Cryptocurrency Guide

What is Stellar Lumens? | Cryptoradar's Step-By-Step Guide

Team Cryptoradar by Team Cryptoradar

Updated: Feb 25, 2022

The Stellar Lumens token has been steadily rising in terms of both value and attention during the past years and it's easy to see why. Commonly known as “Stellar”, this cryptocurrency platform was formed to make payment processing more efficient than the existing technologies.

In this step-by-step guide, we'll show you how to get hold of the cryptocurrency.

What is Stellar Lumens

Stellar Lumens was conceptualized by Jed McCaleb, one of the co-founders of Ripple, and Joyce Kim back in 2014 after it was forked from the Ripple protocol. A fork is a term used to describe when a new blockchain technology borrows original code from an existing technology and improves on it.

According to their website, Stellar Lumens is a “platform that connects centralized institutions, payment systems and people and enhances the quick, reliable and affordable movement of money”.

Ultimately, a maximum of 100 billion Lumens is supposed to be issued on the network, and the value of the coin has been increasing ever since its 2014 launch.

The difference between Stellar and Lumens

Stellar is the name of the distributed hybrid blockchain that allows you to send and receive funds quickly and cheaply. On the other hand, Lumens, also recognized by its ticker symbol “XLM”, is the name of the native cryptocurrency for the Stellar blockchain.

Lumens are used to facilitate multi-currency transactions, such as sending money in euros and the recipient receiving them in dollars. They are also used as an anti-spam measure that prevents DoS attacks from interfering with the network.

Every transaction on the network is charged a small fee of 0.00001 XLM which is just high enough to dissuade bad actors from spamming the network and small enough to not affect the value of the transaction. The collected fees are later redistributed and added to what’s called an inflation pool.

What’s the goal Stellar Lumens wants to achieve?

Stellar aims to be an open financial system that helps people of all income levels access banking/financial services using blockchain technology. In most developing nations, access to banking services is often slow and expensive, Stellar is seeking to change this narrative in three main ways:

  • Direct exchange of fiat currency – the Stellar network allows users to exchange two different fiat currencies directly. For example, if you were seeking to exchange U.S. Dollars for Euros and another user wanted to exchange Euros for U.S. Dollars, they can both do so in a matter of seconds.
  • Lumens as the intermediary – if you want to exchange a certain currency and the amount does not match that of the seller, then the network can use Lumens to bridge the gap between the two currencies.
  • Currency conversions – if the options mentioned above are not available, the network is also capable of doing chain conversions. This is when multiple currencies are traded to come up with the desired currency. For instance, the network might trade the U.S. Dollar into Ethereum then to Yen then finally to Euros if necessary.

The tools employed by Stellar give people from all financial levels access to fast and cheap financial services. The best thing is that the network automatically handles all the exchanges – including chain conversions, very quickly.

Advantages of Stellar Lumens

  • Fast transaction speeds – Stellar is capable of processing around 2,000 transactions every second. Therefore, each transaction get approved within a maximum of 5 seconds. The high speeds make it a great option for making cross-border payments.
  • Low transaction fees – Unlike other cryptocurrency projects, Stellar is designed to prioritize users above profits, which helps keeping costs low.
  • Strong partnerships – Stellar has made big moves since its launch. For example, it partnered with IBM and started building the Stellar payment protocol.

Disadvantages of Stellar Lumens

  • High competition – Stellar faces steep competition due to the high number of cryptocurrencies and blockchain technologies available. Its biggest competitor is Ripple. Moreover, centralized institutions are busy making cross-border transactions more efficient.

How to Buy Stellar Lumens

Despite the growing interest in the Stellar blockchain, the process to buy Lumens can still be a bit daunting. Fortunately, we've got you covered. Just follow these steps to buy Stellar Lumens immediately.

  1. Choosing a cryptocurrency exchange
  2. Creating an account at a cryptocurrency exchange
  3. Buying Stellar Lumens using US dollars, euros or pounds
  4. Storing Lumens securely

1. Choosing a cryptocurrency exchange

We won't recommend you just any cryptocurrency exchange. Why? Because everybody's needs are different. When choosing a cryptocurrency exchange to buy XLM, the following factors come into play:

  • Fee structure and rates: Each cryptocurrency exchange has different price rates and different fee structures which can start from just 0.1% per transaction to up to 10% per transaction. Low fees, however, often come at a trade-off such as hard-to-use user interfaces and limited payment options.
  • User experience: If you're rather new to cryptocurrencies, user experience is a key factor to consider. An intuitive user interface enables you to be better informed and efficient with less risk of making mistakes.
  • Payment methods: You should ideally choose a cryptocurrency exchange that offers your preferred payment method (e.g. bank transfer, credit card payment, Skrill, etc.). Beware of payment method surcharges that may be added to your price when buying Lumens.
  • Security: Make sure to select a marketplace that has a good security track record and offers best-practice security features such as cold storage or two-factor authentication.
  • Trust: Always make sure that the selected marketplace trustworthy. Read reviews on Cryptoradar to learn more about the experiences from other users.

Cryptoradar helps you in your decision to find the best Stellar Lumens exchange for your needs.

To narrow down the list of XLM exchange, simply use the filters (payment methods, country, features, etc.) and find a marketplace suitable to your needs. Last but not least, choose one or more of your top picks by clicking the "Go to Site" link and you're set to go ahead and start the buying process.

2. Creating an account at an exchange

Creating an unverified account is easy. Simply enter your personal details on the signup form of the chosen exchange. However, before you can buy Lumens, you have to to verify your account. The verification process and its duration very much depends on the chosen exchange - nevertheless, in most cases you will either need to upload identification documents (such as a copy of your passport and a recent utility bill as a proof of legal residence) or perform an identity verification via a video chat with a support agent who will validate your documents remotely.

Hint: Look for exchanges offering instant verifications via video-chat (such as Bitpanda) or requiring no verification at all to save time.

3. Buying Stellar Lumens using US dollars, euros or pounds

If your chosen exchange does not support direct purchases via credit card, Skrill or other instant payment methods, you'll need to deposit money first. Once your payment is received by the cryptocurrency marketplace, you can finally go ahead and buy IOTA. Performing the actual purchase is actually the easiest part of the story. On most marketplaces it’s as easy as selecting the purchase amount (in US dollars or euros) and clicking the buy button.

4. Storing Lumens securely

After finalising the purchase, the purchase amount will be credited to your Lumens wallet on the exchange. For security reasons, however, we strongly encourage you to store Lumens securely in a cold wallet, if you keep it as a long-term investment.

The Stellar Development Foundation recommends a number of wallets that support Lumens. To withdraw Lumens to your wallet, please follow the instructions and guides of one of the recommended cryptocurrency wallets.

Frequently asked questions

Rather than being mined or dispensed by the blockchain, the Stellar network simply created 100 billion lumens at the outset, and made 1% more annually. In late 2019, a vote was taken to do away with the inflationary mechanism, and to reduce the total lumen supply to around 50 billion. Of these, 20 billion are traded on the open market, while the remaining 30 billion remain under the control of the Stellar Development Foundation.

The Stellar network was conceived as an open network for storing and moving money. It works by allowing participants to create and send digital surrogates of any currency that they like. This means, effectively, that all of the financial systems in the world can be brought together on the same network.

Lumens is the native currency of the stellar network. It’s used to incentivise the work necessary to make the network function. In the words of the developers, the Stellar network is too easy to use, which means that there needs to be some small barrier to entry to prevent the ledger from becoming clogged with spam.

Each account in the network must therefore have a minimum balance of one lumen, and a transaction fee of a small fraction of a lumen. This prevents bad behaviour from spambots, while still keeping things accessible for everyone else. Rather than using an existing currency, like the dollar, the lumen was created, just to keep things neutral and free from external control.

Lumen and XLM are the same thing — the latter being the ticker name for the former. Stellar is the blockchain protocol through which currencies of all kinds can be transferred, via the Lumen.

Stellar performs a function that, while not being entirely unique, serves an incredibly useful purpose. As such, demand for the network, or something like it, is likely to increase as the need for interoperability between financial systems increases over time.

The Lumen exists to prevent the Stellar ledger from being filled with garbage data, like spam. It does this by introducing a tiny minimum fee to each transaction. Lumens is the currency for this fee, to prevent the network from being tied to a particular currency, and to prevent the network as a whole from being bound by ‘economic and political factors’.

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