stripe has backed the project to the tune of $3 million.

Run through a non-profit organisation, Stellar is a decentralised protocol for sending and receiving money in any pair of currencies - be they dollar, yen or bitcoin.

The system works through the concept of gateways that let people get in and out of the network. Users hold a balance with a gateway, which is any network participant that they trust to accept a deposit in exchange for credit on the network. To cash out, a user invokes the promise represented by a gateway's credits, returning them in exchange for the corresponding currency.

Like Ripple, Stellar comes with its own built-in digital currency, which will be given away for free to people who sign up via Facebook, to nonprofits and to current bitcoin and Ripple holders. Initially there will be 100 billion 'stellars' (five per cent of which will be kept back to fund the nonprofit) with the supply increasing at one per cent a year.

Although stellars will have a market-determined value, their main purpose will be to provide a conversion path between other currencies. This means that when two parties exchange money through the distributed exchange, stellars sit in the middle.

"For example, a user might submit a transaction which converts EUR credits to stellar and then converts those stellar to AUD credits. Ultimately, the user will have sent EUR, the recipient will have received AUD, and two exchange orders will have been fulfilled," explains a blog post.

Developers are being invited to jump in and work with the open-source code and build applications on top of Stellar.

The project has secured the backing of payment industry darling Stripe, which has handed over $3 million in exchange for two per cent of stellars. The firm says it will auction most off and return any profits to the Stellar Foundation.

Stripe CEO Patrick Collison has also joined the foundation's board, alongside McCaleb and former PayPal man and Square COO Keith Rabois. Professor David Mazières, head of Stanford's Secure Computer Systems, is also involved, leading development with McCaleb.

Says Stripe CTO Greg Brockman: "Stellar is highly experimental, but we think it's important to invest effort in basic infrastructure when the opportunity arises. Jed and David are the perfect people to tackle something like this. If they and their team pull it off, Stellar could become a much better substrate for a lot of the world's financial systems."

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