What is Stellar (XLM)?

In this AAG Academy article, we embark on an exploration of Stellar and its native cryptocurrency, XLM. Stellar has made its mark as a formidable player in the world of cryptocurrencies, boasting a decentralized payment technology that operates in close tandem with Bitcoin’s fame. This article delves into the inner workings of Stellar, sheds light on the multifaceted nature of XLM, and unravels the intricacies of its groundbreaking consensus protocol. We will also consider the advantages and disadvantages of these elements, offering a comprehensive understanding of their roles in the ever-evolving realm of blockchain technology.

Stellar lumens, often referred to as XLM, not only acts as the primary currency within the Stellar blockchain but also serves as a conduit for the seamless transfer of tokens representing an array of assets. We’ll navigate through the core features of XLM, discussing its unique supply dynamics and the innovative mechanism designed to thwart malicious actors from compromising the network’s integrity. By addressing frequently asked questions and highlighting the nuances of Stellar and XLM, this article aims to provide a comprehensive insight into these dynamic components that define the cryptocurrency landscape.

What is Stellar?

The Stellar blockchain has emerged as a remarkable player in the world of cryptocurrencies, thriving alongside Bitcoin’s fame. Stellar operates as a decentralized payment technology, featuring distributed servers and a real-time ledger update shared among all nodes every few seconds. Its cryptocurrency, lumens, has gained recognition for its unique features, setting it apart in the ever-evolving landscape of blockchain and digital currencies.

What truly sets Stellar apart from Bitcoin is its innovative consensus protocol. While Bitcoin relies on the proof-of-work mechanism, Stellar employs the Federated Byzantine Agreement (FBA) algorithm. This approach doesn’t necessitate the entire miner network to approve transactions, resulting in considerably faster processing. Stellar’s use of quorum slices from a segment of the network to validate transactions enhances overall efficiency and streamlines the approval process.

What is XLM?

XLM, also known as Stellar lumens, serves as the native cryptocurrency of the Stellar blockchain and plays a crucial role in covering transaction fees. However, the Stellar blockchain accommodates more than just XLM. It offers a platform for the movement of tokens representing a wide range of assets, from commodities to fiat currencies. When it initially launched, Stellar introduced 100 billion Lumens (XLM), with an annual supply increase of 1% until reaching 105 billion in circulation. However, post-2019, this number reduced to slightly over 50 billion.

Another noteworthy feature of XLM is the burning of 100 Stroops (0.00001 XLM) with every transaction, acting as a deterrent against potential misuse by malicious actors who might attempt to flood the blockchain with empty or invalid transactions. This mechanism helps maintain the integrity and efficiency of the Stellar network.

How does Stellar (XLM) work?

Stellar’s blockchain employs a proof-of-agreement consensus algorithm to coordinate its nodes, ensuring uniformity in the Stellar ledger. The decentralized network of independent servers allows nodes to operate autonomously, connected but not under centralized control, facilitating transaction synchronization and consensus. Anyone can become a verification node through the Stellar Consensus Protocol (SCP).

Stellar’s SCP, its transaction verification algorithm, enables rapid and efficient scalability, distinguishing it from proof-of-work blockchains like Bitcoin. Moreover, Stellar introduces “anchors,” trusted entities that manage deposits and issue credits on the blockchain, acting as a bridge between digital assets and the Stellar network. This unique feature enhances Stellar’s versatility in the digital asset ecosystem.

Important Note: To kickstart your Stellar wallet, it’s essential to keep a minimum of 1 XLM in your account. This rule isn’t dictated by specific wallet providers but is a widely embraced standard within the Stellar community. The 1 XLM minimum adheres to the base reserve, currently set at 0.5 XLM, ensuring your wallet’s usability and recognition on the Stellar network.

Pros and Cons of Stellar

Investing, trading or engaging with the Stellar blockchain and XLM proposes a few pros and cons:

Pros:

CBDC Foray: Stellar’s partnership with Ukraine in January 2021 highlights its entry into Central Bank Digital Currency (CBDC) adoption, positioning it as a potential leader in Eastern Europe’s CBDC journey.

DeFi Ventures: Stellar’s strategic partnerships with top organizations and integration with Flare bring exposure to the booming world of Decentralized Finance (DeFi), contributing to XLM’s trade volume.

Continuous Network Enhancement: Stellar is committed to improving its network, enhancing flexibility for developers and organizations, and focusing on scalability and innovation.

Rising Network Activity: Stellar’s network records significant growth in accounts, payments, decentralized exchange volume, and relevant assets, boosting its market position.

XLM Scarcity and Efficiency: With limited XLM supply and its efficient Stellar Consensus Protocol (SCP), Stellar is poised for price appreciation and attracts partnerships for efficient transactions.

Active Daily Usage: Stellar handles millions of daily transactions, showcasing its value as a cryptocurrency with substantial user engagement.

Cons:

Ripple Competition: Stellar competes with Ripple in cross-border payments, but Ripple’s centralized nature and early adoption give it an advantage.

Valuation Challenge: XLM’s struggle to match its unique features with a valuation that justifies its potential growth is evident, making it lag behind other cryptocurrencies.

Developer Attraction: Ethereum’s lead as the preferred smart contract platform has attracted more developers, leaving Stellar with relatively lesser-known DApps and limited influence on its price.

Lack of Mining Rewards: XLM’s lack of mining rewards has kept it less prominent on social media platforms, reducing its appeal to new investors.

References

What is Stellar

What is Stellar crypto and how it works

Pros and Cons of Stellar