XLM is the ticker symbol for Stellar Lumens, a popular cryptocurrency. Stellar is a distributed payments infrastructure that is completely open source. It is like other digital currencies in the way it uses blockchain technology but it runs on a specially created network.
Stellar is currently the 9th largest digital currency in the world with a market capitalization of about $4.78 billion at the time of writing.
It was created by the folks at the Stellar Development Foundation, which is a not-for-profit organization. They have a number of high-profile team members and advisors such as Matt Mullenweg and Kamal Ravikant.
What is the background to XLM?
XLM stems from Stellar. It was first founded back in 2014 by Joyce Kim and Jed McCaleb and initially was a hard fork that came from the Ripple protocol. After making numerous changes to the consensus code, they had their own new network created and it was dubbed Stellar-core.
It is effectively an open-source protocol that allows for the exchange of money. All of the relevant service operations are a form of software implementation for the protocol and the internet is used for the communication and connection of the various servers, which results in a worldwide value exchange network.
All of the services will have a record of the accounts on the network which are kept in the database, which is the ledger. The servers will propose changes by proposing transactions which will see account balances changing or the property of an account being switched to another.
For the transactions to be processed, all the servers need to be in agreement and this process is called the consensus. This happens regularly, usually every two to four seconds. This ensures that all servers have an identical copy of the ledger.
As soon as this new network was created, one of the founders, Joyce Kim, claimed that there were significant flaws in the Ripple protocol. This was of course combatted by the team at Ripple, specifically by their CTO Stefan Thomas who wrote a detailed blog post on the matter.
Following this controversy, they created the Stellar Development Foundation (SDF) and a version of the protocol was updated which contained a brand-new consensus algorithm.
Their main goal with this platform was to have a network that efficiently connected banks, payments systems and people.
They first launched their new code and whitepaper for their update in April 2015. It was in November 2015 that this network first went live.
At the beginning, the token was called Stellars and was launched in 2014 with 100 billion units in circulation. However, after they made and released this upgrade in 2015 they decided to change its name to Lumens (XLM).
How is XLM different to other cryptocurrencies?
XLM aims to create a distinct link between digital and fiat currencies which means that they can be traded for each other almost instantaneously with there being no need for either the seller or the buyer to have to touch the given cryptocurrency in any shape or manner during the process.
The network has its own digital tokens for two main reasons. Firstly, XLM acts as an anti-spam tool on the network.
As every transaction processed on the network has a tiny fee (0.00001 XLM), this performs as a way to prevent users from conducting some sort of attack on the platform, such as a DoS attack which would flood out the entire network. Therefore, XLM is effectively a security feature that prevents these significantly sized attacks from taking place.
In addition to being a security feature, XLM also caters for multicurrency transactions. It is a go-between for various currencies that may not have their own established markets or are part of a market with limited access. Of course, there needs to be a market that is liquid between the given currency and XLM for it work.
What about the random free drops?
Unlike most digital currencies, the XLM team occasionally releases tokens for free to the general public. They do this so everyone can be included in the digital economy. One of their big goals as a non-profit is to help get more people involved with low-cost financial services.
For example, there are more people in Africa with smartphones than with bank accounts. This means that digital currencies could be the ideal way for them to store their wealth, as they don’t need to go through the lengthy process involved with setting up a bank account.
They simply need an internet connection to be able to buy and sell cryptocurrencies as they wish. It also allows people in countries with oppressive regimes to become independent from their fiat currency that may have been crippled and devalued by hyperinflation.
Giving some of their tokens away for free attracts more people to the network and also encourages different companies to design the services that they need. Very often, the reasons why entrepreneurs are successful is that they create a solution to a problem they are currently experiencing themselves.
Therefore, with the Stellar network, people can create solutions to their problems using blockchain technology and can launch their own digital tokens to help with this goal if they want to.
The more people use the Stellar Network, the better the experience will be for those who are using it.
In terms of the breakdown of how these tokens are given away, Stellar give away about 95% of all created tokens, with the remaining tokens being retained to help with the operational costs of running the network.
In rough terms, 50% of the token will go to those people who want XLM, with 25% going towards non-profits, government institutions and business grants. Finally, 20% of the total token supply is given to holders of Bitcoin.
There are different reasons why people will pay to buy XLM even when it can be gotten for free. If there is no giveaway on the horizon or they miss out on the most recent one, they may still want to participate. Some people also want to support this project and the vision the team has by supporting it as a community.
It is believed that the entire supply of XLM will have been distributed within the next ten years. This means that once this point has been reached, people will have to use the likes of crypto exchanges in order to get their hands on XLM.
Compared to most other digital currencies, it is clear that Stellar is something different and they have a motive that is more altruistic than profit driven.
Who are the team behind XLM?
There is a good team in place at Stella including developers, venture capitalists and entrepreneurs.
One of the founders is Jed McCaleb who had previously founded eDonkey2000, which was one of the biggest file-sharing networks around at one point. He was also a founder of Ripple and part of the original Mt. Gox team, which was the world’s very first exchange for Bitcoin.
Joyce Kim is the other founder of the company and she formerly worked as a venture capitalist for Freestyle Capital in addition to being an entrepreneur. She was only 19 years old when she successfully graduated from Cornell University before she went to both Columbia Law School and Harvard grad school.
The chief scientist of the company is David Mazieres and in addition to this role, he is currently a professor in computer science at Stanford University. He has a BS in Computer Science from Harvard, as well as a PhD from MIT in Computer Science and Electrical Engineering. He was the main brain behind the updated Stellar consensus protocol.
Finally, when you take a look at the list of other members of the board and advisors, you will notice some other notable names. These include the likes of Naval Ravikant, Sam Altman, Joi Ito, Greg Stein, Keith Rabois and Patrick Collison.
These are some very significant names that have played an integral part is the success of the likes of Google, Stripe, Microsoft, Y-Combinator and WordPress.
What are the most significant challenges facing XLM?
Of course, just like with any new project, company or digital currency, there will be some significant challenges that XLM will have to face and overcome. With regards to the technology itself, it is very different now than it was when it first forked from Ripple.
This means that the vision has changed somewhat from its beginning and this may be of some concern for some people.
The likes of Ripple have managed to raise funds of about $100 million and have a couple of hundred people working for them. On the other hand, Stellar only has a few people working on it and they have received a lot less funding.
This means that because of the significantly smaller size, Stellar has a much higher chance of having some significant issues that will have to be resolved by only a small number of people.
There have been a few concerns expressed within certain circles regarding the limited transparency that Stellar offers in terms of the salaries their employees receive, as well as transparency surrounding the “airdrops” or giveaways of XLM.
At this point in time, there is not much clarity as to whether these are valid concerns or are just part and parcel of a growing tech company.
How can you buy XLM and keep it safe?
The process of buying XLM is similar to that of purchasing other types of cryptocurrencies. You will need to find an exchange that caters for XLM first of all, with the more popular options being the likes of Poloniex, Kraken and Bittrex.
There is also a program run by the folks at Stellar which involves a direct signup process which makes it a lot easier for people to get their hands on XLM. They want to reach as wide of an audience as possible, with those who are inexperienced when it comes to digital currencies wanting the easiest signup process possible so they can start to learn the ropes.
In November 2017 they provided a major update to their signup program as some people were having issues when it came to claiming their XLM.
One other aspect of their mandate was giving XLM to holders of Bitcoin, with different rounds being conducted to do so, with the last one of these occurring on the 27th of August 2017.
It is important to deal with an exchange that has a good reputation and will keep your information safe and secure. The bigger exchanges will also have higher liquidity, which means you will get the best prices possible in most cases for what you are looking for.
A lot of these exchanges have flaws and weak points that can be exposed by hackers, so you want to keep your purchased XLM in a wallet that is separate from the exchange. Otherwise, you will join the thousands of people who have had their hard-earned funds stolen from the crypto exchange accounts following a hack.
In terms of the best options for storage, a cold wallet is usually the best choice. This is a hardware wallet that is similar to a USB stick and allows you to keep your crypto safe on a device that is not connected to the internet, meaning hackers cannot steal your funds.
There are other options such as desktop wallets and mobile wallets that many others prefer due to their ease of access. The main drawback of using a hardware wallet is that the funds are not as easily accessed when you want to trade them than if you use other options. If you are taking a long-term approach to your crypto investments, a cold hardware wallet is the way to go.
What does the future look like for XLM?
Just like with most cryptocurrencies, a lot of the initial hype and price explosion has died down and investors are now turning away from making investments based purely on speculation and are instead looking at the road maps various digital currencies have and what future plans certain cryptocurrencies may have.
While some have provided detailed plans as what they plan to do next, many others have not thought too far beyond the planning stage for their token sale and are faced with big challenges after they have raised their funds. Stellar and their team have already put a lot of thought into what they are planning to do with a specific roadmap with certain milestones at certain dates.
One of their main areas of focus is that of partnerships. Everyone believes that the key to the growth of XLM in the coming years will rely on the quality partnerships they have and it looks as if they have some interesting plans for partnerships already in the works.
The likes of IBM and FairX got onboard towards the end of 2017 and there are plenty of rumors about future partnerships. These partnerships are significant and are likely to play a big role in XLM’s success in the future.
Is there a role to play in the finance world?
If the major financial institutions start using digital currency, it is very likely that XLM will be their currency of choice. The same goes for blue chip businesses as they are all aiming to reduce transaction costs as much as possible, as this will help them become even more profitable in the long run.
There are not too many indications at the moment that Stellar will be used by consumers as a medium of exchange. Instead, the more conservative path for Stellar to take is focusing on major corporations who are already aware of the massive savings that can be made from embracing digital currencies.
It will very likely take a significant amount of time for everyday consumers to start using digital currencies as a form of exchange, so it is more worthwhile focusing on those who are already at that point in the cycle i.e. the major corporations.
The issue with slow consumer adoption is especially true considering the current strong levels of volatility that are seen throughout the cryptocurrency markets. Consumers will not want to risk wild variations in the value of their money and prices of goods relative to the currency they are using due to this volatility and will instead prefer to stick with tried-and-tested fiat currencies that they are familiar with.
One of their main goals for 2018 is developing the SDEX, which is the Stellar Decentralised Exchange. The team for this project was brought together towards the end of 2017 and is made up of highly experienced individuals in the space.
This is the current working name for this project and they already are testing internal prototypes. They want this to be a high-quality front-end to their underlying technology.
It will be a place for protocol-level trades involving any type of Stellar token, allowing enough liquidity to be provided for investors, as well as a wide choice of asset options.
As there are already many well-established exchanges in the space, Stellar will need to continuously grow the amount and quality of anchors and market makers they have for their network. This is why they are offering grants for as much as $2 million for key partners in these areas.
They also want to use this exchange as a way to bring more and more real-word assets onto the blockchain. Initial coin offerings are already catered for. They will even be looking at a wide variety of different financial instruments that can be used by all investors.
What other key objectives do they have?
Another key goal for the year is the integration of the Lightning Network onto the Stellar Network. This will help with the efficiency of private channel transactions. While the Lightning Network is needed to potentially save Bitcoin, Stellar is already in a good place and doesn’t need saving.
Having said that, Stellar will derive significant security and scalability benefits in the long run with the adoption of the Lightning Network. Specifically, this adoption will allow for a hardening of the network to take place to ensure the security and resiliency of the network.
There will be invariant support added which will involve constant checks being conducted. This will drastically decrease the number of bugs that are seen and minimize the attack surface seen on the protocol layer.
Stellar isn’t one for having very flashy announcements about their forthcoming plans. Unlike other cryptocurrencies, they do not place as much stock in advertising campaigns and instead prefer to let their product and service do the talking for them.
They want to ensure they are doing everything in their power to make sure their existing partners are well looked after rather than just focusing on trying to attract new partners. 2017 saw them attract 37 partners and this development will of course continue, with many partnership announcements expected throughout the coming months.