Stellar (XLM) operates on a different consensus mechanism compared to traditional proof-of-work mining seen in cryptocurrencies like Bitcoin. Instead, Stellar uses a consensus algorithm called Stellar Consensus Protocol (SCP). Here are the full details about how Stellar operates:
1. **Stellar Consensus Protocol (SCP):** SCP is a decentralized consensus mechanism developed specifically for the Stellar network. It enables fast, secure, and low-cost transactions by reaching agreement among network participants on the validity and ordering of transactions.
2. **Validator Nodes:** In the Stellar network, nodes validate transactions and maintain the distributed ledger. Unlike traditional mining, where miners compete to solve complex mathematical puzzles, Stellar validators cooperate to reach consensus on the state of the ledger. Validators are chosen based on their reputation, reliability, and stake in the network.
3. **Quorum Slice:** Each validator node maintains a list of other trusted nodes called a quorum slice. By exchanging quorum slices, nodes can reach a consensus on the validity of transactions. This process ensures that even if a small number of nodes fail or behave maliciously, the network can still operate securely.
4. **Transaction Fees:** In the Stellar network, transaction fees are minimal and are used to prevent spam and prioritize transactions. The fees are burned (destroyed) rather than distributed to validators, which helps keep the network operation costs low.
5. **Decentralization:** Stellar aims to achieve decentralization by encouraging a diverse set of validator nodes to participate in the consensus process. This prevents any single entity from controlling the network and ensures its resilience against attacks and censorship.
6. **Inflation Mechanism:** Stellar has a built-in inflation mechanism that distributes newly created lumens (XLM) to network participants based on their proportional ownership of lumens. However, this mechanism does not involve traditional mining; instead, it incentivizes users to hold lumens and contribute to the network's stability.
Overall, Stellar's consensus mechanism differs significantly from traditional mining seen in proof-of-work cryptocurrencies. By using SCP and validator nodes, Stellar achieves fast, secure, and low-cost transactions while promoting decentralization and network resilience.
