XLM is the shorthand for Stellar Lumens which is a currency of the open source distributed payments infrastructure Stellar. Similar to Bitcoin (BTC), Stellar Lumen is a digital token of exchange that works through blockchain technology. Stellar Lumens are developed by the Stellar Development Foundation which is a non-profit organization having famous household names such as Kamal Ravikant as their members.
What is XLM
XLM started in early 2014 as a hard fork of Ripple and after a few changes were made to the consensus code the network was forked and thus created the Stellar Core. It was late claimed that the early Ripple protocol had flaws and this resulted in the formation of the Stellar Development Foundation thus releasing the Stellar Development Foundation that features the new consensus algorithm. Similar to the early aims of Ripple, Stellar Lumens had the major motive to connect people, payment systems and banks.
Technology behind XLM
The unique feature of Stellar Lumens is that fact that Lumen can link to fiat currencies and allow for almost instant transfer or exchange without either the buy or the seller having to deal with the cryptocurrency itself. Each transfer involves an extremely acceptable fee of 0.00001XLM that was inscribed as a preventive measure to prevent malicious activities on the network that could hinder the performance of the protocol and to prevent DoS attacks. Lumens also can be associated with multi-currency transactions wherein there is a liquid market between the currency by itself and the XLM Stellar Lumen token.
One of the major notable issues from the technological perspective is that the fork that McCaleb came up with and the tech that Ripple now uses are very different and this puts a lot of pressure on the vision. However, the real-life applications of the Stellar Lumens are greatly appreciable, the stellar network can accommodate payments between two partner banks or other financial institutions that have a different native currency without the user having to ever use the cryptocurrency. This works by first making sure that the sender account has the balance and the receiver account is also checked to make sure it is compliant, then the sender’s bank sends the money to the Stellar network which then verifies across the 150+ compatible currencies to look for the best exchange rate and then converts the amount to the destination native currency before remitting it to the receivers account. The entire transaction takes a maximum of five seconds and the costs involved are around 0.001 cents.
Stellar also imposes a minimum balance of 0.5 lumens to make sure that there are no inactive users and to remove the unused ledgers by eliminating the abandoned accounts, this ensures that all the active accounts are likely to have an economic value on the network.
Why should you invest in XLM?
Unlike every other cryptocurrency, XLM is given away for free at times and according to the owners, this is done to achieve a more inclusive digital economy and to connect people to low-cost financial services. Also, this helps the backers to expand the reach of the network and the utility of the system as a whole increase significantly with more people using it. But this also brings the question on why one would like to buy the XLM tokens if they were available for free, according to the Stellar Development Foundation, 95% of the tokens on the network will be given away while the rest 5% will be retained for managing and serving the operational costs.
- 50% of these tokens are given to the individuals wanting Lumens
- 25% of the tokens go to non-profits, business grants, and government institutions.
- 20% to the bitcoin holders.
The Stellar Development Foundation hopes that people might still want to buy the XLM when no giveaway is available or if they want to support the Stellar’s vision as a community. Going by the estimates of the Stellar Development Foundation, all the Lumens will be distributed within 10 years and then the users will have to obtain new coins or sell existing ones on exchanges. Unlike Ripple that has a team of over 200 and funding in excess of $100 million, Stellar is run by a handful of dedicated people with the significantly smaller amount of funding.
The team also has a very active community on the StackExchange to help developers find the answers when they work on projects, the version 0.2 of the Stellar Rust SDK is also underway that will bring a host of new opportunities and functionality.
Things to know about XLM
- Born from a hard fork of Ripple.
- Partnerships with Deloitte Stripe, IBM, and even ICICI Bank.
- Sometimes Stellar Lumens are given away.
- Previously questioned on the lack of transparency.
- Facilitates direct multi-currency transfers.
- Less than 5 seconds and 0.00001XLM charges per transfer.
- All XLM tokens expected to be distributed in 10 years.