Even though Bitcoin and Ethereum are the most popular cryptocurrencies, especially among beginners, there are many other blockchain technologies and cryptocurrencies out there. One of them is Stellar Lumen (XLM).
Whether you are just starting to think about investing in cryptocurrencies, or you are an experienced trader, before doing anything, it’s important to do research. Investing in cryptocurrencies can bring big rewards. However, don’t forget that they are volatile. There are thousands of them on the market, and none of them comes without a risk, which is why investing in any of them requires caution.
Here are some of the most important things you should know about Stellar, before investing.
What Is a Stellar Network?
The foundation behind the Stellar network is the non-profit organization named Stellar Development Foundation or SDF. The cryptocurrency that uses Stellar technology, developed in 2014, is called Lumens, and its symbol is XLM. When it was created, 100 billion Stellar Lumens were generated and put into circulation. Additionally, SDF implemented a system of a 1% annual inflation rate. However, this system was deactivated in 2018.
If you are thinking about investing in XLM crypto, first you should understand how the token works. The most important function of the Stellar token is to facilitate the uninterrupted transaction of various currencies. Simply put, when any currency enters Stellar, it’s turned into Lumens (XLM), and when it exits the network, it’s turned into that same or any other currency.
Stellar is an open-source, decentralized protocol founded by Jed McCaleb, the co-founder of Ripple, and Joyce Kim, co-founder of SimpleHoney. The Stellar blockchain platform allows users to send money anywhere in the world, and like other similar projects, it makes international money transfer cheaper, and instantaneous. It’s a fork of Ripple and works similarly but it was created with a more altruistic vision in mind. The objective of the Stellar network is to allow secure and low-cost financial access to anyone, anywhere, especially those in developing countries and those who don’t have access to banks, as well as to average users.
How Does Stellar Work?
The Stellar Protocol can be compared to PayPal but it’s more practical. The Stellar network allows any currency or cryptocurrency, to interoperate on one platform, through Anchors, which connect it to traditional banking rails. This essentially means that you can use it to send money, as well as to sell and buy currencies and cryptocurrencies.
Users deposit funds in an Anchor, which acts as a trusted intermediary. It holds your funds and displays your balance in the stellar wallet. This allows you to send funds instantly through the Stellar network, without waiting for a bank transfer. Thanks to Anchors, for instance, if you want to use your USD to send someone money in Europe, the network can automatically convert your U.S. dollars to Euros at the lowest exchange rate.
Since November 2015, the Stellar network uses a stellar Consensus Protocol or SCP, based on the Federated Byzantine Agreement (FBA), developed by Stanford professor David Mazieres. To reach consensus and validate transactions it doesn’t rely on a network of miners. It is an open-participation system, which means that participants (called nodes) can join and leave freely.
The Benefits of Stellar
The main benefits of the Stellar Protocol are its low transaction costs, its transaction speed for cross-border transfers, and its high security. More specifically, it takes approximately 2-5 seconds for any transaction to be verified and completed, and the commission charged for it is usually low. To ensure security, it also supports Smart Contracts and Multi-Signatures.
Like other blockchain technologies, including Ethereum, the Stellar network also allows users to develop other tokens and decentralized applications (dApps). Using it is completely free, for commercial use, distribution, and/or modification. After reaching more than 3 million unique users, just a year after it was created, in 2015 the SDF created a new consensus algorithm.
The Stellar crypto project allows fast and cheap international money transfers, as well as buying and selling cryptocurrencies. The terms Stellar, Lumens, and XLM are used interchangeably.
However, Stellar is the blockchain network, Lumen is the crypto coin, whereas XLM is its commercial symbol. Although it’s hard to determine whether a cryptocurrency is a good investment, researching will help you make an informed decision.
As one of the most popular cryptocurrencies nowadays, XLM can be an interesting investment. Since it was created its value has risen significantly, and it’s relatively stable. Finally, some experts consider it a very promising crypto coin and expect it to keep rising, which means that it may be a good long-term investment.
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