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What is Stellar Lumens? How do Lumens Work?

Find the answers to the most common Stellar Lumens questions - What is Stellar Lumens, how do lumens work and more!

With more than 10,000 blockchain networks  in place as of January 2022, have you ever wondered what is common among the latest emerging blockchain platforms? Well, the answer to this question is three-pronged: speed, scalability, and less cost of transactions compared to the archetype of blockchains. And with Stellar Lumens (XLM) being one of those emerging blockchains, it is nowhere behind. 

But, before that, what is even Stellar Lumens (XLM)? The description can be a head-scratcher but let’s put it simply and try to understand it!

What is Stellar Lumens (XLM)?  

While people think that Stellar Lumens (XLM) is a single term, it is two separate ones. 

  • Stellar is a decentralized, open-source payment technology that is used in transferring digital currency to fiat money locally or across borders
  • Whereas, Lumens (XLM) is Stellar’s native currency

Stellar shares a lot of similarities with Ripple and there’s a good reason behind that. It was founded by Jed McCaleb who also co-founded Ripple. Similar to Ripple, Stellar aspires to bridge the gap between financial institutions by minimizing the cost and time needed for cross-border transfers. 

Now that we briefly know what is Stellar Lumens (XLM), let’s have a quick rundown on how does Stellar work and how do Lumens work.

Connecting your Stellar Lumens Address to ZenLedger For Your Crypto Tax Forms

  • To import your Algorand transactions into ZenLedger for your crypto tax forms, all we need is your public address.
  • Select the proper blockchain or wallet from the dropdown list.
  • Paste your address into the address field in ZenLedger.
  • Select if the wallet is based in the USA or not.
  • Then hit ADD COIN button

How Does Stellar Work? How do Lumens work?

Stellar is maintained by the Stellar Development Foundation. It runs on its one-of-a-kind Stellar Consensus Protocol, which is different from both Proof-of-Work (PoW) and Proof-of-Stake (PoS). On this network, Nodes are used to validate the transactions that run on quorum slices to synchronize their agreement. 

Unlike other blockchains, Lumens, Stellar’s native token isn’t mined or awarded.  Stellar’s consensus protocol partly uses the miner network to approve transactions. Alternatively, it harnesses the Federated Byzantine Agreement (FBA) algorithm for faster transaction processing. And all thanks to the quorum slices, the transactions are approved and validated faster. 

Here’s how the validation process works. First, each node in the network selects a different set of “reliable” nodes. Only after all the nodes in the set approve the transaction, the transaction is considered approved. This is why Stellar is stellar fast and it can process up to 1,000 transactions per second. 

If users think about how do Lumens works so efficiently, it is all because of the extremely fast Stellar blockchain network. In case you are wondering how to use Stellar to send money, this is how you do it on the network. The token can send one currency from one peer to another in a whole different currency. When being transferred, it will change into several currencies. First, the network checks if a straight currency swap is possible. If not, then it checks for the demand for the initial currency from Lumens holders. Once it gets the Lumens, it searches for other Lumens and the desired currency. It enables an easy transaction between different currencies. 

This all can be accredited to the Anchors present in the Stellar network. Anchors within the network can hold a deposit and issue a credit in a different currency. As all the anchors are present on the same network, the process is lightning fast. 

On the surface, Stellar may look like any other decentralized payment technology but due to its unique protocol, the distributed ledger is updated every two to five seconds among all nodes. It is one of its prominent distinguishing factors. 

When Stellar was launched, 100 billion XLMs were minted initially with a yearly one percent inflation rate. However, in 2019, the inflation mechanism and the XLMs total supply were reduced with the help of a governance vote.  If you are pondering over what is Stellar Lumens' actual supply, at present, the total supply of XLM is 50 billion and the circulating supply is approx. 50 million. 

How to Buy Stellar?

If you wish to buy the Stellar token for the first time, there are a few steps that you must follow. Here they are:

Step 1: Open an online account.

To invest in this altcoin, you must open an account with a cryptocurrency exchange that supports this token. This exchange is responsible for buying and selling the coins on your behalf. Before choosing a crypto broker, you must know that there are two types of brokers. Some offer only cryptocurrencies and then some offer other assets along with cryptocurrencies. Crypto brokers that specialize in crypto markets offer a wide range of coins and tokens. If you wish to buy XLM then Coinbase and eToro are some of the best platforms. 

Step 2: Buy a wallet.

Once you’ve chosen a crypto broker and opened an online account with them, you should buy a cold storage wallet if you want to hold your coins for a long time. Cold storages are one of the safest options because your private key is untouched by the Internet. 

Step 3: Make Your Purchase.

After opening an account and setting up your wallet, it’s time to make a purchase. Add sufficient funds to your crypto exchange account and make a purchase. 

Final Thoughts

If the average person wonders what is Stellar Lumens capable of, the Stellar blockchain platform is paving its way to becoming a global decentralized financial network in a landscape where the global financial network is a closed system. In this system, the transaction cost is high and the money moves slowly. Stellar tends to solve this problem as it ensures that its network can quickly extend financial access to unserved communities.

Stellar Lumens FAQs

1. s Stellar lumens the same as XLM?

While Stellar and Lumens are used interchangeably, Stellar is a decentralized blockchain network. Lumens is the native currency of the Stellar blockchain network.

2. How to Use Stellar?

Stellar allows its users to build, deliver, and exchange digital representations of every currency including pesos, dollars, Bitcoin, and almost anything through its network. Stellar is designed for the global financial system to operate together on a singular network.

3. Can I use Stellar to send money?

The core protocol of Stellar allows you to send money all over the world. It supports cross-asset payments allowing you to send and receive money in different currencies in a single transaction. For instance, you can send money in USD and the recipient will get it in EUR as per their requirements.

4. Can I mine Stellar?

No. Unlike other blockchains, XLM can’t be mined or awarded by the protocol. Stellar’s consensus protocol partly uses the miner network to approve transactions. Alternatively, it harnesses the Federated Byzantine Agreement (FBA) algorithm for faster transaction processing.


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