What is Stellar Lumens? A Beginners Guide 0/0
What Is Stellar Lumens? (A Beginners Guide)
Understanding Stellar and Lumens (XLM)
The Stellar network is a distributed blockchain based ledger and database that facilitates cross-asset transfers of value, including payments.
Stellar aims to build a platform that will help connect people, payment systems, and bank, enabling a seamless transfer of funds to anywhere in the world for little or zero transaction fee.
Sometimes people refer to Stellar as the cryptocurrency XLM, just as they call XRP “Ripple” or Ether “Ethereum”. In all cases, they confuse the name of the token with the name of the platform/company behind the cryptocurrency.
In the actual sense, Stellar is the payment network (Horizon API and Stellar Core) and Lumens (XLM) is the cryptocurrency that facilitates the transfer of funds in the network. Those are both overseen by a non-profit called Stellar.org.
History of Stellar Lumens
Stellar was originally founded in 2014 by Joyce Kim and Jed McCaleb. It is supported by a non-profit organization called the Stellar Development Foundation. At the time of its launch, Stellar was based on the Ripple protocol and its native currency was called Stellar.
In 2015, the founders created an updated version of the network with a completely new consensus algorithm. It was at this period the Stellar foundation introduced Lumens (XLM) as the native currency for the network.
How does it Work
The Stellar network is based upon a distributed consensus algorithm. It works through the use of quorums, which are a set of nodes used to reach an agreement.
Stellar consists of thousands of network servers connected globally. The servers run a software implementation of the Stellar protocol and use the Internet to communicate with other Stellar servers, forming a global value exchange network.
Each server stores a record of all balances and transactions of every single account on the network in a database called the “ledger.” An official copy of the global Stellar ledger is hosted on each server that runs the Stellar software. In effect, the network does not depend on any single entity and will still run successfully even if some servers fail.
To perform a transaction on the network, the majority of the servers must reach a consensus to agree to the terms of the transaction. For instance, Jane wants to transfer $10,000 to Michael on the Stellar platform, a number of trusted servers will be activated to validate the transaction. Only if the majority of the servers agree that Jane have $10,000 worth of credit on the network will the transaction go through. The servers securely reach consensus by exchanging signatures.
The Stellar network is able to process a large number of transactions quickly and for fractions of a penny because there is no mining involved. The entire process of validating the transaction and arriving at a consensus takes approximately two to five seconds.
Anchors act as bridges between different currencies and the Stellar network. They issue credit for all money transactions in the Stellar network, except Stellar’s native digital currency, Lumen.
Stellar allows you to send any currency you hold to anyone else in a different currency through the built-in distributed exchange. People can receive any currency through an anchor they added.
The distributed exchange allows people to not only buy and sell currencies in a foreign exchange like manner but also to convert currencies seamlessly during transactions.
Is Stellar worth investing?
Unlike several other cryptocurrencies, Stellar Lumens (XLM) is not intended to be used as a store of value. Users buying into Stellar support the nonprofit Stellar.org, which uses the technology in a way to fight poverty.
“With a team of top technology and finance professionals, the nonprofit Stellar.org expands access to low-cost financial services to fight poverty and maximize individual potential,” the organization explained in a post on its official website.
Using the Stellar framework and Lumen currency, Stellar.org wants to create a network that will help people and businesses in regions of high diversity and low monetary stability circumvent banks, exchange money through multi-currency transactions, and provide fast liquidity.
The fact that International Business Machines Corp. (NYSE:IBM) has partnered with Stellar puts Stellar into a different playing field than other cryptocurrencies. Ever since IBM specifically stated that its payment transfers will be made with Lumens (Stellar coin) as liquidity, the Stellar currency value has significantly increased.
The partnership strengthens the use of Stellar, as the cross-border payments by making the digital connection of the fiat currencies on both ends of the transaction. This fast-rising cryptocurrency is making a name for itself in the cryptocurrency market.
Lumens (XLM) have firmly cemented itself among the top ten valuable cryptocurrencies with a market capitalization of over $5 billion. As the cryptocurrency market continues to grow, XLM’s long-term potential is looking good.
Where to Buy XLM
Stellar trades on a number of cryptocurrency exchanges under the XLM sticker. XLM can be purchased with other cryptocurrencies or fiat cash. Binance, BCEX, and Upbit currently accounts for the majority of Lumens’ trading volume.
XLM are also traded on the exchanges listed below;
How to Store XLM
As with any cryptocurrency, lumens can be stored in personal digital storages called wallets. The different types of wallets to store lumens are Lumen desktop wallets (Stellar Desktop Client, Stargazer, Ledger), Lumen mobile wallets (Lobstr, Centaurus, papaya, etc), and Lumen online wallets (Ledger, eBitGo, Stronghold, BlackWallet, StellarTerm, etc).
Stellar is a very interesting initiative as it seeks to connect banks and businesses to enable a seamless transfer of fund to anywhere in the world for a near-zero fee.
However, Lumens low price relative to other top cryptocurrencies is due to its high supply of over 100 billion total XLM tokens. Lumens will increase by 1% per year, this indicates that the cryptocurrency is not intended to be used as a store of value.
The partnership with IBM opens the door to a massive population of potential XLM users. Stellar now replaces Swift, by building a strong bridge. As the cryptocurrency market continues to grow, XLM’s long-term potential is looking good.