What is Stellar, and How Is It Different From XLM? A Beginner's Guide

Traditional methods for sending money across borders are often sluggish, costly, and inaccessible to a vast segment of the global populace. You need a faster, cheaper, and more eco-friendly method.

Stellar, a decentralized blockchain network that aims to connect people, banks, and payment systems across the globe, is set on becoming the solution to the issues that plague the current global remittance.

Backed by the Stellar Development Foundation (SDF), a non-profit organization dedicated to the growth and development of the network, Stellar is best known in the crypto world by its native coin: lumens (XLM).

This article explains the basics of Stellar and how to participate in Stellar’s vision to eliminate global financial borders.

What is Stellar?

Stellar is an open-source blockchain network that allows anyone to create, send, and trade digital forms of any money, such as fiat currencies, cryptocurrencies, or tokens.

The Stellar Consensus Protocol (SCP)

This is made possible via the Stellar Consensus Protocol (SCP). The SCP is a unique distributed ledger technology (DLT) that enables the network to reach a consensus on transactions without relying on an intermediary.

Unlike the usual proof-of-work (PoW) or proof-of-stake (PoS) consensus mechanisms typically used by other blockchains, the SCP utilizes a proof-of-agreement (PoA) mechanism.

Under the PoA system, consensus over transaction validity is reached through a series of votes that involve Stellar’s network of mutually trusted nodes. When enough nodes reach an agreement on a transaction, it is permanently added to the blockchain. This whole process is completed within the space of just 5 seconds.

Stellar is also energy-efficient, scalable, and secure thanks to the SCP and its PoA mechanism. In fact, the Stellar grid currently uses just 481,324 kilowatt hours (kWh) of electricity per year — translating into around 173,243 kilograms (kg) of CO₂ emissions annually. This is the equivalent to the average CO₂ produced by the electricity use of 33.7 US homes in one year.

Cross-Border Payments

Stellar’s principal use case is cross-border payments. It enables you to send money to anyone in the world in any currency in a matter of seconds and with minimal fees. To date, Stellar supports cross-border payments across over 180 countries and more than 20 digital assets under its Stellar Anchor Directory.

Consider a scenario where you want to send US dollars to your friend in Nigeria. With Stellar, all you need to do is convert your US dollars into XLM. Your friend will receive the XLM, which he can then choose to convert into Nigerian naira at the best exchange rate available.

Custom Asset Creation

Stellar also has a platform that allows you to create and issue your own digital assets, such as stablecoins, tokens, or loyalty points. These assets can be traded on the network’s decentralized exchange (DEX), which matches buyers and sellers automatically and transparently. The DEX also enables you to access a variety of financial services, such as lending, borrowing, saving, investing, and remittances.

What is XLM?

Not to be confused with Stellar itself, XLM is simply the abbreviation for lumens, the network’s native cryptocurrency. XLM serves multiple purposes on the network, including:

• Enabling low-cost transactions: Each transaction on Stellar costs a fraction of a cent (0.00001 XLM), which is paid in XLM. This fee is in place to prevent spam and malicious attacks on the network.
• Facilitating multi-currency conversions: XLM acts as a bridge currency to exchange any two currencies on Stellar at the best rate possible.
• Supporting network security: XLM is required to create accounts and participate in Stellar’s consensus process. Each account must hold a minimum balance of 1 XLM to prevent spam and ensure accountability. Each node on the network must also hold a certain amount of XLM to validate transactions and vote on network decisions.

XLM isn’t mined or minted like some other cryptocurrencies. Instead, a fixed supply of 100 billion XLM was created when the Stellar network was launched in 2014. Of these, 20 billion XLM were distributed to early backers and contributors of the project, while 80 billion XLM were entrusted to the SDF.

The SDF has a mandate to distribute the remaining XLM over time according to a transparent plan that aims to increase adoption, inclusion, and innovation on the network. The plan includes:

• Giving away XLM for free to individual users, partners, and developers
• Using XLM to fund grants and investments for projects that benefit the network
• Burning XLM that isn’t needed or used

As of September 2023, there are about 27.7 billion XLM in circulation, with a market capitalization of around USD 3.91 million. XLM is one of the top 20 cryptocurrencies by market cap and is traded on many cryptocurrency exchanges around the world.

Why Should You Invest in XLM?

There are multiple reasons to invest in XLM, some of the most prominent including:

• Supporting a social mission: Stellar’s vision is to create an open and inclusive global financial system that empowers people and businesses everywhere. By investing in XLM, you are supporting a network that aims to reduce poverty, inequality, and inefficiency in the world.
• Benefiting from network effects: As more users, partners, and developers join the Stellar network, the value and utility of XLM increase. For example, more payment corridors may open up for cross-border remittances, leading to an increase in financial services for underserved communities.
• Diversifying your portfolio: XLM is one of the most established and reputable cryptocurrencies in the market. It has a strong team behind it, a loyal community around it, and a proven track record of performance and resilience. Investing in XLM can help you diversify your portfolio and hedge against volatility and risk.

Stellar: Bringing the World Closer With Cross-Border Payments

A world where payments aren’t separated by borders. This is the world Stellar envisions. You can be a part of this borderless world that provides everyone with access to essential financial services.

Get started today. Head over to Bake to buy your first XLM and build a financial world without borders with Stellar.

DISCLAIMER: Please note that the information on this blog and in any articles posted on this blog is for general information only and should not be relied upon as financial advice. Cake Pte. Ltd., Bake, UAB, and its affiliates (the “Cake Group”) are not licensed financial advisers. You may wish to approach your own independent financial advisor before making any decision to buy, sell, or hold any product and/or digital assets mentioned in this blog.

Any views, opinions, references, assertions of fact, and/or other statements are not necessarily the views held by the Cake Group. The Cake Group disclaims any liability whatsoever that may arise out of or in connection with such statements. Always do your own research before investing in any financial assets, and consult a qualified financial advisor if necessary.