• Stellar can be considered a distributed ledger network that interconnects banks to facilitate P2P and cross-border payment and facilitates low-cost transactions
• According to the developers behind the decentralized blockchain system, anchors are entities that people trust to safeguard their deposits and issue credit into the distributed ledger network for that deposit
• Most individuals often use the term Lumen and Stellar interchangeably.

Cryptocurrency is no new concept; most, if not everyone, have at least heard of the terminology. It ranges from big leagues such as Bitcoin, Ethereum and Binance coin to popular altcoins such as Polygon, Tamadodge and Tether.

Each of these cryptocurrencies strives to stand out and bring something new. Today, we will focus on one such altcoin that utilizes a decentralized blockchain system to form a distributed ledger network, the Stellar network. It provides banking solutions in Africa all because of its network and lumen token.

Stellar cryptocurrency

Stellar is a peer-to-peer digital currency, open-source network that debuted in 2015. It can also be considered as a distributed ledger network that interconnects banks to facilitate P2P and cross-border payment and facilitates low-cost transactions. 

Jed McCaleb, David Mazières and Joyce Kim founded the decentralized blockchain system. Jeb McCaleb, the former founder of Mt. Gox and co-founder of Ripple, developed Stellar to connect and bring the world’s financial system and institutions under a single decentralized network.

How does stellar work

The primary focus behind its decentralized blockchain system is on developing countries. Africa has generally presented Stellar with the very market it targets. It is essentially providing banking solutions in Africa.

The distributed ledger network operates on a system called the Stellar Consensus Protocol. This decentralized network of peers provides the necessary means to reach a consensus. Without needing a closed system to validate financial transactions accurately.

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This protocol was a result of a 2014 hard fork. A hard fork is merely a revolutionary change to a network’s protocol which allows previously invalid blocks and transactions, valid or vice versa. It requires all the nodes or users within the decentralized blockchain system to upgrade to the latest protocol.

Due to this protocol, Stellar generally differs from Bitcoin, which uses the PoW mechanism. It still achieves better speed and efficiency due to this trade-off. 

Lumens, the native currency of Stellar, are used whenever a transaction occurs. A built-in protocol converts the fiat currency to Lumen before being sent or converted into another con. Lumen is an intermediate digital currency that allows the distributed ledger network to execute trades quickly.

McCaleb took all the winning prospects of Ripple and used them as a building block for Stellar. This is why there are similarities between both networks, but they are critical differences. Some even refer to Stellar as an improved version of Ripple, but this statement is a bit inaccurate.

Unlike Ripple, which directly collaborates with banks and other financial institutions, Stellar operates in a more decentralized manner by using anchors.

According to the developers behind the decentralized blockchain system, anchors are entities that people trust to safeguard their deposit and issue credit into the distributed ledger network for that deposit. It acts as a bridge between different fiat currencies and the Stellar network so that all transactions occur in the form of a credit issued by anchors.

Stellar further supports transactions through peer-to-peer exchanges that allow users having different currencies to trade. The lumen token made this possible. Each fiat currency is first converted to the native currency.

Lumen’s Potential value.

At the beginning of its launch, Stellar issued 100 billion but later burned almost half of it by November 2019. This resulted in Stellar having 22.5 billion Lumen in circulation and a maximum supply of 50 billion. This bold move was an attempt to increase the value of Lumen.

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In addition, the distributed ledger network stated that they would not be creating any more coins in the future; hence Lumen is not ideal in crypto mining. This move raised issues as it was seen as a desperate act to manipulate the value of their cryptocurrency, a concept that a decentralized blockchain system avoids. 

The value of Lumen will rise because of it. Rarity increases the value of any item, and in future, the fewer coins available, the more value each gain. 

Solving real-world problems determines a coin’s value. The distributed ledger network, Stellar, has met these criteria. By providing banking solutions in Africa and offering faster, cheaper and more efficient processing of transactions, Stellar has created a roadmap to its success.

Lumen has received various big league investors like MoneyGram and Stripe. Stripe even invested $3 million at the initial launch of Stellar. This gave the distributed ledger network an impressive head start, gaining 3 million users by the end of its first year.

Bottom Line

Stellar is a distributed ledger network that incorporates a decentralized blockchain system.

Lumen shows potential but has had it’s up and down throughout its journey. Its value rose from a small fraction of a cent to $0.1429, but since then, it has felt the weight of unstable market flow. Lumen growth is small, so it may not be suitable when thinking short-term, but because of its scarcity, it might fetch a hefty price in long-term investments.

Stellar has shown great promise and flourished in the African market but still has a long way to go.

Read: The differences between blockchain and distributed ledger technology