What is Stellar (XLM)?

Introduction

Stellar (XLM) is an open-source blockchain protocol and cryptocurrency designed to facilitate fast and affordable money transfers between different currencies around the world. The Stellar network provides a platform where banks, payment services, and individuals can send money across borders almost in real-time and at very low cost. The Stellar protocol's own digital currency is called lumen (ticker XLM), which serves as the transaction fee currency and common denominator between different currencies.

History and Background

Stellar was developed in 2014 when Jed McCaleb, founder of the Mt. Gox cryptocurrency exchange and co-founder of Ripple, together with attorney Joyce Kim, decided to create a new blockchain network. McCaleb left the Ripple project due to differences in vision and wanted to build a more open system focused on financial inclusion and low transaction costs.

Stellar received early support from payment company Stripe: CEO Patrick Collison was involved in founding the non-profit Stellar Development Foundation, which manages and develops the Stellar protocol. The project was officially launched in July 2014.

In 2015, Stellar released a significant software update and adopted its own consensus algorithm (Stellar Consensus Protocol, SCP), which improved network reliability and performance. The network grew quickly – by early 2015, it already had about 3 million user accounts.

In November 2019, the Stellar Development Foundation made a significant decision to burn approximately half of all existing lumens – a batch of 55 billion XLM – to reduce token overcapacity and sharpen the project's focus. This burn halved the maximum supply to about 50 billion.

Founders and Key Figures

Behind a quality crypto project, you often find well-known developers and supporters, and Stellar is no exception. Project founder Jed McCaleb is a well-known figure in the crypto world – before Stellar, he was involved in founding one of the world's first major bitcoin exchanges (Mt. Gox) and helped create the Ripple protocol. McCaleb's vision for Stellar was to build a completely open and non-profit payment system.

Currently, the Stellar Foundation is led by Denelle Dixon, who took over in 2019 as Jed McCaleb moved to more technical roles in the background. Stanford University professor David Mazières also deserves mention – he developed the Stellar Consensus Protocol algorithm, which is Stellar's technical backbone.

Technology and Operation

The Stellar network is based on a distributed blockchain that maintains a database of all accounts and transactions. The network consists of server nodes (validators) that run the Stellar software and synchronize the ledger with each other. A new block, or rather a ledger update in Stellar's case, is confirmed on the network approximately every 5 seconds.

Consensus Algorithm: Unlike Bitcoin (Proof of Work) or many other cryptocurrencies, Stellar doesn't use mining to create new blocks. Instead, Stellar utilizes its own Stellar Consensus Protocol method, based on a Federated Byzantine Agreement (FBA). This method enables very fast consensus without a heavy mining process, allowing Stellar to handle thousands of transactions per second with low energy consumption.

Lumen (XLM) Cryptocurrency: In the Stellar network, lumens are used in two main roles. First, a small amount of XLM token serves as a transaction fee – each transaction has a nominal fee (e.g., 0.00001 XLM). This fee is so minimal that it doesn't cost the user anything significant but effectively prevents network spamming. Second, lumen serves as an intermediary currency when exchanging money between different assets or currencies.

Minimum Account Balance: One of Stellar's special features is the requirement to maintain a small minimum balance of lumens (currently 1 XLM) on each wallet account before it becomes active. This requirement prevents the network from being flooded with useless accounts.

Use Cases

Stellar was designed from the start for a very practical purpose: efficiently transmitting various money transfers and payments. Over the years, a wide ecosystem of applications and projects has developed around the network.

• Cross-Border Payments and Remittances: Stellar is ideal for facilitating international money transfers. Individuals and service providers can send money abroad in seconds without traditional banking system delays and high costs. Several remittance companies (like MoneyGram) have adopted the Stellar network.
• Banking Sector Applications: Banks and fintech companies have experimented with Stellar as a solution for cross-border payments. For example, IBM developed the IBM World Wire system in collaboration with the Stellar Foundation.
• Stablecoin Currencies: Several fiat-pegged stablecoins circulate on the Stellar network. The most famous example is USD Coin (USDC), which chose Stellar as one of its blockchain platforms alongside Ethereum.
• Tokenization: Stellar is also used for tokenizing various assets. In 2021, investment firm Franklin Templeton announced launching fund shares tokenized on the Stellar network.
• Financial Inclusion: One of Stellar's guiding themes has been bringing banking services to underserved populations. In developing countries, many people don't own a traditional bank account but have access to mobile phones.

Future Plans

Stellar's future strategy focuses on increasing adoption as a global payments infrastructure and expanding technological capabilities. Key focus areas include:

• Soroban Smart Contracts: Stellar launched Soroban, a smart contracts platform that brings programmability similar to Ethereum to the network.
• CBDC Development: Several central banks are exploring Stellar as a platform for Central Bank Digital Currencies (CBDCs).
• Ecosystem Growth: The Stellar Development Foundation continues to fund projects that build on the network and expand its reach.

How to Buy XLM

Stellar's XLM tokens can be purchased from most major cryptocurrency exchanges. Here are some recommended platforms:

Summary