Lumen Definition

There have been many cryptocurrencies created since the start of the market over a decade ago, but few have survived, let alone found a degree of success. Blockchain technology is constantly evolving, so projects and cryptocurrencies often replace one another in a sort of evolutionary battle.

One cryptocurrency network, Stellar Lumens (XLM), has managed to survive for many years, aiming to be a low-cost form of payment for cross-border transactions.

Key Takeaways

  • Lumen is the cryptocurrency for the Stellar Lumens network and was first launched in 2014. 
  • Lumen is used to facilitate low-cost, speedy cross-border transactions. 
  • The Stellar Lumen project was co-founded by Jed McCaleb, who was the co-founder of Ripple and the founder of Mt. Gox.
  • Stellar Lumens uses the Stellar Consensus Protocol to verify transactions.

What Is Lumen?

Lumen is a cryptocurrency that facilitates low-cost cross-border transactions, much like Ripple (XRP) does. Stellar Lumens, or Stellar for short, refers to the actual protocol itself, while lumen refers to the digital asset. The network was created by former Ripple co-founder and Mt. Gox founder Jed McCaleb, along with former lawyer Joyce Kim.

While it might seem that Stellar Lumens is nothing but a protocol for digital currency payments, it’s actually more than that. Stellar describes itself as a universal system for digital money and can serve as a medium of exchange between illiquid assets.

There are currently about 50 billion lumen coins, with 20 billion available in the open market. The remainder will slowly be meted out to the public over the next few years.

History of Stellar Lumens

The project was first launched in July 2014, making it one of the earlier projects to hit the market and reach some level of success. McCaleb and Kim were the co-authors of the protocol, and they created the nonprofit Stellar Development Foundation in collaboration with Stripe CEO Patrick Collison.

The protocol has undergone multiple upgrades over the years, and notable milestones include signing a deal with TransferTo for cross-border payments to more than 70 nations. It also became the first to receive a Sharia compliance certificate for payments and asset tokenization. Stellar is also working with IBM on a stablecoin.

Stellar also has worked with several other major companies, including Deloitte. The company announced an integration with Stellar in 2016 to build Deloitte Digital Bank, the cross-border payments application. In 2021, the Ministry of Digital Transformation of Ukraine announced a partnership with Stellar to help develop digital infrastructure in the country.

What Does Lumen Do?

Lumens are at the heart of the whole Stellar cross-border transaction experience. It allows the creation of digital representations of a U.S. dollar—or any other currency. The lumens are used to represent a dollar when it is transacted between parties. This can have a lot of impact when it comes to cross-border transactions.

Using Stellar allows transactions to be cheap and fast, which has implications for how we transact in today’s highly digital world. Furthermore, it facilitates investment in assets such as the U.S. dollar without actually owning one particular account, which expands financial access. Financial inclusivity is one of the key drivers of the cryptocurrency market, and Stellar Lumens makes this a priority as well.

The Stellar network also can be used for central bank digital currencies (CBDCs), which may pique the interest of governments wanting to outsource some of the development work on digitized national currencies.

How Does Stellar Work?

Stellar is a decentralized network, much like Bitcoin and Ethereum. It uses the Stellar Consensus Protocol (SCP) to ensure that transactions are valid. This is different from Bitcoin’s proof-of-work algorithm, as Stellar uses verification nodes, not miners, to verify transactions on the ledger.

Transaction times on Stellar are about three to five seconds, which is much faster than many competitors. The transaction throughput is much quicker than many competitors, at 1,000 transactions per second.

Stellar’s uses are best illustrated with case studies that the project has released. Stellar has been used to boost the African digital economy with GetPaid and has served as a foundation for the all-in-one enterprise payment platform COINQVEST.

Stellar also has an active ecosystem, and many individuals and groups are building on the protocol. Some of these companies include MoneyGram, Circle, Coinme, MoonPay, and Ledger. The project is also keen on making the development experience easier for developers and has extensive documentation and tools to aid that process.

Where Is XLM Available?

As one of the market’s most popular cryptocurrencies, XLM is widely available on centralized exchanges such as major crypto platforms (Binance, Coinbase, Gemini, Kraken, and others). Stellar does have a few decentralized exchanges (DEXs), and the XLM token also can be purchased there.

Stellar’s Use Cases Still Hold Value

Stellar Lumens’ tie-ups and case studies indicate that the network is attempting to build a modern economy that is frictionless and borderless. This has particular importance for those in emerging markets, as Stellar’s features encourage financial inclusivity. There is the potential for large groups of people to enter the global economy with a network like Stellar.

There is a lot of competition in the cryptocurrency market, but Stellar has shown that it can survive the test of time. With more governments taking to blockchain technology and applying it for processes like cross-border transactions, Stellar may be well-positioned for the future.

What Are Stellar Lumens Used for?

Lumens are the intermediate currency that allows Stellar network users to execute trades quickly. A built-in protocol automatically converts money sent through Stellar to lumens and then to the desired coin.

What’s the Difference Between Lumens and Stellar Lumens?

Lumen is a cryptocurrency that facilitates low-cost cross-border transactions. Stellar Lumens, or Stellar for short, refers to the actual protocol itself. Lumen refers to the digital asset.

What Is XLM?

The term “Stellar cryptocurrency” refers to a digital, or virtual, currency developed by the Stellar Development Foundation. The organization’s currency, which is called the lumen, is traded under the symbol XLM on various cryptocurrency exchanges.

The Bottom Line

There is a lot of competition in the cryptocurrency market, but Stellar has shown that it can survive the test of time. With more governments taking to blockchain technology and applying it for processes like cross-border transactions, Stellar may be well-positioned for the future.

Investing in cryptocurrencies and other initial coin offerings (ICOs) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Because each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date when this article was written, the author does not own the cryptocurrencies mentioned above.

Article Sources
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