What are Stellar Lumens and How They Work?

Stellar Lumens, XLM is the cryptocurrency (digital currency) of the stellar network. It is an open-source code for currency exchange founded in early 2014 by Jed McCaleb and Joyce Kim. Lumens are the primary asset of the Stellar network. The primary means Lumens are congregated in the Stellar network. The purpose of the Stellar network is to unite people, payment systems and banks. In the world of cryptocurrency, Bitcoin is the cryptocurrency of the Bitcoin network. Just like Bitcoin, Stellar is the network and Lumen is the cryptocurrency of the stellar network. It is a distributed payment framework.

The distributed payment framework means they use the internet to interact and connect with other stellar servers which allow a swift, simple and trustworthy global money exchange. According to Coinlib, the current market cap of Stellar is $4.21 B.The XLM is just a shorthand similar to BTC of Bitcoin. One lumen (XLM) is a unit of digital currency, like a bitcoin. Let’s take a look at some of the features of Stellar Lumens.

What are the features of Stellar Lumens? 

How does money move on Stellar?

Let’s take a look at an example:

Mr Jeff is a customer of ABC remittance, a US based company. Mr Jeff often sends payments to Mr. John in Nigeria. Mr. John is a customer of local bank in Nigeria. Now, here comes the role of Stellar platform. As mentioned earlier, Stellar is an open platform that unites the banks, payment systems, and people. The ABC remittance and the local Nigeria bank have integrated with Stellar so they can transfer money instantly. When Mr. Jeff transfers $200 through his payment company’s mobile application then within a fraction of second it transfers a message to regional Nigeria bank to make sure Mr. John’s account is compliant. After this, ABC payment company which is an anchor on the stellar network meaning that it could receive deposits and distribute credits on the stellar network deducts the funds from Mr. Jeff’s personal account.

Those funds are transferred to ABC’s pool account and then transferred to stellar by assigning credits for Mr. Jeff’s dollars on the network. Once, ABC’s credits are inside the stellar network then it explores for the best exchange rates amongst all the market makers. Now, the exchange is concluded and now the Nigerian Mr. John went to the local bank’s base account. The local bank accepts these digital credits for Mr. John from the stellar network. A local bank credits Mr. John’s personal account that is how 1 US dollar converts to any of 180 currencies on stellar. It moves in five seconds or less and cost a fraction of a cent.

Use Cases

Technology

  Decentralized

Decentralized

The above figure shows that Stellar network is a decentralized network. It means that the Stellar network does not depend on any particular server. The intent is to have as many servers as possible in the network so that the network will still work strongly even if some servers don’t work accurately or fail.

Ledger

Ledger

As shown in the figure above, the Stellar ledger records a list of all the transactions of each and every single account on the network. The complete global data of Stellar ledger is stored on every server that manages the Stellar software.

Consensus

Consensus

As shown in the above figure, the Stellar servers interact with each other to validate that activities are precise and accurate and get completed to the global ledger. The Consensus algorithm is accountable for the actual financial transaction.

Anchors

Anchors

As shown in the above figure, Anchors achieve two things. They take users’ deposit and transfer the credit to their account address on the Stellar. After that, users can withdrawal by utilizing credit.

Distributed Exchange

Distributed Exchange

As shown in the above figure, the stellar network enables users to not only purchase and trade currencies just like a foreign exchange but it also transforms currencies placidly during transactions.

Multi-currency transactions

Multi-currency transactions

As shown in the above figure, Stellar permits users to transfer any different currency they have to anyone else in a different currency through the built-in shared value exchange.

What makes Stellar special?

Well, Stellar also runs a network with the blockchain technology just like Bitcoin. But unlike Bitcoin, Stellar’s deeds are finished in just 2 to 5 seconds and permits users to instantly exchange currencies of 180 countries, such as turning U.S. dollars into euros and many more. The Stellar network implements all of the innovative characteristics of a shared public ledger on a distributed database perceived as blockchain technology and because of this, lumens operate as an anti-spam agent.

The great thing about this is that it stops hackers from flooding the network often called a DoS attack. In short, lumens serve as a security guard which blocks Dos attacks which are liable for eating a large amount of space in the ledger. A ledger depicts the state of the Stellar network at runtime. It includes the list of all the accounts and balances, all the orders in the distributed exchange, and any other data that it carries. One more astonishing thing about Stellar network technology is that it is essential for all Stellar accounts to hold a minimum balance of 20 lumens. This rule guarantees that all the accounts on the network are genuine, strait-laced and the network can manage a stable and safe flow of transactions. The Stellar network is also acquiescent with regulations and the network is a sound network.

What makes the Stellar Lumens network different from Bitcoin and other cryptocurrencies networks?

Well, the answer is Stellar network’s algorithm. Following are some points which explain the difference:

In short, other cryptocurrencies were designed to be a new currency, not to be a unique universal payment network while Stellar Lumens is designed such that it will be used in every transaction.

Disclaimer: This information should not be interpreted as an endorsement of any cryptocurrency. It is not a recommendation to trade. The crypto market is full of surprises and overhyped assets. Do your research before buying anything. Do not invest more than you can afford to lose.

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