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What Is Stellar Lumens? XLM Cryptocurrency Beginners Guide

FINANCE

MICHAEL OWEN, Lead Finance Writer

February 1, 2018

Stellar Lumens is an up and coming system in the cryptocurrency world, designed to be a platform. Although Stellar works similarly to all the other “crypto” systems (such as Bitcoin), it is significantly different to what most believe cryptocurrency to be, focused on providing an underlying array of functionality for other developers to harness and build upon.

The most important thing to realize with Stellar is that if you are looking at this from the perspective of a Ripple or Ethereum point of view, Stellar is predominantly aimed at delivering “Blockchain” functionality to businesses.

Whilst a highly effective system, it was created by one of the co-founders of the Ripple system – Jed McCaleb – who designed the software as a response to the growing corporatism of Ripple. Stellar Lumens is meant to bring a “platform” system back to its roots.

As you’d imagine – the Stellar crypto system is strongly based around that of Ripple, even using the “Ripple Transaction Protocol (RTXP)” developed for the other system. Because of this, the main benefit to the Stellar cryptocurrency appears to have been focused on its “advisory” board – made up of some of the most highly-acclaimed individuals in the technology market.

How Does The Stellar Blockchain Work?

The Stellar Blockchain works by providing users with the ability to create “decentralized applications” through which the Stellar coins can be used to populate the various transactions required.

The point of Stellar Lumens is that it’s actually very similar to Ripple in the way it works. This is to say that there is very little by way of different functionality to this system compared to Ripple – the main benefit is the ability to provide a system that’s able to give users the opportunity to develop a number of different apps for it.

Stellar Lumens vs. Ripple

We’ve found that whilst Ripple and Stellar are somewhat similar, the main difference between them lies in how they’re meant to be used (and ultimately, bought) by their respective markets.

Ripple is a for-profit company (RippleLabs) which has over 150 employees. Stellar does not have this – preferring instead to remain free and be backed by a “foundation”. Stellar was created by the people who wanted to keep the extensibility of Ripple and Ethereum, but the ability for a new system to remain potent.

Who Created Stellar Lumens?

The Stellar Lumens system was designed by Jed McCaleb, who previously had worked on creating “Ripple” as well as the MtGox exchange. Bringing his skillset & experience from Ripple, it should be no surprise to hear that Stellar was designed off the back of Ripple – working with the same scope and functionality.

The Future of Stellar Lumens

Ultimately, the Stellar currency system was designed predominantly to reflect the technical progress made by Ripple. However, unlike its inspiration, Stellar has neither the economic or technical prowess to satisfy the market, and its price has mostly reflected that of Bitcoin.

The point is that when looking at these “coins” as a way to make a profit, the only way you’re able to do so is by buying them cheaply and selling them much more expensively.

Bitcoin was able to do this well (the 2017 spike was legendary), and what has transpired since then is the proliferation of “alt” coins taking up the slack (investors moved money from BTC to others) after the BTC price started to fall again in early 2018.

The important thing to remember here is that whilst Stellar has a lot of promise on paper, the underlying ability of the system (and thus its capacity to grow economically) is quite scarce. It is easy to see things grow when there is plenty of surplus money in the market; when that money goes (as will likely be the case in mid-late 2018), all the systems with little effective use-value will likely just fade back into the ether.