What Is Stellar Cryptocurrency?
Stellar is an open source infrastructure for distributed payments. The basic idea behind Stellar is to be a cryptocurrency platform that will help connect people, payment systems, and bank, enabling the transfer of funds quickly, reliably, and for a fraction of a penny.
Stellar’s recent partnership with a software behemoth (see below) has raised the Stellar value exponentially. People are curious to find out about Stellar coin and Stellar currency’s claim to fame.
Every time a new cryptocurrency hits the headlines, investors become curious. As you can see from the litany of questions—What is Stellar Coin? Is Stellar a blockchain like other cryptocurrencies? How does it work? What is Stellar Cryptocurrency? What are Stellar Lumens?—there seems to be no end to the curiosity.
How Stellar Cryptocurrency Works
Let’s just say that Stellar is a different kind of blockchain. The Stellar network consists of thousands of servers (computers) all over the world. 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.
The servers communicate with each other to ensure that all the transactions are valid and get applied successfully to the global ledger by a smooth system known as a “consensus.” The following simple money transfer situation illustrates how Stellar works.
If you want to send $10.00 to a peer on the network, a list of trusted servers will be activated to validate your $10.00 payment. Only if the majority of the servers agree that you have $10.00 worth of credit on the network will the transaction go through.
While it sounds like a big process, the entire process of validating the transaction and arriving at a consensus takes approximately two to five seconds. (Source: “How the Stellar Network Operates,” Stellar, last accessed December 22, 2017.)
With Stellar, you can send any currency you hold to anyone else and they can receive it in a different currency. This is done through a built-in distributed exchange and anchors.
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.
What Are Steller Lumens (XLM)?
What BTC is to Bitcoin and XRP is to Ripple, Lumen (XLM) is to Stellar. Lumens are the native asset that operates within the Stellar network. In simple layman language, think of Lumens as the cryptocurrency (fuel) that operates within the Stellar network (engine).
You can’t hold a Lumen in your hand because Lumens are built into the network. The original name for Lumen was Stellar (2014) but in 2015, the name was changed to Lumen to avoid confusion between the currency and the network itself. Lumens serve two purposes:
First, they play a small anti-spam role. Each Stellar transaction has a fee of 0.00001 Lumens. The fee of Lumens works as a security token that helps protect the network against flooding (a large number of transactions that take up too much space in the ledger).
Anyone wanting to do transactions on the Stellar network will need Lumens to cover the base fees. It is why all accounts on the Stellar network must have a minimum balance of 20 Lumens to ensure that the accounts are authentic.
Second, Lumens help move money. Lumens play a crucial role in the network. They conduct transactions between different currencies quickly and securely, especially when the pairs of currencies do not have a large direct market to act as a bridge.
In cross-border transactions involving multiple currencies, the exchange of fiat currency to Lumen and vice-versa allows consumers and businesses to send and receive money across borders, faster and cheaper than traditional payment services. (Source: “FREQUENTLY ASKED QUESTIONS ABOUT LUMENS,” Stellar, last accessed December 22, 2017.)
Stellar History: Who Invented Stellar and Why?
In addition to knowing how much Stellar coins are worth, investors keen on Stellar are curious about who invented Stellar and about Stellar’s history, and rightly so.
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.
However, co-founder Joyce Kim found that there was a flaw in the protocol. After making several changes in the consensus code, the Stellar Development Foundation decided to create an updated version with a completely new consensus algorithm. This updated version came into effect in April 2015 and it was during this new launch that Lumen was introduced as the native currency for Stellar.
Is There a Supply Cap on Stellar Currency?
When the company started with Stellar as its native currency, the Stellar cap was set at 100.0 billion Stellars. At that time, it was decided that the Stellars would be distributed across the globe in the following manner:
- 50% for the world via the direct signup educational program
- 25% for nonprofits to reach underserved populations via the increased access program
- 20% for the Bitcoin program
- 5% for operational costs
In order to provide additional stability to the system, the nonprofit founders have voluntarily agreed not to sell any of the Stellars initially received (either via employee grants in the case of the founders or via repayment of the loan) for at least five years.
When the name of the coin changed from Stellar to Lumen in 2015, it continued to be a large-supply cryptocurrency. The only change was that what was once a 100.0-billion Stellar supply limit is now a 100.0-billion Lumen supply limit. Currently, the Stellar coin supply is hovering around 17.9 billion Lumen.
How Stellar Is Different
The biggest difference between Stellar and many other cryptocurrencies is that Stellar is not-for-profit. Users buying into Stellar support the nonprofit Stellar.org, which uses the technology in a way to fight poverty.
This quote from the official Stellar web site says it all:
“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.”
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.
Stellar IBM partnership: 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 the software behemoth specifically stated that its payment transfers will be made with Lumens (Stellar coin) as liquidity, the Stellar currency value has significantly increased. This fast-rising cryptocurrency is making a name for itself in the cryptocurrency market.
The partnership with IBM opens the door to a massive population of potential XLM users. As the cryptocurrency market continues to grow, XLM’s long-term potential is looking good.
With $4.9 billion already invested, Stellar is building a case as another large-supply, low-cost coin and is gearing up to give its nearest rival, Ripple, a run for its money. Or should I say cryptocurrency?