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Stellar is a fitting name for a project that has the ambition to revolutionize the existing finance system as a whole, don’t you think? In this guide, the ChangeHero team is going to introduce you to the Stellar network, explain Stellar lumens (XLM), look at its history, and provide tips on how to purchase and store Stellar lumens.
Key Takeaways
- The Stellar network is a decentralized, open, distributed network for frictionless, borderless financial transfers. It is used by remittance providers, payment services, and asset managers for tokenization.
- Although Stellar is neither a proof-of-work nor a proof-of-stake network, it still has a native token lumen (XLM) to prevent spamming and serve as a unit of exchange.
- Due to what Stellar Lumens crypto is, it sometimes gets compared to XRP to the point of confusion between the two. However, these are completely different assets with different designs and goals.
What is the Stellar blockchain network?
Stellar is designed as a currency-agnostic system for quick and borderless payment settlement. It is open-source, decentralized, and as the developers put it, “cryptocurrency-adjacent”.
Stellar connects network participants worldwide in a borderless way by issuing a tokenized representation of an asset on the chain. For example, if we were to send 100 dollars to another country through the Stellar network, we would issue 100-dollar tokens on the chain first. The tokenized asset is redeemable in a 1:1 ratio anywhere in the world.
In other words, by receiving 100 dollar tokens on Stellar our recipient can redeem them for the 100 dollars we meant to send them. This is not just an abstract example but the way AnchorUSD works. The Stellar network can have similar applications for different use cases, too.
How does Stellar chain work?
The distributed ledger technology behind Stellar is called the Stellar Consensus Protocol. Thanks to the principle of flexible trust, there is no need for a curated list of approved validators.
Instead, the network relies on quorum slices, where the majority of network participants trust the highest-tiered validators. This mechanism is called Proof-of-Agreement (PoA). To join a PoA network, you as a validator must choose at least one trusted validator, which is called slice. The quorums are then formed from sets that include all nominated slices. The quorum can only progress on the condition that all its members agree.
Relying on consensus within sets of network participants instead of the entire network speeds the process up. The implication is that each quorum is formed with validators that share common interests and therefore solve problems that concern this set without involving others.
Although PoA requires you to choose a trusted party, it actually makes the distributed network more trustless. Decision-making in a validator set cannot be compromised unless the members choose to trust the attacker.
How the Stellar blockchain development started
Stellar was envisioned after Ripple faced criticism for its lack of true decentralization: from a list of approved validators to a huge share of the existing supply in the founders’ hands. One of the co-founders of Ripple and founder of the Mt.Gox exchange, Jed McCaleb, left the team behind Ripple in 2013 and the following year, launched the new currency with Joyce Kim. Just like that, Stellar’s history began in July 2014.
In the early stages, Stellar received $3 million seed capital from Stripe, another prominent payment tech giant, and was backed by other known personalities like Keith Rabois, co-founder of PayPal, Patrick Collison (Stripe CEO), Sam Altman, YCombinator president, Naval Ravikant, AngelList co-founder and CEO and Matt Mullenweg, founder of WordPress.
The Stellar network is supported by the non-profit organization Stellar Development Foundation (the SDF for short), established in 2014 as well. By April 2015, the concept of Stellar Consensus Protocol was described in the whitepaper, and the new codebase was deployed in November 2015.
What is Stellar (XLM) Coin?
Stellar lumen with the ticker symbol XLM is a native token in the Stellar network. It was introduced to prevent spamming attacks. A small amount of lumens is required to own an address in the system.
XLM was picked to impose equal rules on all the Stellar network users, regardless of their preferred currency for payments or the country where they are based.
Is XLM Mining Possible?
Before you can ask how to mine Stellar, you should know that Stellar does not use the Proof-of-Work algorithm so it cannot be mined. Lumens were pre-mined at launch, so when the network went live, an initial supply of 100 billion XLM was created.
However, this was not the total supply, as an annual inflation rate of 1% was also coded in. In 2019, a community decided to first, end the inflation mechanism and next, reduce the existing supply of XLM by half with no more to be created.
Stellar Staking
On the other hand, Stellar is not a Proof-of-Stake coin either. Therefore, XLM staking does not exist on the protocol level.
How to stake XLM, then? However, you can earn passive income through lending XLM or putting it in a liquidity pool. All methods that let you earn passive income with XLM are custodial, meaning you will have to give up ownership. In return, the providers give you interest-bearing assets pegged to XLM, akin to liquid staking.
What is Stellar lumens Used For?
Transaction fees, as is very common with such networks, are paid in the lumens coin. Besides, XLM acts as an intermediary when trading illiquid assets on the network’s DEX.
XLM vs. XRP — Differences and Comparison
Though Stellar appears to be a direct Ripple (XRP) competitor, not only has it diverged in code from the latter significantly, but even the philosophies and purposes of these two networks are different.
Ripple is more focused on institutional partnerships and its main use case is international remittances. The Stellar network is more about the individual participants of the financial system. This is why they can boast such features as inclusive network participation and clear participation guidelines for anchors.
The consensus protocols in Ripple and Stellar networks are also different. In terms of settlement speed and transactions per second, XLM and XRP are on par with each other. However, even though both networks charge a fixed 0.00001 fee on each transaction, in dollar terms the XLM transactions are cheaper than in XRP.
Last but not least, both XLM and XRP are ISO coins or in other words, digital assets that adhere to the ISO 20022 standard. This standard developed by SWIFT aims to streamline data compliance and communication between financial institutions. Compatibility with the ISO 20022 standard potentially paves the way for XRP and Stellar CBDC technologies.
Key XLM Partnerships
To bring the vision of a borderless payment system into reality, Stellar relies on so-called anchors: entities that act as bridges between diverse payment systems and the Stellar network. Typically, anchors include exchanges, asset managers (Franklin Templeton), remittance operators (Moneygram) on- and off-ramps (Moonpay, Transak), and even banks (GMO).
As is expected with a mission like Stellar’s, their success relies on the partnerships they secure. Among the largest corporations that use Stellar’s platform are IBM and Deloitte. Their money transfer solutions are used by such providers as Tempo in France, Remitr in the Americas, SatoshiPay in Europe, SureRemit in Africa, among others.
Other noteworthy partners in the XLM partnerships list are Abra, Elliptic, and Samsung via the Keystore integration. The variety of the markets they cover and the products they use should be a step in the direction of a much broader degree of adoption.
Which Stellar wallet to use?
The official website recommends the following XLM wallets, from most to least secure but more accessible:
- For cold storage, Ledger and Trezor hardware wallets provide top-class asset security;
- The closest thing to the official Stellar (XLM) wallet is Lobstr, developed by the SDF;
- For Web storage, they recommend Coinbase wallet. This Stellar Lumens wallet is different from the exchange account as the private keys are stored in the browser’s cache. Obviously, while being the most lightweight solution, it is also the least secure.
In addition to Trezor, the ChangeHero team can recommend Exodus Wallet for desktop or mobile storage and access to blockchains or CoolWallet S for hardware storage with mobile access. With these wallets, you can not just store Stellar lumens but exchange them as easily as on our website with the help of ChangeHero’s API integration.
How to get XLM Coin?
You can buy Stellar coins on various crypto exchanges, including Binance and Coinbase. To buy an XLM coin, you’ll need to create an account on one of these exchanges and deposit funds.
If you want to avoid the hassle and expose too much personal information, buy or sell Stellar today with crypto on ChangeHero:
- Choose the currencies on the home page, amounts, and the type of exchange. Provide your BONK wallet address in the next step and check the details;
- Double-check the provided information, and read and accept the Terms of Use and Privacy Policy;
- Send the cryptocurrency for the swap in a single transaction. In Fixed Rate transaction you have 15 minutes before it expires;
- Sit back and relax. At this step we are doing all the work: checking the incoming transaction and doing the exchange as soon as it arrives;
- As soon as the exchange has been processed, your XLM is on its way to your wallet. And so, the transaction is finished!
If you ever encounter any issues during your swap, our support specialists are always available to help you in chat or via email: [email protected].
Haven’t got any crypto yet? We have you covered: buy any crypto with a bank card, ApplePay, or GPay from our partners and swap it for XLM on ChangeHero.
Conclusion
Although described as crypto-adjacent, lumens are believed to be a promising digital asset. With the work the SDF puts in, the day when an XLM CBDC project sees the light may not be as far into the future.
If you found our beginner’s guide useful, check out the ChangeHero blog for more. Follow ChangeHero on X, Facebook, and Telegram for daily updates and more content.
Frequently Asked Questions
What is the price prediction for the Stellar lumen?
Bearish Stellar price prediction forecasts a continued downtrend which will result in lower XLM prices. However, some bullish XLM price forecasts go as far as to claim that Stellar lumens can approach $30 a piece this decade. Read more about them in our Stellar (XLM) Price Prediction!
Which is better: XRP or XLM?
The XLM vs XRP debate depends on the approach and priorities because Ripple and Stellar pursue different goals. Ripple builds a financial product while Stellar aims for tokenization and frictionless borderless payment systems for both for-profit and non-profit causes.
Who owns the most XLM?
The largest XLM holder is the Stellar Development Foundation: according to the Stellar Network Dashboard today, there are 19,731,767,748.1344948 locked lumens.
Are banks using XLM?
The XLM blockchain-based products are used by banks such as GMO and Bankhaus von der Heydt.
What is Stellar crypto used for?
The primary XLM use case is providing liquidity for assets sent via the Stellar chain, as well as preventing spam and non-financial transfers.
Is Stellar the same as XRP?
There are more differences than similarities in what is XRP and XLM. Stellar uses a standalone network and cryptocurrency, which are not connected to the XRP Ledger.
What does Stellar Company do?
The core team behind Stellar is a non-profit organization Stellar Development Foundation (SDF), presided by the XLM founder Jed McCaleb and co-founder David Mazières.
Is XLM a security?
Stellar (XLM) is alleged to be an unregistered security in the SEC vs. Coinbase case. However, the official definition of lumens is a utility token.
What does XLM do?
XLM (lumens) provides liquidity for asset transfer in the Stellar network while introducing friction in transaction fees to prevent spam.
What is XLM backed by?
Like most cryptocurrencies, XLM is not backed by gold or other real-world valuables. The lumens value is a result of market dynamics between supply and demand for the Stellar blockchain platform.
What network is XLM built on?
XLM is the native asset of the Stellar network.
Is XLM owned by Ripple?
To clarify, XLM/XRP are not the same asset, although they are often confused due to similarities in use cases. XLM is a digital asset in the Stellar network, maintained but not owned by the Stellar Development Foundation.
Does XLM have a limited supply?
Yes, there will be no more than the total supply of 50 billion XLM. You can always check how many Stellar lumens there are in circulation in the Stellar Network Dashboard.
Can you stake XLM?
Stellar does not use the Proof-of-Stake algorithm, so Stellar lumens staking does not exist. However, XLM can be used in decentralized finance (DeFi) for passive income.
Where to stake XLM?
Technically, you can’t stake Stellar but centralized providers such as Binance and Nexo offer lending opportunities. In return for letting the provider manage your assets, you will receive 2–10% APY in XLM.
Disclaimer
This article is not financial or investment advice. When dealing with cryptocurrencies, remember that they are extremely volatile and thus, a high-risk investment. Always make sure to stay informed and be aware of those risks. Consider investing in cryptocurrencies only after careful consideration and analysis of your own research and at your own risk.
