What is Stellar? Comprehensive Guide to Buying XLM

General Overview

The Stellar Network is a decentralized, open-source, peer-to-peer network, and run by a not-for-profit organization called the Stellar Development Foundation.

The Stellar Network allows for a global payment system with faster transaction speeds than banks and with lower fees. Anyone using the network can send and receive any currency regardless of their physical location. This is achievable through Stellar tethering a token to a traditional asset like USD, Yen, or the Euro. Transactions on the Stellar network take under five seconds and the average cost of each transaction is a fraction of a Lumen, which equates to a millionth of a cent. The low transaction cost opens use case potentials such as micropayments.

History of Stellar

Stellar was founded in 2014 by Jed McCaleb and Joyce Kim. In 2011 McCaleb founded another well-known cryptocurrency looking to takeover backend payment processing: Ripple. A difference of visions caused him to leave the project in 2014 and he founded Stellar with Joyce Kim. At the time there was a misconception that this was a fork, however Stellar is a totally separate project from Ripple.

McCaleb and Kim started the non-profit Stellar Development Foundation in conjunction with Stripe’s CEO Patrick Collison, and Stellar officially launched in July 2014. By early 2015 there were already 3 million users. In November 2015 Stellar upgraded its network protocol to the Stellar Consensus Protocol (SCP) and still runs on it. More detailed information about Stellar Consensus Protocol can be found here.

How Does Stellar Work?

Stellar works as a forex, stock exchange, and a crypto exchange bundled into one system. Unlike most blockchains that solely store your balance, the Stellar network also has the ability to facilitate trades without putting your money on an exchange. This is known as a Decentralized Exchange. This built-in order book helps trades automatically resolve and makes the network highly liquid. Stellar is run on a network of peers, no individual or entity can stop or alter any of the transactions on the network, meaning true decentralization.

When someone wants to send their Euros to a relative and have them receive USD, they simply enter the how many Euros they wish to send, and within seconds their recipient has USD in their wallet. The cost for the transaction is a fraction of a cent. The network itself takes the order the person made and looks at the order books for the best sequence of transactions to convert the sender’s Euros into USD. This can be a direct currency conversion, or if a better price is available indirectly, like by converting to Lumens and then USD, the network will use that path instead; the network always picks the best path for you.

Where to Buy Stellar Lumens

If you want to get involved with Stellar you’re most likely going to have to purchase it on a cryptocurrency exchange. Fortunately Stellar is listed by a number of reputable exchanges including the following:

• Coinbase
• Binance
• Kraken
• Crypto.com
• KuCoin
• Huobi
• Coinmama
• Bitpanda

The Advantages

The advantages to using Stellar are that is has fast transaction speeds, supports multiple currencies on its network, and has extremely low transaction costs. Most transactions on the Stellar Network take under five seconds to complete and with multiple currencies and cryptocurrencies available it gives users many options. More significant than speedy transactions across a variety of assets is the costs for these transactions.

The average cost for making a transaction on the Stellar Network equates to a millionth of a USD cent, a stark difference when compared to traditional currency transfers through banks and even other crypto apps and networks. In addition, the Stellar Network is truly decentralized, run by peers on the network and not owned by anyone, just supported by its non-profit organization.

The Disadvantages

The disadvantages to using Stellar are minimal. The main disadvantage is related to trust, as Stellar uses stablecoin pairings to facilitate its traditional currency support for assets like the USD. The USD you hold in your Stellar wallet is in fact a stablecoin such as TetherUSD or AnchorUSD, meaning you must trust the issuer of the stablecoin to actually hold an equivalent reserve ratio of USD to token. If it turns out that they do not you won’t be able to redeem your stablecoins for an equivalent dollar amount.

The other disadvantage is that you must hold a minimum balance of Lumens in your account in addition to some more for each asset you hold in order to use the network or hold assets on it, though the amount is minimal. While some see this as a disadvantage, it is used as a mechanism to prevent spam on the network by stopping fake accounts from being created and meaningless transactions from clogging it up. Accounts that do not hold Lumens cannot use the network.