Cryptocurrency

Stellar Lumens: A Guide For Starters

Amelia Tomasicchio - May 14, 2017

Stellar Lumens is a cryptocurrency created by a team of developers in 2014. Co-founded by Mt Gox and Ripple’s Jed McCaleb, Stellar Lumens is an open-source network that allows payments between financial institutions. It will also enable “seamless exchange between currencies, and let anyone build low-cost financial services.” Stellar will allow banks to connect to remittance companies and payment platforms like M-Pesa, increasing the reach and scale financial institutions can have, explained McCaleb in a recent press release.

How Does Stellar Lumens Work?

Stellar allows payments that are originally denominated in fiat currency, but it also has its own native digital currency called LumensXLM. Developers chose this name to distinguish it from the Stellar network itself. Lumens serve as “security tokens” against DDoS attacks because the Stellar network requires users to spend a small amount of Lumens – 0.00001 XLM – in order to transfer fiat currencies. This way, Lumens act as bridges with the goal of facilitating trades for currency pairs for which markets are smaller or less liquid.

Other Stellar Lumens Requirements and Characteristics

Also, the Stellar chain requires all users to hold a minimum of 20 Lumens in every single account to ensure that they are authentic and to maintain a seamless flow of transactions. The Stellar Lumens Consensus Protocol – SCP – provides a system to reach consensus without relying on a closed system that records Lumens transactions. Therefore, Stellar Lumens doesn’t rely on Proof of Work (PoW) nor Proof of Stake (PoS) to secure its blockchain. Instead the network relies on a Byzantine agreement system. To complete the system, the developers of the network made Lumens into an inflationary currency with a fixed increase rate of 1% per year.

Stellar Lumens SCP System
Here is how the SCP system that the Stellar Lumens network is based on. Although Lumens are inspired in bitcoin, the Stellar blockchain works differently. Source: Stellar blog.

This effectively allows SCP to provide some advantages that are not available on PoW or PoS blockchain networks:

  • Decentralized control.
  • Low latency.
  • Flexible trust.
  • Asymptotic security.

Federated Byzantine Agreement or FBA

This results in a system known as a Federated Byzantine Agreement or FBA. This arrangement provides the specific quorums, or groups of nodes required to reach agreement and make the consensus within the system, a distributed consensus. Each node has the right to decide which others to trust, so they don’t need to rely on the same trusted participants to reach consensus.

Stellar Lumens Value and Price

At press time, The price of Lumens is $0.037729 USD according to Coinmarketcap, with a 24h volume of $24,846,200. On May 4th, the price rose about 45%, and on May 8th Lumens cracked the top 10 digital currency ranking, on an incredible gain of 131.08%. The reason for the timing of this growth rate is unknown. It might be because all the other cryptocurrencies were also going up, so speculators might have decided to diversify their investments, investing in this cryptocurrency. This certainly put the Stellar Lumens network on the map, and it seems to be a good choice for cryptocurrency enthusiasts who are looking for an inflationary, trustless currency, which can escape the known deficiencies of the PoW and PoS systems.

Click here to read more about Stellar Lumens.

Comments

  1. Johnathon Bozeman says:

    Usually a consensus protocol pays out currency to investors either through mining or staking, has anyone found out how to take part in this with stellar lumens?

  2. Artiom Lukianov says:

    And this new “Consensus Protocol” raises new questions, if all nodes of this network is manipulated by Stellar company (same as XRP nodes by Ripple) is XLM is real cryptocurrency or just tokens controlled by one big holder which is Stellar. For now all this price surge of XRP and XLM is just hype train, people that actually invest their money in this two companies for long term is in danger.

  3. Lynx says:

    Thanks for that. It seems XRP is for making large interbank transfers cheaper, faster and more secure, while STR is more for facilitating cheap average-Joe transfers by cutting the banks out of the equation, thereby benefiting actual users, ie. migrant workers and their families. While XRP could be used to do the same, with profit-driven banks in control, it’s highly unlikely they will pass along the savings in their entirety to their customers, whereas STR, being unimpeded by the stockholder / profit noose, can do just that. Does that sound right?

  4. Lynx says:

    How is this crypto different from Ripple? Are they just as bank-orientated as Ripple is?

    • Steven Gleiser says:

      Many in the community feel that Stellar Lumens is just like Ripple. Nevertheless, this network was established by a private group of citizens and not by banks. founders have stated that their goal is wider financial inclusion for people who don’t have access to banking around the world. Ripple was not established with those goals in mind, but we will leave it up to you to decide. Thanks for your comment!

    • Steven says:

      The goals of both coins are different. Stellar is a non-profit aiming to connect people to low cost financial services in order to fight poverty. Ripple was launched to enable direct bank to bank transfers.

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