XLM is the native currency of the Stellar platform. The network aims to help financial institutions and individuals in the world make cross-border transactions with ease and low transaction costs by tapping into the distributed ledger technology.
The Stellar network was formed by Jed McCaleb, who is also the co-founder of Ripple, and Joyce Kim, a lawyer.
Banking The Unbanked Using Blockchain
Although the same person created both Stellar and Ripple, and each seemingly tries to solve the same problems in the financial sector, Stellar aims to connect ‘people to low-cost financial services to fight poverty and develop individual potential.’
On the other hand, Ripple aims at interfacing banks, payments providers digital asset exchanges and corporates and enabling them to perform global money transfer within minutes.
The Stellar blockchain is capable of confirming a transaction in less than 5 seconds.
The History Of Stellar
Stellar was founded in 2014 by McCaleb and Kim. Stellar Development Foundation (SDF), a non-profit organization was formed to run the platform. The platform immediately aligned itself with the payments sector using XLM as its native currency.
In the following year, the SDF upgraded the Stellar network and changed the name of its native asset from Stellar to Lumen. The name change was meant to reflect the change made on the network and to draw a clear line between Stellar, the non-profit organization developing the platform, and its native asset.
The SDF originally funded its operations from a 5 percent reserve of the 100 billion XLM coins. SDF could choose to auction part of the 5% or sell large amounts of the reserved XLM coins to private entities interested in a joint working relationship. Today, it holds its lumens in four mandate accounts, to be spent or distributed to develop and promote Stellar.
The network upgrade introduced a new consensus algorithm, Stellar Consensus Protocol (SCP) developed by David Mazieres, a professor at Stanford University, and the lead scientist at the Stellar Development Foundation.
SCP introduced an algorithm that enabled a decentralized control, asymptotic security, and flexible trust on the platform.
In 2017, a commercial department of stellar, Lightyear.io, was launched.
Importance Of the XLM Asset On The Stellar Network
First, the Stellar platform launched with 100 billion Lumens. Until 2019, there was also a one percent inflation rate every year, which added new XLM to the network each year. Validators voted to end inflation on October 28, 2019, and on November 4, 2019, the SDF burned about 55 billion XLM. The total supply is now about 50 billion XLM.
To be able to perform a transaction on the Stellar blockchain, you need to pay the transaction fees. These fees must be paid using lumens (XLM).
Although the fees are minimal, 0.00001 XLM, they prevent a Denial of Service (DoS) attack on the network. For the Stellar platform to retain an account, accounts need to maintain a minimum balance of 1 XLM (two base reserves of 0.5 XLM). According to Stellar Development Foundation, these minimums help eliminate abandoned accounts.
Focusing on the financial transactions, XLM enables trades between currency pairs.
This decision is a bit controversial and may lead to certain dilemmas, especially in case of a drastic price increase. Want to know what other people think of it? Check out Stellar reviews on Revain (now offline).
However, this functionality needs liquidity between the currency involved and XLM.
Stellar’s Future Plans
Stellar started investing in the future during its inception. For example, SDF occasionally dispenses free XLM coins to the public with the aim of getting more people involved with cryptocurrencies.
Such a move is connected to SDF’s commitment to bank the unbanked. With more people in disadvantaged areas, especially in Africa and Asia, having access to smartphones than banks, with XLM, they only need an internet connection to receive and make payments.
Stellar has already proved its viability given the high-level partnerships that it has inked in the past. This includes a collaboration with IBM, KlickEx, SureRemit, etc.
A project called Stellar Payband developed a virtual currency wristband that employs the Near Field Communication (NFC) technology and Stellar’s distributed ledger technology to make payments.
SDF later released Starlight, a payment channel protocol similar to a lightning network, as a prototype for testing, and the network now supports a Bump Sequence operation. In February 2024, validators also enabled Soroban smart contracts on Stellar’s mainnet.
Basil has three years of freelance experience writing on disruptive technologies. He focuses on breaking news and education pieces; helping to spread the gospel of Blockchain. He hopes to have his own blockchain company one day; helping the world through its innovative ledger technology.
