Stellar Lumens Use Case

Once considered a novelty or outlier in the financial landscape, cryptocurrency has become a part of mainstream finance. Just a decade ago, only cypherpunks and privacy-tech focused individuals dabbled in cryptocurrencies.

Now you can buy them easily on mobile apps like Coinbase or CryptoWallet and crypto is accepted worldwide in stores and online as a payment method.

Many savvy investors hold crypto as part of a diverse and robust portfolio. Cryptocurrency now boasts a diverse demographic with users from all backgrounds and economic statuses.

Decentralized Finance has been growing hugely since the DeFi craze of 2017 as more and more people choose cryptocurrencies over the strictly regulated and bureaucratic traditional financial institutions.

Crypto has opened up the walled garden of Wall Street investments to the world with users being able to invest small amounts and reap huge rewards for investing in the right cryptocurrency at the early stages.

We’ve gathered statistics that show the wide scope of crypto and its mass appeal globally. By the end of this article we hope to show you how crypto has permeated the world both online and offline as well as provide you with the information to deepen your knowledge of the cryptocurrency landscape going into 2022.

What is Stellar Lumens?

Founded by Jed McCaleb in 2014, Stellar blockchain is an open-source network for payments and fiat. The project was established to increase financial inclusion and help financial institutions connect seamlessly through blockchain technology. 

Lumen is the native currency of the organization, and traders use it on the Stellar network to send money and make quick transactions between different currencies. The digital currency is traded as XLM on different crypto exchanges. 

Designed to connect banks, payment systems, and the unbanked, Stellar allows you to make cross-border payments that are faster and more reliable. Payments made on Stellar’s blockchain can be verified and settled almost instantly. In an exchange like Coinbase, it requires only one confirmation. 

Similar to Bitcoin, Ethereum, and Bitcoin Cash, Stellar transactions involve paying transaction fees. However, a significant difference to note here is that Stellars fees are cheaper, and there is a base fee for transactions set at .00001 XLM.

At present, the token has a total supply of 50 billion XLM, a sharp contrast to the total supply of 100 billion when the network was launched.

While currencies like bitcoin are based on a proof-of-work consensus mechanism, Stellar works with a consensus algorithm known as Stellar Consensus Protocol (SCP). This protocol allows consensus without reliance on a closed system to record transactions accurately. 

According to Stellar, it’s the “first provable safe consensus mechanism that simultaneously enjoys four key properties:

  • Control
  • Low latency
  • Flexible trust
  • Asymptotic security.” 

Stellar Lumens is listed on nearly 50 exchanges, making it one of the most liquid cryptocurrencies in the market. Some of the exchanges are Coinbase, Binance, BCEx, Kraken, Bittrex, and Bitfinex.

The Stellar team also intends to airdrop $125 million worth of  XLM to help drive adoption of the network through partnerships with Blockchain.com and Coinbase.

How does stellars consensus protocol work?

The Stellars consensus protocol or SCP for short can be described as a federalized consensus system that allows voting amongst the nodes in a way that attempts to encourage activity, stability, and safety for the network.

To vastly oversimplify this complex process, this system is designed to ensure the safety of the network as a first priority, with architectures in place to halt or prevent misbehaving nodes. But additionally to encourage members of the network to take part in the system of voting itself, aiding true consensus and a healthier network. SCP achieves this via a three-pronged system of ‘Nomination, Balloting, and Timeout.’

To briefly explain this one part of the system, the nomination is a stage of the process in which nodes put forward a ‘leader’ node that is used to vote as a block in response to the proposed value question. The balloting stage is a consensus protocol that confirms the nomination output. And finally, the timeout section is an architecture that aims to cast and recast nominations amongst the network so as to guarantee some degree of consensus.

A far more in-depth breakdown of this system can be found here.

Stellar Lumens Use Case: Network Operation Fees

Lumens (XLM) is used to create friction on the Stellar network and avoid it from being crowded with spam. Stellar network prevents spam by establishing a hard-coded fee of 0.00001XLM (100 “Stroops”) per operation.

A user pays this fee to commit their data to Stellar’s distributed ledger. This is similar to how transaction fees work in Bitcoin blockchain or gas limit paid as Ether in Ethereum.

Lumens is also used to ensure that users maintain a minimum account balance, so that malicious actors can be prevented from using the network.  For example, 1 lumen is required as a minimum balance to create an account on the network.

Furthermore, on Stellar, before a wallet can receive an asset, the owner of the wallet must indicate that they are willing to accept it. These are called trustlines. An additional 0.5 Lumens are needed to add each trusting to a wallet.

It’s important to note that Stellar’s ledger isn’t referred to as a blockchain because the protocol is not a block-based system. Also, an ‘operation’ isn’t the same as a ‘transaction’ — a transaction may contain multiple operations.

Stellar Lumens Use Case: Multi-currency Transactions

Another use case of XLM is that it is used as a bridge in processing multi-currency transactions. Lumens act as a bridge between currencies by enabling trades between two separate currencies when there isn’t a large enough direct market for it.

This plays a key role in facilitating cross-border transactions. For instance, if Charles in Houston, Texas wants to send money to Mary in Nigeria, he’ll have to worry about how the money will be easily converted into Nigerian Naira for Mary. Excellent description

If he uses Stellar, Charles can have his USD transferred out of his bank into Stellar’s network, where it’ll be converted into Lumens (XLM). After that, Stellar will look for the best exchange rate from Lumens to Naira. Once it finds it and processes the exchange, the money will be deposited in Naira to the bank account of Mary in Nigeria. All this process takes place in a few seconds.

Use Case: Stellar Decentralized Exchange (SDEX)

Lumens (XLM) is set as the base currency to trade several popular digital assets and even fiat currencies on Stellar Decentralized Exchange.

Stellar blockchain has built-in decentralized exchange (DEX) feature which allows users to buy and sell Stellar tokens / assets using the most liquid unit of value on the network, XLM. What’s unique about the SDEX is that because Stellar is an open source network, anyone can create a user interface for the SDEX. 

There are many user interfaces that have been built by developers to take advantage of this functionality. Some of them include:

StellarX : A full-featured trading app that runs on SDEX. It was created by a team with deep user-friendly building experience and showcases a wide selection of assets: crypto, fiat tethers, commodities, bonds, and more.

Stellar Port: A trading app on SDEX that has a fast and intuitive user interface. Other than Stellar tokens, StellarPort also lets you trade Bitcoin, Ripple, Litecoin and Ethereum and other tokens.

Lobstr : A simple XLM wallet with a great support for Stellar tokens / assets. You can see the value of these tokens right on its home screen. Lobstr lets you buy / sell tokens and even place limit buy and sell orders.

Lumenswap : A DEX that provides a simple way to swap XLM to any other Stellar asset and vice-versa. It provides two user interfaces – one is very similar to what you find on a regular exchange like Unisawp and the second one is a more developed interface which is more tailored for advanced users.

What Sets Stellar Network Apart?

Stellar is leveraging blockchain technology to promote financial inclusivity to users worldwide. The network provides varied services you’d expect from a typical bank, but with a few key differences.

While similar projects are vying for dominance in the financial industry, Stellar connects people all around the world to low-cost, reliable financial services.

The network hopes to fight poverty while maximizing individual potential by doing this.

Also, while many other popular projects are focused on corporate partnerships and profits, the Stellar Development Foundation is non-profit. It has the noble goal of creating a more inclusive economy.