Stellar Lumens (XLM) Explained

Everything You Need to Know About Its History and Technology

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Table of Contents

Stellar lumens (XLM) are a form of cryptocurrency created in 2014 by the nonprofit organization Stellar Development Foundation. Stellar is an open-source network that allows users to create, send, and trade digital representations of currency. The foundation created Stellar lumens as a barrier to entry to increase the efficiency of the Stellar system.

It’s important to research investment opportunities before getting started, so this article will guide you through the history of Stellar lumens, what they’re used for, and how to buy them.

What Are Stellar Lumens?

The Stellar Development Foundation was founded in 2014 as the bedrock of the Steller open-source network. The foundation’s mission was to make currency more fluid, allowing people to participate in the global economy.

Using Stellar, consumers can easily make financial transactions with any currency. But rather than trading or sending the actual currency, they’re sending a digital representation of it. Steller relies on similar blockchain technology as other cryptocurrencies but claims to do so more quickly and affordably.

So where exactly do the Stellar lumens come in?

Lumens are Stellar’s built-in tokens specifically designed to create friction in their system. Because Steller is an open-source network, the founders worried it would be too easy for bad actors to slow down the system with spam.

To use the Stellar network, users are required to have a minimum balance—it’s currently one Stellar lumen. There’s also a minimum transaction fee of 0.00001 lumen. These requirements are just high enough to deter bad actors but small enough that Stellar remains accessible to genuine users.

Special Features of Stellar Lumens

Like other cryptocurrencies, Stellar lumens are a form of digital currency that allows money to flow more freely. But in the case of Stellar, the currency itself isn’t the central focus. Instead, lumens were created to add a small barrier to entry to the Stellar network to deter bad actors from slowing it down. The Stellar network itself is really the focal point.

  Stellar Lumens
Inception 2014
Total Supply 50 billion
Special Feature Deterring bad actors

Mining Stellar Lumens

One of the most significant differences between Stellar lumens and other cryptocurrencies is how the tokens enter the market.

Major cryptocurrencies like Bitcoin are mined, and anyone can mine them as long as they have the right tools. Many of these digital currencies have a maximum supply, and people can mine them until that cap has been reached. Additionally, users often get a reward for mining a cryptocurrency.

But Stellar lumens can’t be mined. Instead, the Stellar Development Foundation released 100 billion lumens in 2014 when the network went live. Over the next five years, the foundation increased the supply by 1% each year.

In October 2019, the Stellar community voted to eliminate this annual supply increase. In fact, they decided to reduce the supply of Stellar lumens, cutting it in half. The 50 billion lumens in existence today are the only ones that will ever be circulated moving forward.

As of July 2021, 20 billion lumens are held by users in the network, while the other 30 billion are retained by the foundation to help them develop and promote the network. Eventually, those lumens will also enter the market for users to purchase.

How To Buy Stellar Lumens

The purpose of buying Stellar lumens is really to access the Stellar network. You can purchase these tokens on major cryptocurrency exchanges, including Coinbase, Kraken, Binance, and Bittrex. You can also purchase lumens on Stellar’s native exchange, Lobstr.

Wallets

Cryptocurrency wallets are usually required to store the private key required to access your Stellar lumens or any other form of cryptocurrency. You have several options when looking for a wallet to store your lumens, including hardware wallets like Ledger and Trezor, downloadable wallets like Keybase, Solar Wallet, and Lobstr, and online wallets like Coinbase.

Transaction Times

Cryptocurrencies often require a certain number of confirmations on their blockchain technology before a transaction can be processed. Many currencies require dozens of confirmations and can take several minutes or several hours to process. Stellar transactions can be processed almost instantly, and some exchanges such as Coinbase rely on only one confirmation.

Fees and Expenses 

Each cryptocurrency exchange charges its own fees, and the amount you pay will depend on the exchange where you purchase your lumens. There’s also a fee to use the Stellar network, with a minimum fee of 0.0001 lumens per transaction.

Other Ways To Invest in Stellar Lumens

Another way to gain exposure to Stellar lumens in your portfolio is to invest in the Grayscale Stellar Lumens Trust. When you invest in a Grayscale trust, you’re investing in a security whose value is derived from Stellar lumens without buying or storing the lumens yourself. 

This option won’t be right for a lot of investors due to a $25,000 investment minimum and a 2.5% sponsor’s fee.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.