What is Stellar?
Stellar is a new open-source digital platform that uses decentralized currency and financial trading systems to connect banks, payment networks and people. The program was started by Stellar Development Foundation (SDF) as a way of promoting international financial access, literacy and inclusion. Through Stellar, SDF hopes to provide an affordable fiscal system in which individuals of all income categories can have access to secure and cost effective financial services.
Unlike other digital currency networks, Stellar operates on a nonprofit infrastructure and is designed to securely, flawlessly and affordably support virtual transactions between different individuals and with multiple currencies. It also allows developers to create payment solutions that can be used in various types of applications. New currencies can be developed by application providers and exchanged for real world denominations at Stellar gateways.
How It Works:
Stellar operates as a network of decentralized servers that power a shared ledger which records transactions within the ecosystem. The ledger records your cash as credit that’s issued by special gateways. For instance, gateways can change dollar currencies to credits on the Stellar network.
Typically, credit is issued to your virtual account which functions as a digital wallet in exchange for the deposit. The account operators should be trusted to hold your cash and honor withdrawals. Moreover, Stellar holders are allowed to send credit to other individuals on the network through various currencies. The network will instantly exchange value credits at the lowest possible charge.
When making transactions, the servers communicate mutually with each other to validate exchanges and synchronize the ledger after every 2 to 5 seconds, a mechanism known as consensus. Through the payment network, people can easily send and exchange different gateway credits among each other. Something that allows for not only buying and selling currencies in a similar way as foreign exchange, but also conversion of currencies easily during transactions.
What are Lumens (XLM) tokens?
So, what is Stellar Lumens? Lumen is a native asset of Stellar, meaning it’s a value currency built into the network. Commonly abbreviated as XLM, it’s a unit of digital currency that helps to move cash around the globe and perform transactions between different currencies fast and securely.
Apart from being a value of exchange, Lumen also plays a significant anti-spam role within the payment network. Each transaction attracts a fee of 0.00001 lumens which helps to prevent malicious users from spamming the ecosystem. Essentially, Lumen operates as a security token by reducing DDoS attacks that seek to create a large amount of transactions or expend large quantities of storage space within the ledger.
Furthermore, Stellar requires that all accounts must maintain a basic balance of 0.5 lumens, which ensures that the accounts are authentic and also helps the networks to maintain a flawless flow of transactions.
Lumen also helps to streamline multi-currency transactions, it fosters trades between different currency pairs among which there isn’t any large direct market and also functions as a bridge. This role is made possible if there’s a liquid market existing between the lumen and the particular currency.
Lumens can be stored on the network through trusted providers and transactions managed via the Web, or wallet client apps that are readily available for Android, iOS and desktop which are Centaurus, Stellars and Stargazer respectively.
Use cases for Stellar:
Remittances – Send money anywhere in the world quicker, easier and for a fraction of a cent. This is not an exaggeration and when we say “cent”, we’re referring to $0.01.
Micropayments – Decrease the cost of smaller transfers. With most of the money transfer services available on the market, it’s not even feasible to make small money transfers because you might end up paying more on fees than the transferred amount. Great for IOT (Internet of Things).
Mobile Money Transfers – Stellar will allow mobile money platforms to be interoperable so customers and send to money to recipients with different providers.
Service the underbanked – Stellar cuts costs so you can bank new customers. Reach the base of the pyramid with low-cost accounts, loans, and microsavings.
Future impact on global money transfer
Lumens will help minimize inefficiencies among monetary institutions and consumers making international transactions. Once you upload cash you’ll have instant access to it, plus when you transfer money globally the process shall be simple and efficient.
In a practical way, it means you could send payment to a friend in Mexico using XLM and he/she can make withdrawals in pesos. Similarly, if you were going overseas for business or holiday it’s possible to use XLM to pay without going through the entire process of changing your local cash to a foreign denomination.
Recently, Stellar also announced a partnership with KickEx and IBM to create a blockchain-based international payments solution. It will help reduce transaction fees and increase operation speeds as well. The partnership shall also decrease cross-border transaction charges and lags in processing.
The definition of Stellar for people who don’t know anything about the crypto space:
Stellar is a non-profit virtual payment network that makes use of Lumens (XLM) as its inbuilt cryptocurrency. It was developed to make transactions much easier, quicker and affordable.