What is Stellar Lumens (XLM): The New Financial System for the world

Stellar Lumens describes itself as the world’s new financial system that is to replace traditional payment service providers in the future. In addition, banks in particular are processing transactions worldwide, but have a significant disadvantage over cryptocurrencies in terms of speed and fees charged.

A transaction that is sent with Stellar arrives at the recipient within seconds and all this is almost free of charge. Why the whole world does not yet use Stellar as a replacement for classic Fiat currencies like Euro or US Dollar and what exactly is behind the project, we introduce in the following.

You can find the current Stellar Lumens  price if you click on this link. You can find an overview of the course development of other coins here. If you want to know how to buy Stellar Lumens, click on this 5-minute guide to buy XLM.

What is Stellar Lumens anyway?

In contrast to Ripple, Stellar is a non-profit organization that is not backed by a million-dollar company, but by an open source approach and a sense of financial freedom. Through international partnerships Stellar wants to give people access to financial means, who had no possibility to open a bank account or to send money to their relatives due to high costs.

Stellar Lumens was created in 2014 as Hard Fork by Ripple/ XRP. Stellar pursues a similar goal as Ripple, but the banks are not the main focus. The Stellar team is a colorful mix of experts from the financial, media, and computer industries dedicated to connecting people, businesses, and institutions from around the world, rich and poor alike. The motto is “Provide financial services to the unbanked.”

Stellar Lumens made a landmark deal with tech giant IBM last year (October 2017). The common goal is to revolutionize cross-border payment traffic with the help of the blockchain. Other prominent members of this cooperation are National Australia Bank, TD Bank and Klickex.

The Stellar Development Foundation (SDF) criticized already at the end of 2014 / beginning of 2015 that within the Ripple network the performance is correct, but there are gross gaps in the security area. For this reason, the SDF worked hard to create its own better protocol. The “Stellar Consensus Protocol” was introduced in 2015 and since then has been regarded as the technical basis on which all further development steps are based.

The previously valid payment unit “Stellar” has also been renamed and now carries the name “Lumens” and is traded on relevant exchanges under the abbreviation XLM.

XLM – the native asset and life exile of the blockchain

Lumens are the native asset of the platform and transport a corresponding value from sender to receiver using the blockhain. Lumens are the central virtual payment unit, similar to Bitcoin or Ether. The big advantage of the Stellar Blockchain is the outstanding speed and the incredibly low cost.

Normally, it only takes a few seconds for a transaction to arrive at its destination. According to Stellar’s own statements, 100,000 transactions on the Stellar chain do not even cost one Penny. This is made possible by the newly developed Stellar Protocol mentioned above.

The Stellar Consensus Protocol was developed by David Mazières, professor of computer science at Stanford University. This protocol operates within the peer-to-peer system of the Stellar ecosystem and ensures a smooth operation and maximum safety.

All nodes of the network communicate with each other and verify all transactions within a very short period of time (every 2-5 seconds) to reach consensus with trusted peers. Each participating actor of the network could theoretically set up and run its own server. However, this does not mean that all peers within the network automatically trust each other blindly. The continuous verification ensures that only trustworthy peers participate in the network.

Stellar Lumens on the road to success: cooperations and partnerships

IBM is one of the first partners of Stellar Lumens. In order to achieve global networking in the payment services sector, Stellar was able to convince other Golliaths in the industry of the benefits of its in-house technology.

This also includes Tempo, an international remittance service that operates in over 100 countries and has installed over 100,000 vending machines worldwide. Stellar Lumens was preferred to Ripple after careful consideration, as open systems such as Stellar offer significantly more customization options than Ripple.

To connect the two systems of Tempo and Stellar the decentralized Exchange of Stellar Lumens (DEX) is used. By using it, Tempo aims to establish a high-performance and reliable infrastructure in a timely manner that is ready for all conceivable payment solutions at the institutional level.

TransferTo is a mobile payment network and airtime hub for well-known companies such as Western Union, 7 Eleven or Paypal. In July 2018 TransferTo and the Stellar Foundation have entered a cooperation to use the advantages of the Stellar Blockchain for the remittance service.

TransferTo has also recognized the chances and potentials of the blockchain and will use them for its own company without digressing too much into details. The resulting synergy effects between TransferTo and Stellar should have a positive influence on the success of the company.

The probably newest and most important news for the project of Stellar comes again from IBM. At the beginning of September 2018, IBM announced the creation of the World Wire payment service. This service is based on the Stellar protocol and is intended to revolutionise payment transactions worldwide.

The exciting thing is that IBM claims to work with 97% of the world’s largest banks. Furthermore, 90% of all credit card transactions are to be processed via IBM software. Although these numbers are not verifiable for us, this could be an absolute gamechanger for Stellar Lumens as well as the crypto market in the long run.

The system should not know any capacity limits and enable communication or exchange between every asset in the world. The possible practical applications range from banks and FinTech companies to other digital currencies.

As the development of the company is in its infancy, it remains to be seen how realistic the presented facts and figures actually are. If this can actually be implemented, Stellar Lumens has a great future ahead.

Further goals of the roadmap

Stellar Lumens announced at the beginning of 2018 that it would integrate Lightning into her network. Although Stellar-Lumen’s scalability is not under as much pressure as Bitcoin’s due to rising costs and slow transaction times, the foundation wants to implement this upgrade in its network.

With the help of Lightning it will be possible to process thousands of transactions per second at extremely low cost. The lighting network is not bound to a specific coin, but can be used for Bitcoin, Litecoin as well as Stellar. The system is based on a new technology called “Payment Channels”.

Within the network, new payment channels outside the main chain are opened and transactions are collected. This has the advantage that transactions can be collected and do not have to be confirmed immediately by the miners. The participants of the ecosystem can decide for themselves how long the payment channel should remain open and thus not burden the public blockchain.

Bottom line: Is XLM worth an investment?

The founders of various crypto currencies have set themselves this enormous goal. Stellar Lumens is officially monitoring the fight against poverty and the related link between all actors involved in the financial process. Nevertheless, it is important at this point to provide the appropriate infrastructure to deal with this global problem.

Stellar Lumens is well on the way to significantly changing our future and the project has great potential. The development of the World Wire payment system could have a significant influence on Stellar’s course in the future, perhaps even on the crypto market. Whether this ambitious project can really be realized in practice remains to be seen.

The price is currently at a very low level, so that potential investors now have a good time to enter the crypto currency at a favourable price.

Last updated: 01/07/2019

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About Author

Jake Simmons has been a crypto enthusiast since 2016, and since hearing about Bitcoin and blockchain technology, he's been involved with the subject every day. Beyond cryptocurrencies, Jake studied computer science and worked for 2 years for a startup in the blockchain sector. At CNF he is responsible for technical issues. His goal is to make the world aware of cryptocurrencies in a simple and understandable way.

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