Stellar Lumens (XLM) is one of the world’s biggest blockchain projects. By now, it has established its position as one of the top twenty virtual currencies during its short history. The name Stellar depicts the system itself, while Lumens, or XLM, is the native blockchain token of that system.
The outer features of Stellar Lumens are similar to many other blockchain projects. Namely, its blockchain enables the transfers of wealth across the world quickly and affordably. The transactions are confirmed in the blockchain, which is why they are secure and nearly feeless.
Stellar is, however, a very different system than, for instance, Bitcoin. While Bitcoin is a decentralized cryptocurrency, Stellar Lumens can be described as a centralized digital currency similar to Ripple rather than many other “actual” cryptocurrencies.
What is Stellar Lumens?
Much like Ripple, also Stellar claims to enable the transfer of any kind of currency or digitalized commodities through the blockchain. Achieving this requires centralized actors who accept Stellar and partake in exchanging the tokens transferred in the blockchain to fiat currencies and so on.
Echoing Ripple, Stellar is also administered by a centralized organization, Stellar Development Foundation. The Foundation, often referred after its domain name as Stellar.org, is responsible for transactions between different platforms among other things. It also works as a kind of company by making collaboration contracts with other institutions.
Stellar.org has already gained several well-known cooperation partners interested in using Stellar. Perhaps the most outstanding one is IBM, with whom Stellar.org is developing an international money transfer system for banks.
However, Stellar.org differentiates itself from Ripple’s organization in a few fundamental aspects. Ripple is a for-profit company, whereas Stellar.org is a nonprofit organization. Stellar’s system is also slightly more decentralized than Ripple.
Stellar’s technology is based on Ripple
Stellar is originally based on Ripple. Stellar’s founder, Jeb McCaleb, originally worked with Ripple. However, after ending up disagreeing about the company’s operating philosophy and purpose he decided to develop his own virtual currency. The first Stellar versions were created directly based on Ripple, and Ripple’s roots can also be seen in Stellar’s technology and the system’s basic features.
XLM is not mined like Bitcoin and many other cryptocurrencies. Instead, 100 billion tokens were created simultaneously with the introduction of the system. There is also yearly inflation of 1% built into Lumens, whereby the amount of tokens grows slowly.
Since Stellar’s confirmation is not based on mining, transactions can be executed notably faster and cheaper than in mining-based networks. Every transaction in the Stellar network costs only a few lumens and the network can support thousands of transactions each second.
Even though Stellar in theory allows the transfer of any commodity that can be digitized as a blockchain token, in practice, it will require many further companies, institutions, and other parties that are willing to exchange transferred commodities in the network to their desired form. For instance, if person X sends 10 euros from Finland to Sweden, there must first be a party in Finland trading the euros to lumens, whereafter the lumens are sent to Sweden through a party able to exchange them back into euros.
Stellar’s potential depends on its future use
Stellar’s potential is strongly dependent on how many parties will enter the network and how diverse they are. Stellar already has strong allies, such as their much-covered collaboration with IBM. In case the collaboration bears fruit and the system is more widely used among banks, Stellar can become a success.
January 4, 2021 Ukraine’s government has annouved that they selected the Stellar blockchain network as the foundation for a central bank digital currency (CBDC).
According to Digital Transformation and IT Deputy Minister Oleksandr Bornyakov, the National Bank of Ukraine has been exploring the feasibility of CBDC implementation since 2017.
Stellar Lumens crossed a significant threshold on October 6,2021 MoneyGram , a large international remittance firm, was added as a client. The Stellar Foundation has signed in with an arrangement that will allow it to create a payments bridge that would simplify money transactions.
One of the main benefits Stellar offers to cryptocurrency users is fast and low-cost transactions. Stellar transactions go through typically in seconds and cost only a couple of cents. So XLM is a very good choice for transfers between cryptocurrency services.
Stellar Lumens vs. Other Cryptocurrencies
At the same time Stellar also has tough rivals, such as Ripple and even Ethereum. Ripple’s basic functions are similar to Stellar, but at least so far it has a stronger market position. Ethereum, in turn, is dominating the market of tokens used for ICO investing and creating altcoins or creating decentralized apps (dApps). Stellar still has a lot to do if it wants to beat these giants.
In relation to Bitcoin, Stellar is not considered an actual competitor, but rather a system supporting bitcoin’s adoption and use. Stellar also enables the transfer of bitcoins, and in case the system grows enough it will also ease the exchange of bitcoins to fiat currencies and vice versa.
Projects like Stellar and Ripple are a clear indication of how great a potential blockchain can offer to the traditional financial world. If this potential is used, Stellar Lumens can have a very luminous future ahead.
Is Stellar good for investing?
The price of one XLM has historically been quite low compared to giants like BTC or ETH. The creator of Stellar did not mean it to become a digital asset that grows in price over time. However, investors see Stellar’s potential, and many buy and hold the tokens.