In the time that it takes for one of our Bitcoin transactions to be processed, another coin called Stellar Lumens can make anywhere between 120 to 200 transactions in the same amount of time.
By the end of this guide, you’ll understand what Stellar Lumens is and how it can be used. You’ll also get a firmer sense of the security features and potential uses for the coin. We’ll begin by talking about some of the basic features of the coin, so let’s get started!
- 1. What are Stellar Lumens?
- 1.1. If Stellar isn't a Ripple fork, what is it?
- 2. Stellar's background
- 2.1. After the Mt. Gox Hack
- 2.2. McCaleb's Breakthrough
- 3. How can Stellar Lumens be used?
- 4. How do transactions work?
- 5. The Potential of Stellar
- 6. Pitfalls of Stellar
- 7. Are Stellar Lumens secure?
- 8. Can We Abuse Stellar?
- 9. Stellar Lumens: Conclusion
What are Stellar Lumens?
You may have heard of it before, but up until you start reading, you might have found yourself asking the question “What are Stellar Lumens?”
Well, in 2014, Stellar Lumens set out to narrow the gap between the crypto world and the financial world. Since then, Stellar cryptocurrency has taken on a string of partnerships with some of the biggest companies in tech and finance. The partnerships include IBM, Stripe, and Deloitte, as well as at least a dozen payment processors and financial institutions in Europe and Asia.
Stellar’s main goal is to become the world’s digital payment rail by connecting people, banks and payment systems. It allows you to transfer money to anyone, anywhere, quickly and securely with a transaction cost of less than a penny. This fee alone may put Western Union out of the game.
Some argue that Stellar crypto started as a hard fork from the Ripple protocol. Interestingly, Jed McCaleb who founded Stellar Lumens coin also founded Ripple. However, Jed McCaleb has said himself on his Twitter page that the two tokens have different codes and ARE NOT A FORK. Ahem *clears throat* (just to set the record straight), you can debate back and forth about this, but the past won’t tell you about the exciting future Stellar coin has ahead of it.
If Stellar isn't a Ripple fork, what is it?
The main difference between the coins is that Stellar Lumens targets individuals while Ripple targets financial institutions, including some of the biggest banks in the world. To put it into perspective, Stellar’s target users are everyday people, such as the Islanders in the South Pacific who are using XLM cryptocurrency to fuel retail payments. Ripple, on the other hand, targets some of the largest banks in the world, such as Santander, Bank of America, and HSBC.
Stellar is not a fork of ripple. It is completely different code.
— Jed McCaleb (@JedMcCaleb) November 22, 2017
The stellar coin is also different from Ripple because of the type of business behind the coin, as the Stellar Foundation is a non-profit organization. This means that they receive tax exemptions, there are no shareholders, and no dividends — only salaries and expenses.
Stellar Lumens also uses a different protocol than Ripple does, which I will explain more in a little bit after I speak on some of the similarities between Ripple and Stellar.
The cofounder of Stellar Lumens, Jed McCaleb, also founded Ripple and Mt. Gox, but he left Ripple in 2015. The reason for his departure is difficult to confirm, as different sources give different information.
In a highly criticized, 15,000-word article in the New York Observer, the story was positioned to make it seem like McCaleb was forced to leave because of his bad reputation following the Mt. Gox hack.
In case you don’t know, the Mt. Gox hack was the largest hack in the history of Bitcoin up until this year when Coincheck was attacked for over a half a billion USD. The Mt. Gox hack cost users over 460 million USD worth of Bitcoin.
At the time, Mt. Gox was the largest exchange in the world and accounted for 70% of all Bitcoin transactions. McCaleb had founded the website nearly a decade before the hack as a Magic: The Gathering online trading platform (Mt. Gox standing for Magic: The Gathering Online eXchange).
After the Mt. Gox Hack
After the hack, Wells Fargo suspended all accounts that had cleared funds for crypto companies, as well as those companies’ operating bank accounts, leaving company owners stranded. This included Ripple Labs account, which had a 20-year working relationship with the bank leading up to the closure.
Around that time, Ripple Labs CEO Chris Larsen was told that McCaleb should no longer be associated with the company. Despite having left Ripple to stay on as a board member at that point in time, even his little involvement as a board member was a publicity crisis for Ripple due to his association with Mt. Gox.
After that, A LOT of drama ensued between Ripple’s CEO and McCaleb. At one point, McCaleb had asked for Larsen’s departure which was turned to 5-1 board decision in favor of Larsen maintaining his position (the neigh vote was, of course, McCaleb). That request probably made for an awkward exchange at the office’s coffee station.
Soon thereafter, McCaleb received help for Stellar Lumens through a 3-million-dollar investment from Stripe, the Irish-based payment-processor. Given the investments close proximity to Wells Fargo shutting down the Bitcoin taskforce, Stripe had to maintain public distance from Stellar due to its own relationship with Wells Fargo. However, now the partnership is in full force with public disclosure.
However, McCaleb had spoken with Coindesk to dismiss most of these claims. He said the story published in the New York Observer was one-sided and includes a lot of false statements. One such point that McCaleb dismissed was the story’s focus on Stellar’s Executive Director, Joyce Kim, who left Ripple to work on Stellar with McCaleb.
The story made Kim seem like McCaleb’s crony, and it alleged that Kim was given access to privileged conversations she shouldn’t have seen. But as I said, a lot of the points in the New York Observer’s story were dismissed by McCaleb later on as he said the points seriously lacked accurate information and were filled with bias.
Despite the doubts of McCaleb’s reputation within the blockchain community, Stellar has gone on to become one of the most famous cryptocurrencies, with partnerships from IBM and other tech giants!
Stellar’s development team is filled with industry leaders, including board members and advisors who are leaders at places like Stanford University and WordPress. But we’ll talk more about the tight-knit team in a little bit.
For now, let’s jump into the practical and global uses for Lumens.
How can Stellar Lumens be used?
You can think of Stellar Lumens as Bitcoin’s faster, more scalable cousin that doesn’t require mining. Lumens can be traded anywhere in the world in just 3 to 5 seconds. This is ideal for cross-border payments (e.g., overseas transactions). Worldwide, cheap and fast transactions from your mobile, tablet or desktop can be particularly useful if you are in an isolated location without access to banks.
With Stellar Lumens, you won’t have to deal with an expensive fee from companies like Western Union. This means that when you send or receive money from someone abroad, you won’t have to pay fees of 10% or 20%. Instead, you would pay about 0.00001 Lumens, which is currently less than $.01 USD.
Stellar has a built-in exchange on which you can trade coins like Bitcoin, Ethereum, or Stellar’s own Repocoin. You can also trade Lumens on the exchange. Stellar’s exchange is beneficial if you want to exchange XLM cryptocurrency to EUR (Euro), then give it to a friend or family member money on a transfer site like https://www.tempo.eu.com/en.
From January to August of 2017, Stellar saw the platform’s Initial Coin Offerings raise over 1.3 billion in those 8 months alone. ICOs such as Mobius (which raised just under 40 million dollars) chose Stellar over more popular blockchains due to Stellar’s scalability and consensus protocol.
ICOs on the Stellar Lumens platform is customizable and can include a number of features- including the infamous Lightning Network that you’ve probably heard in association with Bitcoin. The customization for ICOs is extended to a number of behaviors, including escrows, issuing dividends, bonds, inflation, and collateralized debt.
There are a lot of exciting uses for Stellar! Let’s dig a little deeper into how Stellar can process over a thousand transactions in a second.
How do transactions work?
Stellar Lumens can process up to 1,000 transactions per second at a fraction of a penny each. The fee is mostly used to prevent the network from experiencing attacks. You can send cross-border payments to anywhere in the world using Lumens.
Unlike Bitcoin, Stellar does not use Proof of Work, instead, it uses what is named the Stellar Consensus Protocol (SCP). Stellar’s SCP allows payments to be made quickly and securely with anyone anywhere in the world.
Furthermore, Stellar’s SCP code allows Lumens to be used without any mining is necessary for operation. Some argue that without mining, Stellar Lumens is less decentralized and less secure than Bitcoin is. However, Stellar has nodes all over the world and if anything. For this reason, some consider it to be semi-centralized.
Beyond the current value of the coin itself, there are many other exciting directions that Stellar will move in, in the near future.
The Potential of Stellar
Stellar Lumens is particularly useful in the South Pacific where it is expected to be responsible for 60% of cross-border payments in the retail exchange corridor. Stellar and IBM are bringing banking infrastructure to some of the most isolated islands in the entire world who do not have access to the financial services that some of us might be used to- opening a bank account for little or no money.
This part of the world was chosen because it fell outside of major trading corridors and includes a mix of developing and mature economies, ranging from global power Australia to Vanuatu. The initiative is new, so it may expand outside of the area once it gets more footing. IBM is using Lumens to power this imitative. It may be the first of many.
Renewable energy is another potential way Stellar Lumens may grow in the future. Currently, Irene Energy is holding a crowdsale on Stellar’s internal exchange. Irene uses blockchain and artificial intelligence to allow users to choose which energy producer they’d like to receive energy from… and choices include your neighbor. You can think of it as a Tinder for Energy Sources — you can swipe right and left to choose which source is the best for you. Irene Energy is also developing features that allow a futuristic level of transparency in energy supply chains.
As the blockchain world prepares for more fiat-to-crypto trading pairs, Stellar Lumens can be at the forefront. An example of a fiat-to-crypto trading pair would be using the Ugandan Schilling to purchase the XLM equivalent. FairX, a mysterious upcoming crypto exchange currently operating in stealth, will be powered by Stellar’s network. The company will bring the one bringing trading pairs to Stellar’s network.
Pitfalls of Stellar
Stellar’s potential can be limited if faith is lost in the management team; the development team holds the rest of the coins that will be distributed in the future. Say if the cofounder, Jared McCaleb, ends up in another lawsuit like the ones he found himself in after he tried to dump his Ripple coins upon leaving the company. If faith is lost in McCaleb, this can be bad news for Stellar lumens.
Another area of concern is the size of Stellar’s team, which is comprised of only 10 employees, 3 board members, and 8 advisors. However, to soothe concerns about the size of the team, it is comprised of industry leaders and experts. Such as the founders of WordPress and Angelist, the CEO of Stripe, and the President of Y Combinator.
Again, this development team includes the person who founded Mt. Gox, which oversaw a 460-million-dollar hack. However, his reputation within tech has landed him support from some of the best minds within the blockchain and tech communities.
Despite the fact that he founded Mt. Gox, McCaleb and his team marches forward and his reputation improves as time goes on. And to McCaleb’s credit, he probably had no control over the attack despite being associated it with the attack as a founder of the site. He didn’t even operate the site at the time of the attack.
Fortunately, Stellar’s site and internal exchange have never been hacked. Let’s look a little further into the various security aspects of XLM cryptocurrency.
Are Stellar Lumens secure?
Stellar Lumens has a nearly clean security slate. The exchange and Stellar network have never experienced any hacks. However, there was one instance where Lumens were taken from an online wallet website, but that was beyond XLM’s control; it was a flaw in the wallet, not in Stellar's technology.
BlackWallet.co was the wallet in question; its security was compromised after a hacker injected code into user accounts with over 20 XLM. This hack was relatively small, leading to the equivalent of over $400,000 being taken. Again, though, this is not a reflection of poor security on Stellar’s end, but rather the wallet owned by BlackWallet.co.
The very small fee that you pay with every Stellar transaction, (again, less than one penny), is used to prevent what is known as Denial of Service (DDoS) attacks. These types of attacks usually happen when servers are flooded. So, by charging a small fee, overloading the system becomes too expensive for attackers to accomplish.
Remember, Stellar is secure enough to be used right at this moment as a part of IBM’s global blockchain initiative. This fact alone should speak a little to its level of security. Would IBM want to partner with an unsecured scam coin?
It's LIVE... - IBM on Stellar Lumens.
— Stellar Lumens (@StellarLumens) March 25, 2018
Can We Abuse Stellar?
With more and more regulations being released, abusing the cryptosystem is becoming harder. Just like any other token or currency, abuses can happen within the system. Insider trading, financial fraud, laundering, and asset hiding can occur using cryptocurrencies like Stellar Lumens.
Nothing in particular about Lumens stands out to make it particularly vulnerable to attacks. But almost all (if not all) cryptocurrencies can be abused in some way.
Before you go, I just have one other quick thing to say.
Stellar Lumens: Conclusion
Out of the cryptocurrencies I’ve studied and researched, this coin seems to have received the least amount of negative criticism. It has a solid team behind it, and a strong number of advantages over similar projects.
But, now that you know what Stellar Lumens is, what do you think?
You know the story behind the coin, and how transactions work on the network. You know what the future may look like for the project.
There really aren’t many bad things that I can say about Stellar. Especially with IBM behind the coin already using it in real-world applications in the South Pacific. The timing seems perfect right now to join me as a fellow Lumenaut.
All that said, though, you need to note that this is not financial advice. Always do your own research before investing, consult a professional, and never invest more than you can afford to lose.