A beginner's guide to Stellar (XLM), the decentralised protocol designed for the low-cost transfer of digital currency to fiat and cross-border transactions.
Stellar, or Stellar Lumens (XLM), is an open-source, decentralised protocol for digital currency to fiat money low-cost transfers.
It allows cross-border transactions between any pair of currencies, making it an ideal solution for international payments.
In this guide, we'll explore what Stellar crypto (XLM) is, how it works and the reasons behind its popularity among individuals and businesses seeking to streamline cross-border payments.
So let's dive in and learn more about Stellar crypto (XLM)!
Introduction to Stellar Lumens (XLM)
Stellar Lumens (XLM) was founded in 2014 by Jed McCaleb and Joyce Kim as an open-source, decentralised protocol for digital currency to fiat money transfers.
Initially, the Stellar network was a fork of the Ripple (XRP) protocol, but the two have since diverged in their respective approaches to facilitating cross-border payments.
While Ripple aims to provide enterprise-level solutions for financial institutions, Stellar Lumens focuses on providing a more accessible platform for individuals and businesses to send and receive payments.
Stellar's platform is designed to be highly scalable and efficient, with low transaction fees and fast settlement times.
Since its launch, Stellar Lumens has gained popularity as a competitor to Ripple and other traditional payment systems.
Its flexible platform allows for a wide range of use cases, from micropayments to large-scale remittances, making it a versatile choice for businesses and individuals looking to streamline cross-border payments.
How does Stellar Lumens work?
Stellar Lumens (XLM) works by using its decentralised platform to facilitate cross-border transactions between different currencies.
The platform is built on a distributed ledger technology (DLT) that allows for secure and transparent transactions without the need for intermediaries such as banks or payment processors.
Stellar's network consists of nodes, which are computers that communicate with each other to verify and validate transactions.
When a user initiates a payment, the transaction is recorded on the Stellar network and is broadcast to all nodes.
The nodes work together to reach consensus on the validity of the transaction and add it to the ledger.
One of the key features of Stellar is its built-in decentralised exchange, which enables the exchange of different currencies in real-time and at low cost.
This allows users to send and receive payments in any currency, which can then be converted into the recipient's local currency.
Stellar Lumens also uses a unique consensus algorithm called the Stellar Consensus Protocol (SCP), which is designed to be highly scalable and energy-efficient.
The SCP algorithm ensures that transactions are processed quickly and securely while minimising the computational resources required.
Overall, Stellar Lumens offers a fast, secure and cost-effective way to send or receive cross-border payments.
Its platform is designed to be highly flexible, with many potential use cases beyond just cross-border payments, making it an attractive option for businesses and individuals alike.
What is Stellar crypto used for?
When sending a cross-border payment using the Stellar platform, the sender initiates a transaction by converting their currency into XLM, the native cryptocurrency of the Stellar network.
The XLM is then used to fund a payment path between the sender's currency and the recipient's currency.
For example, if the sender is in the United States and wants to send funds to someone in Japan, the XLM would be used to create a payment path between USD and JPY.
The XLM serves as a bridge currency, allowing for the exchange of USD to XLM and XLM to JPY in real-time.
The XLM cryptocurrency also plays a role in facilitating trust on the network. Each user on the network is required to hold a minimum balance of XLM in order to participate in transactions and create new assets.
This serves as a measure of trust, as users are incentivized to act in the best interest of the network in order to maintain their XLM holdings.
In short, the XLM cryptocurrency itself is a critical component of the Stellar platform, facilitating cross-border payments and providing a measure of trust on the network.
Stellar (XLM) vs Ripple (XRP)
Here are five direct feature comparisons between Stellar (XLM) and Ripple (XRP):
- Consensus Algorithm: Both Stellar and Ripple use consensus algorithms to validate transactions on their networks. However, Stellar uses the Stellar Consensus Protocol (SCP), which is an improved version of the Federated Byzantine Agreement (FBA) algorithm, while Ripple uses the XRP Ledger Consensus Protocol (XRPL).
- Focus: Stellar is primarily focused on facilitating cross-border payments for individuals and small businesses, while Ripple primarily focuses on providing enterprise-level solutions for banks and financial institutions.
- Governance: Stellar is a non-profit organisation, while Ripple is a for-profit company. This affects the governance of each network, with Stellar being more community-driven and Ripple being more centrally controlled.
- Cryptocurrency: XLM is the native cryptocurrency of the Stellar network, while XRP is the native cryptocurrency of the Ripple network. Both are used as bridge currencies to facilitate cross-border payments.
- Transaction Speed and Cost: Stellar transactions are typically processed within 2-5 seconds and cost a fraction of a penny, while Ripple transactions are typically processed within 4 seconds and cost a slightly higher fee.
These are just a few of the feature comparisons between Stellar and Ripple.
There are certainly other factors to consider when choosing between the two networks.
Ultimately, the choice between Stellar and Ripple depends on the specific needs and use cases of the individual or organisation.
Is Stellar better than Ripple?
When it comes to the question of whether Stellar (XLM) is better than Ripple (XRP), it's important to consider the specific features and capabilities of each cryptocurrency.
Both are designed to make cross-border payments and financial transactions more efficient, but they have different target audiences and use cases.
As mentioned above, Stellar is primarily focused on providing a decentralised protocol for low-cost, cross-border payments between individuals and businesses.
It aims to offer a high degree of flexibility, allowing for a wide range of potential use cases beyond just cross-border payments.
Stellar's network is designed to be accessible to anyone and aims to promote financial inclusion.
On the other hand, Ripple is designed more for large financial institutions and banks to facilitate high-speed, low-cost international payments.
Its platform, RippleNet, is a global payments network that provides real-time settlement and uses blockchain technology to offer fast and secure transactions.
While both cryptocurrencies offer solutions to streamline cross-border payments, the differences in their target audience and specific use cases mean that each may be better suited to different types of users.
Stellar Lumens pros and cons
Stellar Lumens has the following benefits and drawbacks:
Pros of Stellar
- Fast and efficient: Stellar Lumens transactions typically settle within 2-5 seconds, making it one of the fastest blockchain networks. The network can also process thousands of transactions per second, making it highly scalable.
- Low transaction fees: The cost of Stellar Lumens transactions is typically very low, with fees amounting to a fraction of a penny. This makes it an attractive option for individuals and businesses looking to save on transaction costs.
- Decentralised and open-source: Stellar Lumens is a decentralised network, which means that it is not controlled by any single entity. Additionally, it is open-source, meaning that anyone can contribute to its development.
- Built for cross-border payments: Stellar Lumens was designed specifically to facilitate cross-border payments, with its platform supporting the exchange of any currency, fiat or digitaland enabling users to send money across borders quickly and cheaply.
- Strong community support: Stellar Lumens has a strong and active community of developers and supporters, which helps to ensure the network's continued development and success.
Cons of Stellar
- Centralisation concerns: While Stellar Lumens is a decentralised network, there are concerns about the centralization of certain aspects, such as the Stellar Development Foundation's control over the network's governance.
- Relatively new technology: While Stellar Lumens has been around since 2014, it is still a relatively new technology and its long-term viability is yet to be proven.
- Limited use cases: While Stellar Lumens was designed for cross-border payments, its use cases beyond this are somewhat limited. This may limit its appeal for some users and businesses.
- Competition from other networks: Stellar Lumens is not the only blockchain network designed for cross-border payments and it faces competition from other networks such as Ripple and SWIFT.
- Security concerns: As with any blockchain network, there is always the potential for security vulnerabilities or hacks. While Stellar Lumens has not yet experienced any major security breaches, this is always a risk to consider.
Should I buy Stellar crypto in 2023?
It's important to note that any decision to invest in Stellar crypto (XLM) should be based on your own research and analysis, as well as your personal financial goals and risk tolerance.
The information provided in this guide is intended to give you a better understanding of what Stellar crypto is, how it works and its potential benefits and drawbacks.
While we've highlighted some of the key features and potential use cases of Stellar crypto, it's ultimately up to you to decide whether or not it's a good investment for you.
As with any investment, it's important to weigh the potential risks and rewards.
Also to consider the broader market conditions and regulatory landscape.
We encourage you to take the time to review the information provided in this guide and to do your own research before making any investment decisions.
Only invest what you can afford to lose and seek the advice of a financial advisor if you are unsure about any aspect of investing in cryptocurrency.
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The stellar has simple added meaning to what the whole concept of the web3 should be. Simplicity,availability and most importantly accessibility of the web3 to everyone.
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Would you say the same about Ripple?
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Jed McCaleb is one of the greatest computer geniuses of our time. So I think Stellar will become more and more popular. Transactions are very fast and taxes are low
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As an ex Ripple CTO, I can't help but wonder what he says about their legal troubles.
Oh to be a fly on the wall in one of Stellar's meetings!
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So Stellar has legal problems too? Is this what you mean?
Thanks for this wonderful post in which you compared two well-known and similar blockchains in a certain sense. Some things you wrote have clarified my ideas