Hello Crypto nation.
I’m Kris with Exodus and we’re going to take a look at one of the most well-known
and oldest cryptocurrencies out there: XLM Stellar Lumens.
Now, although all these terms are usually interchangeable, they actually refer to different
things.
Stellar is the network, Lumens are the blockchain’s native tokens and XLM is their market abbreviation,
the so-called ticker.
Stellar’s goal is to bridge the gap between cryptocurrencies and fiat currencies, by using
the best of the two worlds: Fiat’s wide adoption and the blockchain’s decentralization
and speed of transactions.
Unlike other projects, it doesn’t look to replace fiat currencies, but instead to bring
them into the new era of borderless, nearly instant and virtually feeless transactions.
So how does it do that?
Hang with me for a few minutes as we answer the question: What is Stellar XLM?
Stellar is an open-source network for currencies and payments.
It was co-founded in 2014 by Jed McCaleb, who previously founded Ripple, and , and the
network was launched in 2015.
That’s even before Ethereum!
Stellar allows its users to send dollars, euros, pesos, yens, and potentially any other
currency to anyone with a Stellar address, anywhere in the world, with practically zero
fees and in just a few seconds.
And even though there are platforms nowadays that offer such transactions in the traditional
financial system, Stellar does it blockchain-style: Decentralized and uncensored.
So, how do they do that?
How do they bring fiat currencies onto the blockchain?
The answer: By tokenization.
If a Stellar user wants to send dollars to another user they don’t send actual dollars
but “dollar tokens”.
These are tokens that live on the Stellar blockchain, have the same price as the dollar
and are backed 1:1 by actual dollars in a bank account dedicated to this purpose.
So when a user wants to “cash out” to actual fiat dollars there’s always the necessary
reserve to get their money.
If you're thinking "Kris, that sounds a lot like stablecoins, such as Tether, or DAI, and USDC", well, it’s
because it sort of does.
In fact, Stellar boasts they invented stablecoins before it was even a word.
But there are some key differences.
Because Stellar was built with this exact purpose in mind, it takes the concept to a
whole new level.
The network doesn’t privilege any particular currency but instead can be used to tokenize
any currency in the world.
So, on the Stellar network you can have dollar tokens, euro tokens, yen tokens, and the list
can go on and on.
The tokenization process is integrated right into the network protocol and fully documented,
making it extremely easy for any fintech company to issue fiat backed tokens.
In fact, anything can be tokenized in the same manner, not just currencies: gold, silver,
shares, corn bushels, or your hour as a consultant.
Stellar achieves that through third-party companies, called Anchors.
These companies take on the responsibility of bridging the gap between Stellar and blockchain
and the traditional financial system, either by issuing tokens or working as fiat on/off
ramps, or both.
And in exchange for these services, they usually charge some sort of fee.
The Stellar Development Foundation, which is the non-profit organization founded in 2014 by Jed McCaleb
that works for the advancement and development of the network, sets some standards that all
Anchors should meet.
These include always having a reserve that matches the issued tokens in a dedicated,
audited bank account, complying with local regulations, applying KYC and AML policies
when on-ramping or off-ramping users, and using local bank transfers and not wire transfers.
For these reasons, Anchors are usually local businesses that issue a particular currency
and serve customers in their specific country or region.
That’s not all Stellar has to offer.
Users can exchange any token they hold for any other token on the Stellar network, peer-to-peer.
Because Stellar has a Decentralized Exchange, or DEX, built right in the network, with its
order book and everything.
All trades are atomic, meaning either both sides of the trade complete simultaneously
or none does.
What’s more, let’s say you have a business in the US and you want to pay a vendor in
Mexico, but they want to be paid in pesos.
You can send your tokenized dollars to them and they will be converted on-the-fly, using
the best conversion rate, to their respective pesos tokens.
Which then the vendor can use to pay their suppliers or cash them out for fiat pesos,
without having to convert them first.
Borderless transactions in your local currency at their best!
So, what about Stellar XLM or Lumens- the tokens?
Lumens are needed to pay the fees for transacting on the stellar network.
The minimum fee is 0.00001 XLM; practically zero, making Stellar Lumen ideal for micropayments.
And with transactions that are finalized in 5 seconds,
Stellar does feel like cash.
Now, Stellar Lumens aren’t mined or produced.
Instead, 100 billion Stellar Lumens were created upon network launch, with a 1% yearly inflation rate.
But in October 2019 the inflation was removed and the total supply of XLM was reduced to
a little over 50 billion, and no more Lumens will ever be added to this number.
About 20 billion of them are in circulation at this time and the rest are held by the Stellar Foundation to develop and promote Stellar
This large supply is probably what’s keeping the price of XLM at relatively low levels,
but that doesn’t prevent Stellar Lumen from holding the 15th position in market cap, at
the time of recording.
/////////And although XLM saw a steady decrease in price since its all-time high of 86 cents
during the December 2017 bull run, Stellar Lumens 2020 price has seen an increase of
more than 100%, from about 4 cents at the start of the year to around 10 cents today!
Do you think the rise will continue and can XLM attain its all-time high prices again?
Or even surpass them, now that the supply has been halved?
Let us know in the comments.
If you’re bullish for XLM, but don’t have any, or want to buy more, look no further.
Buying XLM with other cryptocurrencies is the easiest thing to do with Exodus’ one-click
exchange.
Exodus is a cryptocurrency wallet for your computer or mobile device.
Home to more than 100 cryptocurrency wallets and other crypto apps, with Exodus you can
safely store, send, receive and exchange your crypto assets, including Stellar.
So, go ahead and click the link above to download Exodus today!
Now, if you’re wondering what kind of consensus algorithm Stellar uses, it’s none of the
usual suspects, like Proof-of-Work or Proof-of-Stake.
Jed McCaleb and the Stellar team believed that both mechanisms weren’t cheap, decentralized,
fast, and secure, all at the same time, which is why McCaleb had based Ripple on a Byzantine
consensus mechanism and why it was the original protocol of Stellar.
With Byzantine Consensus or Agreement, the nodes on a network can reach consensus on
a value, in our case a block, even if there exists among them a small number of unresponsive,
or even malicious, nodes.
However, the Byzantine Agreement relies on a list of participants set and controlled
by a single entity, which is how Ripple works.
That didn’t work for the Stellar team, so they came up with a variation of the typical
Byzantine agreement, called “Federated Byzantine Agreement”, or FBA.
In a nutshell, FBA has the advantages of a Byzantine Agreement, but additionally, it
doesn’t need to rely on a predetermined list of trusted nodes, which is hard to alter
and leads to centralization.
Instead, it allows for additional nodes to be added to the network without any assumption
on their trustworthiness, but also without compromising the security of the network.
If you’re interested in the nitty, gritty technical details you can read their whitepaper
by following the link in the description.
So, since Lumens aren’t mined or produced, there are no monetary rewards for running
a node.
There’s only the incentive of securing the network.
And if you’re thinking that’s too idealistic, it’s not.
The cost of running a node is very low, comparable to running an email server, so companies and
individuals who are invested in the success of Stellar have every reason to secure the
network.
Companies like IBM, SatoshiPay, Wirex, Keybase, and more, who have integrated Stellar in their
products or have built products on top of Stellar, are also running their own nodes
to validate transactions and make sure the blockchain is secure.
Well, crypto fam, that was our deep dive into Stellar.
What do you believe is its future as a payment network and bridge between the legacy financial
system and blockchains?
What’s your XLM price prediction?
Let us know your thoughts in the comments below.
And if you enjoyed this video, don’t forget to like it and subscribe to our channel for
more Exodus crypto videos!
Until next time…
Hodl on!