Cutting through the buzz and shilling in the cryptocurrency space, you will come to agree that Stellar Lumens is one of those projects that have not come under so much hype, but all the same impressive. In late 2017, I watched this cryptocurrency increase by over 400 percent, along with many other cryptocurrencies (the team made several significant headway). Despite the fact that Stellar currency holds the position of the 7th largest cryptocurrency in terms of market cap (as at the time of writing this article), not many crypto enthusiasts know much about it.
According to the team, “Stellar is a decentralized, hybrid blockchain that is fully open-source. It is infrastructure that exists to facilitate cross-asset transfers of value, including payments.” In simpler terms, Stellar is a not-for-profit blockchain that aims to give everyone equal access to easy banking. Using Stellar, a user can transfer assets to other users, without geographical restrictions. In comparison with traditional money transfer systems and banks, Stellar grant equal access and participation to all users. All they need to do is to integrate with the network in order to use the system.
Before delving to explore how the project works, let’s briefly look at some of the problems XLM hopes to solve.
High Transaction Costs: If you’ve ever tried to send money across borders, then you’d know that bank charges can become quite significant. Fortunately, a single transaction on the Stellar network costs only 0.00001 XLM. Putting this in perspective, you can perform 100,000 transactions for 1 XLM, which is currently about $0.196.
Transaction Time: It takes anything from 3 to 5 days for cross-border payments to be confirmed, because of the number of intermediaries they have to pass through. On the Stellar network, this time is reduced to just 2-5 seconds. Interestingly, this is even faster than Ripple which takes between 5-10 seconds.
How it Works?
Like all cryptocurrencies, Stellar Lumens thrives on been decentralized. It runs on a link of decentralized servers backed by an international consortium of individuals and entities. To use the network, you will first need to upload funds to an anchor on the network. This anchor holds your money and issues out credit to your virtual wallet, similar to PayPal.
While it may seem confusing why you need to exchange deposit funds with an anchor before transfers, here’s how it works. An anchor helps to bridge the gap within a given currency and the Stellar network. By swapping your funds, you are formally converting your funds into Stellar’s public ledger. This integration enables you to send funds instantly on the network, without having to wait for bank transfers.
Stellar facilitate multi-currency transactions and one of these three things happen when you try to request a currency transfer:
- Stellar network automatically facilitates exchange by converting the funds with a previous offer on its order book.
- Stellar Lumen uses its native currency XLM as an intermediary of the exchange. Currency A are converted to XLM and then XLM are converted to currency B.
- If there are no trading pairs on the exchange for the two currencies, the network searches for offers that may lead to a chain of conversion. It could be USD to EUR, EUR to AUD, and then AUD to GBP.