What is Stellar (XLM)?
Stellar is an open-source decentralised global payments network designed to allow fast, secure, and low cost transactions in the digital space. The native cryptocurrency of the network is called Lumens (XLM) – which can be further divided into Stroops (1 Stroop is 0.00001 XLM).
The founder of Stellar was Jed McCaleb – who also founded another payments network, Ripple. Indeed, Stellar was actually forked from Ripple’s XRP. However, while Ripple is aimed at institutional users and banks, Stellar was created for regular people. In fact, that difference in direction is exactly why McCaleb left Ripple.
Since launching in 2014, Stellar has gained significant popularity and partnered with major firms including Deloitte, ICICI Bank, IBM, KlickEx, SureRemit, and the Ministry of Digital Transformation of Ukraine. The Stellar protocol itself is supported by the Stellar Development Foundation, based in Delaware, USA.
Although it is open-source, distributed and supposedly community owned, a centralised organisation, Stellar.org, was established to support the network and facilitate cross platform and micro transactions.
|Did you know?
If the name Jed McCaleb sounds familiar, it’s probably because he was the founder of the now infamous Bitcoin exchange Mt. Gox. Luckily for McCaleb, he left before the exchange was hacked to the tune of $460M and was forced into bankruptcy.
Stellar (XLM) Basics
At the core of the Stellar network are Anchors. These are trusted entities that act in a similar way to traditional banks – in fact, some are banks. They hold users’ deposits and issue credit. However, unlike traditional banks, this all takes place on the blockchain.
To use the Stellar network, you must first open an account, and add fiat funds to an anchor. That anchor will then add credits, denominated in the appropriate fiat currency, to your account – and those credits can be sent to other network users. Users can withdraw funds from the network using any anchor that supports the specific fiat currency.
The Stellar blockchain uses the Stellar Consensus Protocol (SCP), which is based on the Federated Byzantine Agreement (FBA). It supports both multi-signatures and smart contracts.
Stellar (XLM) Mining and Staking
Because all lumens were minted and allocated when Stellar launched (see below), it cannot be mined or staked.
Stellar (XLM) Supply
The total supply of lumens is 50 billion, which was minted at launch. Stellar.org was allocated 5% of the minted lumens to fund its operations, with the remaining 95% being distributed as follows:
- 50% to people who signed up to Stellar via invitations
- 25% to business, government, NGO and institutional partners
- 20% to Bitcoin and XRP holders (19% to Bitcoin holders and 1% to XRP holders)
Stellar (XLM) Adoption & Usability
From the very outset, the Stellar network was designed to be extremely accessible, and usable for everyday payments and cross border transfers. Given its extremely low cost and fast transactions, it is far superior than traditional fiat systems like SWIFT.
The primary use for lumens is to pay transaction fees and manage accounts on the Stellar network, but it is also tradable on secondary markets, and can be used to make payments in its own right.
Stellar (XLM) Fees & Speed
Every transaction on the Stellar network is subject to a fee to deter spammers. However, it is so low as to be negligible, at just 0.00001 lumens. Transfers between users on the Stellar network are very fast, taking just 2 to 5 seconds.
Stellar Security and Safety
With an extensive network underpinned by trusted anchors, Stellar is highly secure in the traditional sense. However, the very fact that it relies so much on centralised elements does mean there’s always the potential for censorship. As always, when dealing with crypto, you should be aware of the security risks involved when using third-party platforms, especially centralised exchanges and wallets.
Security and safety tips:
- Don’t leave your XLM on-exchange for longer than absolutely necessary. If you are not currently trading, transfer them to a local wallet for short-term storage or staking.
- For long-term storage or staking, keep your crypto in a hardware wallet.
- Always keep your wallet keys in multiple safe places – they cannot be recovered.
- Never tell anyone about your crypto holdings. No matter how secure your storage is, if you or your loved ones are physically threatened, you’ll probably hand over your personal keys.
Unsurprisingly, as a free-floating cryptocurrency, Stellar Lumens has witnessed extreme price volatility since launching. The most dramatic price action took place between November 2017 and January 2018, when XLM went from trading at under $0.03 to $0.88 in a matter of a few weeks. It crashed again in 2019/20, reaching under $0.04 at one point, and then rocketed to over $0.60 again during the 2021 crypto bull run. At the time of writing, in February 2023, XLM was trading at just over $0.09.
Final Word on Stellar (XLM)
Given that the main use of lumens (XLM) is in governing the Stellar network, its future as a cryptocurrency is inextricably linked to it. Although it can be traded on exchanges, and even used for some payments outside of the Stellar network, its long-term performance will reflect the popularity of Stellar as a payments network.
And, therein lies the big question. Can the Stellar network achieve its vision of being the international payments system that serves the masses? Can it bank the unbanked globally? While the network has indeed proved itself on a technical level, achieving mass adoption is going to need effective marketing and a lot of luck.