Categories: EducationFAQ

What are Stellar Lumens?

There has been a strong focus on the Stellar Lumens tokens over the past few days. Cryptocurrency enthusiasts may know this initiative under the name of “XLM”, as that is how this unit is traded on various exchanges. However, there seems to be some confusion as to how these tokens are created or how they are supposed to be used.

An Overview of Stellar Lumens

It is quite interesting to note how these tokens suddenly got a lot of interest as their value went up. The individual value per XML has gone up spectacularly over the past 48 hours, which sparked a discussion as to why these tokens exist in the first place. Lumens are the native asset of the Stellar network, which most cryptocurrency enthusiasts will be somewhat familiar with.

To be more specific the Lumens are built into the Stellar network, where they act as a unit of digital currency. Similarly to how Bitcoin and other cryptocurrencies work, a Lumen cannot be held physically, yet users can exert digital ownership of these assets with a private key. The Stellar network launched with 100 billion STR tokens in 2014, which were eventually renamed to Lumens in 2015 as part of a major platform overhaul.

The renaming process was done to avoid confusion, as having a token named in the same manner as the network is quite confusing. However, one could argue the Stellar network does not need a native asset. That assumption is wrong, though, as Lumens are designed to prevent transaction spam on the network. Additionally, all Stellar accounts need to hold at least 20 XLM in their balance at all times.

More importantly, the idea behind Lumens is how they may facilitate multi-currency transactions at some point. The token can be used as a “bridge” between different currencies that do not have their own direct market. It brings additional value to the Stellar network, which has gotten a lot of attention from investors and traders all of the world over the past few days. As a result, the value of XLM has increased to $0.045 each.

As one would expect from such an asset, there are some statistics to take into account. Five percent of the total supply will be kept by the team to fund operations. Some of the funds will be auctioned off at times, with the initial auction dating back to March 2015. The vast majority of coins is given away to anyone who wants the XLM token, nonprofits, and Bitcoin holders. Anyone who kept Bitcoin in an exchange in March of 2015 has received a small portion of XLM as a result.

In the end, it is not hard to see why Stellar Lumens would be of interest to investors. The currency can be used to facilitate blockchain-based multi-currency trades regardless of existing markets and gateways. Whether or not that means one should invest in XLM, remains a question that is difficult to answer. There will always be a market for these tokens, but they are not necessarily a speculative asset by any means.

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JP Buntinx

JP Buntinx is a FinTech and Bitcoin enthusiast living in Belgium. His passion for finance and technology made him one of the world's leading freelance Bitcoin writers, and he aims to achieve the same level of respect in the FinTech sector.

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