Stellar Lumens was launched in 2014 as a decentralized open-source protocol based on blockchain technology. Stellar represents the network for blockchain-based transactions and is a part of the non-profit organization Stellar Development Foundation. The Stellar network uses a native cryptocurrency called Lumens, traded under ticker XLM, to enable cross-border transactions between any currency pair. Stellar Lumens users can trade, send and create all digital forms of money, which includes any currency in the world.
What is Stellar?
The Stellar in Stellar Lumens represent the technology behind the project and is a blockchain-based open-source protocol created as a payment platform. Stellar enables cross-border payments, focusing on connecting financial institutions with the ultimate goal of reducing the cost of such transactions. Stellar shares many similarities with another blockchain-based crypto project – Ripple. However, Stellar is an open-source system. Stellar forked in 2015, which is how the dev team created the Stellar Consensus Protocol (SCP). The goal of the project is to transform finances through the digitization of currencies. Stellar works on the same principle on which the majority of decentralized networks are based. The network consists of decentralized servers with distributed ledger technology.
Stellar’s DLT is running updated and verified ledgers among all nodes on the network between every two to five seconds. The Stellar network doesn’t rely on miners for verifying and validating transactions, nor protecting the network. While mining is specific for Proof-of-Work protocol-based networks, Stellar runs on the Federated Byzantine Agreement (FBA) algorithm. The FBA algorithm uses portions of the network, known as quorum slices, to approve and validate transactions on the ledger. That way, faster processing is enabled for all transactions. The algorithm shortens the process of verification for transactions on the network, which is how Stellar can process up to 1,000 transactions on the ledger. Each node establishes communication with trusted nodes on the network. In this process, all nodes in the set need to approve a transaction to be validated.
What is Lumens?
Lumens (XLM) is an integral part of the Stellar network. Lumens powers the network and represents the native cryptocurrency for the Stellar distributed ledger. All network users need to have at least 1 Lumen (XLM) to be able to gain access to the network. The purpose of the currency is to denominate the requirements of the network. XLM is also used to cover low transaction fees on the Stellar network. With the official launch of Stellar Lumens (XLM), the team of developers created 100 billion Lumens in the total supply of the crypto.
By 2019, the system had an inflation mechanism. Later in 2019, the dev team terminated the inflation mechanism, reducing the total supply of Lumens to 50 billion. Before the development of the mechanism, the total supply of Lumens increased by 1% on an annual basis. With the new mechanism, no new Lumen units are created in the validation process. Thirty billion Lumens out of the total supply is in ownership of the Stellar Development Foundation and should be distributed to the public in the next few years.
Stellar Lumens and Cross-border Payments
The Stellar Lumens cross-border payment system is created to reduce delays and fees noted in the traditional way of sending and receiving payments. The network doesn’t favor any global currency, which is why Stellar uses its own cryptocurrency as a medium for transactions between two parties. The system reduces the level of complexity when compared to traditional financial systems where banks need to maintain reconciliation and conversion of accounts.
Lumens is streamlining the process of validation and transaction of monetary value, all while facilitating liquidity. The network has modest requirements thanks to the use of the Federated Byzantine Agreement. That way, payment is streamlined and validated in two to five seconds simultaneously with 1,000 operations on the network. Finally, thanks to the modest computational requirements, anyone can join, use the network and take advantage of fast processing and micro fees.