Stellar (XLM) Definition, History, and Future

Stellar (XLM) is a blockchain network designed to enable efficient, low-cost financial transactions across borders and financial systems. Developed by the Stellar Development Foundation, it aims to bridge payment systems, banks, and individuals, with its native currency, lumen (XLM), facilitating these transactions.

TLDR Stellar (XLM) is a blockchain platform by the Stellar Development Foundation that enables low-cost, cross-border financial transactions. Founded by Jed McCaleb, it partners with companies like IBM to expand globally. Despite challenges with coin burning, Stellar focuses on empowering emerging economies and enhancing currency exchanges, positioning itself as a key player in decentralized finance.

What Exactly Is Stellar?

Stellar (XLM) operates as a blockchain network developed by the Stellar Development Foundation. Its native currency, the lumen, is identified by the symbol XLM and is available for trading across various cryptocurrency exchanges.

Designed specifically for the Stellar network, lumens serve to cover transaction costs and account setup fees. The primary goal behind Stellar's creation is to bridge banks, payment systems, and individuals, enabling efficient, low-cost financial transactions that are both cross-border and cross-asset.

Charting Stellar’s Development

Operated by the Stellar Development Foundation, a nonprofit founded by Jed McCaleb, Stellar began its journey with initial funding from the payments startup Stripe and donations from various organizations. To maintain its operations, Stellar relies on tax-deductible public donations.

In 2018, Stellar expanded its global reach by partnering with TransferTo to facilitate cross-border payments in over 70 countries. That same year, it made history as the first distributed technology ledger to obtain a Shariah-compliance certificate for payments and asset tokenization.

Additionally, Stellar was chosen by IBM to collaborate on a double-pegged stablecoin project, further solidifying its position in the blockchain ecosystem.

Potential Issues with Stellar

Understanding the Supply Dynamics

Currently, approximately 27.3 billion lumens are in circulation, out of a capped total supply of 50 billion. Initially, the Stellar Foundation held over 100 billion lumens but decided to burn around half of these coins in November 2019. This action led to a temporary increase in the price of XLM, although the surge was short-lived.

Controversy Surrounding Coin Burns

The practice of burning coins is contentious within the community. It raises concerns about potential manipulation, which stands in contrast to the fundamental principles of decentralized systems that aim to ensure fairness and transparency.

The Future of Stellar

Targeting Emerging Economies

Stellar is dedicated to empowering developing economies by facilitating remittances and providing bank loans to individuals who lack access to traditional banking services. Importantly, Stellar ensures that neither individuals nor institutions are charged fees for using its network.

Seamless Currency Exchange

With Stellar's distributed exchange mode, you can send payments in one currency even if you hold credits in another. The network automatically handles the foreign exchange conversion, allowing the recipient to withdraw their preferred currency through a partner institution like a bank.

Streamlining Cross-Border Transactions

Stellar aims to revolutionize cross-border transfers and payments by connecting various financial entities. This connectivity significantly reduces both transaction costs and the time required for transfers. While Stellar operates similarly to cryptocurrencies like Bitcoin, its standout feature is the Stellar Consensus Protocol (SCP).

Originating from a 2014 fork, SCP ensures that transaction authentication is managed by a trusted set of nodes rather than the entire network, enhancing both efficiency and security.

Growth and Market Presence

Although it's still uncertain whether Stellar will achieve widespread popularity, its trading volume and market capitalization have been steadily increasing over time, indicating a growing presence in the cryptocurrency market.

Bottom Line

Stellar (XLM) has carved a distinctive niche within the blockchain and cryptocurrency ecosystem, driven by its foundational goal of enabling efficient, low-cost financial transactions across borders and between diverse financial systems.

From its inception by the Stellar Development Foundation, Stellar has demonstrated significant progress through strategic partnerships, such as those with TransferTo and IBM, and by achieving milestones like obtaining a Shariah-compliance certificate. These developments underscore Stellar's commitment to fostering financial inclusion and expanding its global reach.

However, Stellar faces notable challenges, particularly concerning its supply dynamics and the controversial practice of coin burning. These issues raise important questions about the balance between maintaining a controlled supply to support the currency's value and upholding the decentralized, transparent principles that underpin blockchain technology.

Addressing these concerns is crucial for maintaining trust and ensuring the long-term sustainability of the network.

Looking forward, Stellar's focus on empowering emerging economies, facilitating seamless currency exchanges, and streamlining cross-border transactions positions it favorably for continued growth. The innovative Stellar Consensus Protocol (SCP) enhances both efficiency and security, setting Stellar apart from other cryptocurrencies like Bitcoin.

Moreover, the steady increase in trading volume and market capitalization signals a growing acceptance and integration within the broader financial landscape.