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Sep 17, 2021

Cryptocurrency Explained: Stellar Lumens (XLM)

Stellar is a decentralized protocol on open-source code to transfer digital currency to fiat money domestically and across borders. The Stellar blockchain's cryptocurrency is called the lumen, a token that trades under the symbol XLM.

Stellar Lumens (XLM) are a cryptocurrency created in 2014 by the Stellar Development Foundation (SDF), a non-profit organization. The Stellar Consensus Protocol (SCP) is a decentralized network that allows users to create, send, and trade digital currency representations. To improve the Stellar system's efficiency, the foundation created Stellar lumens as a barrier to entry.

It's crucial to do your homework before jumping into an investment, so this article will walk you through the history of Stellar lumens, what they're used for, and how to buy them.

In 2014, the SDF was established as the backbone of the Stellar open-source network. The foundation's goal was to make money more flexible so that people could participate in the global economy.

Where do the Stellar lumens come into play?

Lumens are built-in tokens in Stellar's system that are specifically designed to cause friction. Because Steller is an open-source network, the founders worried it would be too easy for bad actors to slow down the system with spam. Each transaction, therefore, will have a small fee associated with it to deter malicious attacks on the protocol.

Lumens are also an asset to simplify exchange. The main goal of the SCP being to ease inter-currency exchange, lumens add liquidity in a market where liquidity may not exist. For example, I hold BTC and want to exchange it for Nigerian Naira (NGN). There may not be another party that wants to make the exchange at the current price and I would be out of luck. With the lumen, I can use BTC to purchase XLM, then use the XLM to purchase (NGN). In reality, the SCP will perform this multi-step exchange automatically, so I can receive the NGN I want.

Stellar Lumens' Unique Features

Stellar lumens, like other cryptocurrencies, are a type of digital currency that allows money to flow more freely. However, in the case of Stellar, the currency isn't the main focus. Lumens were created instead to add a small barrier to entry to the Stellar network, preventing bad actors from slowing it down. The Stellar network is the real center of attention.

The way Stellar lumens and other cryptocurrencies enter the market is one of the most significant differences.

Bitcoin and other major cryptocurrencies are mined, and anyone with the right tools can do so. Many of these digital currencies have a limited supply, which can be mined until that limit is reached. Users are frequently rewarded for mining cryptocurrencies.

Stellar lumens, on the other hand, cannot be mined. Instead, when the network went live in 2014, the Stellar Development Foundation released 100 billion lumens. The foundation increased the supply by 1% per year for the next five years.

Users in the network hold 20 billion lumens as of July 2021, while the foundation keeps the other 30 billion to help develop and promote the network. Those lumens will eventually be available for purchase on the market.

Additionally, other cryptos like BTC, for example, are stores of value, like gold. Many people who have BTC are sitting on it, hoping for it to rise in value, or at least maintain its value. XLM is meant to be a means of exchange and be constantly moving. On the Stellar Network, it is distributed to teams developing on the network to create an active and thriving ecosystem. It is used to facilitate exchange between stablecoins as well as cryptocurrencies.

Where Can I Purchase Stellar Lumens?

The primary goal of purchasing Stellar lumens is to gain access to the Stellar network. These tokens are available for purchase on major cryptocurrency exchanges such as Coinbase, Kraken, Binance, and Bittrex. Lumens can also be purchased on StellarX or StellarTerm, built on the Stellar DEX, Stellar's native exchange.

Time Between Transactions

Before a transaction can be processed, many cryptocurrencies require a certain number of confirmations on their blockchain technology. Many currencies require dozens of confirmations, which can take anywhere from a few minutes to several hours. Stellar transactions are almost instantaneous, and some exchanges, like Coinbase, only require one confirmation.

Fees and Expenses

Each cryptocurrency exchange charges its own fees, and the amount you pay will depend on the exchange where you purchase your lumens. Networks, like the EVM for Ethereum, also charge fees to store transaction data on their blockchain. ETH is notorious for having extremely high fees. Conversely, the minimum fee for a Stellar Network transaction is typically 0.0001 (~0.00002 USD at the time of publishing).

To get started accepting Stellar Lumens (XLM), sign-up up today at COINQVEST.

stellar lumensstellar development foundationcoinqvest
Martin Dominic Banguis Contributor
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