Stellar is a payment transfer protocol which facilitates cross-border payments for multiple currencies through the use of its own cryptocurrency known as Lumens or XLM.
Stellar also serves as a development platform for distributed applications through the use of blockchain-based smart contracts.
Current XLM Price: $0.24
Current Total Market Cap: $4.6bn
(Data as at 23 October 2018)
What is Stellar XLM?
Stellar was founded in 2014 by Jed McCaleb and Joyce Kim, the former of whom was also co-founder of Ripple and the Mount Gox cryptocurrency exchange.
The Stellar network was originally based on the Ripple protocol. However, the network was later forked from Ripple when Stellar developed its own consensus model known as the Stellar Consensus Protocol (SCP).
The Stellar system is supported by a non-profit organization called the Stellar Development Foundation.
Stellar Lumens or XLM has a total supply of around 103 billion coins. The entire XLM coin supply was generated at the start of the Stellar project.
Currently there are around 18 billion XLM in circulation. The supply increases slowly at a fixed rate of 1% per year.
Stellar XLM is the sixth largest cryptocurrency rated by total market capitalization, currently valued at around $4.6bn US Dollars.
Instead of being a mined cryptocurrency, XLM uses the Stellar Consensus Protocol for transaction verification via the utilization of direct servers.
Stellar uses what it calls “Anchors”, whose role is to serve as exchange facilitators, with whom users can deposit fiat currency for transactions purposes.
Stellar uses a distributed exchange in order to conduct cross-currency transfers.Your fiat currency is deposited on the Stellar network via an anchor. This avoids the need to first exchange your fiat currency for Stellar Lumens at a cryptocurrency exchange.
The exchange matches your currency transfer with another request that matches your criteria and so allows for a seamless transfer of funds.
You then authorize the transfer of the funds to the recipient via the Stellar network. The recipient then goes to their anchor and withdraws the money in their own currency.
The Stellar network also serves as a platform for users to create and run decentralized applications. Stellar can be used in this way to also host ICOs or initial coin offerings.
By its nature Stellar draws a comparison with Ripple as the two networks are very similar in the intention and operation. However, while the Ripple network is intended for use by financial service providers, Stellar provides a peer-to-peer payment system for ordinary users as well as being able to serve as a solution for corporate businesses.
Advantages of Stellar
Low Transaction Costs
Each Stellar transaction requires a transaction fee of 100 Stroops – which is equivalent to 0.00001 Lumens.
In addition to this, a minimum balance must be held of at least 1 Lumen plus 0.5 additional Lumens for each established transaction trust line anchor. These two measures are designed to prevent the network being attacked by spam.
Very Fast Transaction Confirmation
Stellar is able to process transactions extremely fast, usually taking just seconds to confirm.
The Stellar network employs a consensus algorithm (the Stellar Consensus Protocol or SCP) rather than relying on Proof of Work mining. This enables transactions to be confirmed in just a few seconds.
This also makes Stellar more environmentally friendly as the algorithm does not require the wasteful use of large amounts of electricity as is the case with mining.
Restricted Supply of Lumens
The supply of new Lumens increases at a fixed rate of 1% a year. This mechanism can theoretically operate to help keep the Stellar price from falling in value.
One big difference between Stellar and Ripple is the fact that the Stellar network is fully decentralized and is not controlled by one central organization.
Ripple by contrast is largely driven by Ripple Labs, although the network can technically also operate without their intervention.
Disadvantages of Stellar
Low Trading Volume
A problem at present for Stellar is the current lack of trading volume on the Stellar distributed exchange. This can only be resolved through a future increase in the number of users of the system.
The System Has Not Yet Been Fully Proven
The Stellar network has not yet seen much application development. Stellar has yet to prove itself under high volume usage.
In particular as regards to transaction speeds if and when user levels on the Stellar network and transaction volumes increase.
My Assessment of Stellar XLM
As the main competitor transfer cryptocurrency network to Ripple/XRP, and the sixth biggest cryptocurrency by market cap, Stellar is an interesting and important player in the transfer payments services sector.
Stellar offers similar advantages to Ripple, but is targeted more specifically at the consumer market, while Ripple focuses largely on the “wholesale” big corporate sector.
On the innovation front, the Lightning Network may also be implemented for Stellar in the future. Lightning will speed transactions further and provide for greater transaction volume throughput on Stellar together with very fast processing speeds.
However, the Stellar network needs to attract more users – both for transaction processing as well as distributed applications. Its decentralized exchange suffers at present because of lack of sufficient exchange volume.
Promotional marketing for Stellar seems a little lacklustre at present and this will need to change if the system is to attract more users. It’s not good enough just to build a better mousetrap – you also have to tell the world about it and explain the benefits to them of using it.
The XLM price has held up relatively well so far throughout the 2018 cryptocurrency bear market, especially as compared to XRP. So this price performance is definitely a positive omen as far as market sentiment is concerned.
In short, XLM is definitely a currency to watch and it’s one which could have a great future ahead if and when user levels pick up.