Stellar is an open-source blockchain-based software launched in 2014. It is a decentralized network that offers a platform for conducting crypto transactions. 

The native token of the network is Lumen, also referred to as XLM. The transactions are low cost and allow digital currency to traditional currency transfers. This allows for cross-border transactions among a large number of currencies. 

The Stellar Development Foundation supports the protocol. In this article, we try to break down how Stellar Lumens work. 

1

The Stellar Network

The Stellar network uses an open-source blockchain to provide a platform for hassle-free international transactions. Since it uses blockchain technology, the Stellar network has a ledger managed by people worldwide. The network has various nodes. These nodes need to approve a transaction before it is updated on the ledger.

Stellar seeks to offer fast-paced cross-border transactions between digital currencies and traditional currencies. To achieve that, the transactions on the network are carried out by creating credit.

Suppose someone wants to transfer money from London to New York. So, the person would transfer the amount in GBP, which will be converted into Lumens on the network.

The conversion occurs on the network anchors, which act as credit intermediaries. As the transaction proceeds through each anchor, credit is created across all of them.

The final anchor would convert Lumens into dollars, thus enabling a cross-border transaction within moments.

2

Maintaining the Blockchain

Blockchain protocol resembles a ledger maintained across multiple nodes of the network. Every time a new transaction takes place, information is added in blocks.

Before these blocks can be updated on the ledger, the network needs to verify the information on the blocks. The network has to reach a consensus regarding the information for the verification. This ensures that no wrong information goes on the ledgers.

This process is typical of all cryptocurrencies but usually takes longer. However, with Stellar Consensus Protocol, the verification is done within 2 to 5 seconds on the Stellar Network.

Stellar does not require validation from all the existing nodes. Instead, it only uses a part of the network, drastically shortening the process.

3

Mining Lumens

Unlike most cryptocurrencies, Lumens cannot be mined. Their supply is fixed, so they cannot be created anymore. As a result, there is a cap of 50 billion XLM tokens.

So, you cannot mine Lumens. Lumens are released from time to time by the Stellar Development Foundation to ensure that the supply of tokens in the network remains constant.

Lumens are gradually destroyed as more and more transactions take place. TA transaction cost of 0.00001 XLM applies, and it is deducted from the balance. The destruction process is relatively slow, so the supply of XLM is not significantly affected.

4

Lumen's Value

When the Stellar network was launched in 2014, it created 100 billion XLM tokens. A quarter of them was given to non-profit organizations striving for financial inclusion.

Initially, the supply of XLM tokens increased by 1% every year. By applying this system, Jed McCaleb, the co-founder of Stellar, wanted to address the issues of “deflationary cryptocurrencies”.

But in 2019, this system was cancelled, with the overall supply of XLM tokens reduced. The supply is now at 50 billion XLM tokens, and no more tokens will be created.

Since the number of tokens is fixed, Lumens is a deflationary currency. With time, the buying power of XLM increases. As token supply increases and reaches nearer to the cap limit, the value of XLM will further increase.

FAQ

What is blockchain protocol?

Blockchain protocol implies that the network stores information in the form of blocks. The anchors listed by the network add the information on these blocks.

What is an open-source program?

An open-source program implies that the users are at liberty to change the source code. This means that there can be innumerable contributors to the protocol.

How are Stellar Lumens mined? 

Stellar Lumens are not mined because there is a limited supply of XLM tokens. There are only 50 billion XLM tokens in circulation.

What is meant by Lumens being a deflationary coin?

Deflationary coin means that as time goes by, the buying power of Lumens keeps on increasing. The reason is that the supply of XLM tokens is fixed. 

What is the highest value that Lumens reached?

In January 2018, Lumen’s value stood at $0.93. It was the highest value that Lumens reached ever since its launch in 2014.

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