Stellar is one of the early cryptocurrency networks that has managed to maintain a leading position in the crypto markets. With innovative services not restricted to crypto alone but the general world of finance, Stellar stands out among other blockchains. As the cryptocurrency market matures, an increasing number of traders are looking to trade Stellar Lumens (XLM). While this digital asset may not be as well-known as Bitcoin or Ether, it offers a number of advantages that could make it a valuable addition to any crypto portfolio.
Read on to learn everything you need to know to get started with trading Stellar Lumens, from it's history, advantages and disadvantages, to how you can buy and trade it using crypto CFDs.
What is Stellar Lumens and how does it work?
Stellar is a decentralised payment platform that uses blockchain technology to connect financial systems across the globe to speed up cross border payments and reduce costs. Just like Ripple, Stellar enables users to trade and send all forms of currencies - crypto and fiat - without necessarily having the currency type at hand. This is made possible through Lumens (XLM), the native cryptocurrency of the Stellar network. The protocol converts the currency sent through Stellar to XLM tokens which are later converted to your desired currency.
For example, if Alice wants to send money from Switzerland to Bob in the U.S. who wants dollars for payment, she doesn't necessarily need to have dollars at hand. Instead, she sends Swiss franc through the Stellar network, which converts it to XLM and eventually to dollars for Bob to receive. It takes only a few seconds and tiny fees to complete the process, unlike the slow, complex and high-cost traditional process. XLM is also used for paying transaction fees in the Stellar network.
Transactions in the network are validated via the Stellar Consensus Protocol (SCP) every five seconds and are recorded on a decentralised blockchain ledger. For end-users, Stellar serves as an innovative financial service by enabling sending, saving and trading of digital currencies to be fast, efficient and low-cost. While for builders, it serves as an open financial infrastructure where they can build wallets, apps, or issue new digital tokens to fill a market need. Additionally, the Stellar Network allows for developing networks and other use cases, including bank loan distribution to the unbanked.
The development and growth of the Stellar Network are guided and supported by the non-profit Stellar Development Foundation based in the U.S. The Foundation helps to maintain Stellar's code and also provide support for institutions using the Stellar Network.
Why has Stellar become so popular in recent years?
Stellar's popularity comes off its ability to cater for both individual and institutional financial needs. While many crypto projects are focused on replacing the current financial institution, Stellar aims to improve it. This has made Stellar grow in popularity, landing partnerships with top financial platforms, including Moneygram and Flutterwave.
Other contributing factors to the popularity of Stellar include a partnership with technology consulting firm Deloitte to develop a payment app and collaboration with Stripe to form the Stellar Development Foundation.
When was Stellar created?
Stellar started on July 31, 2014, with the same protocol used by Ripple. The non-profit Stellar Development Foundation was founded in early 2015 to support development on the payments network. Later in April 2015, the Stellar Development Foundation carried out a fork that upgraded the Stellar network with a new consensus mechanism known as the Stellar Consensus Protocol (SCP).
Stellar was co-founded by Jed McCaleb, founder of the now-defunct Mt.Gox exchange and co-founder of Ripple, and former lawyer Joyce Kim. David Mazières also contributed by developing the Stellar Consensus Protocol.
How does the Stellar Network validate transactions?
Unlike many cryptocurrency networks that use Proof-Of-Work or Proof-of-Stake consensus mechanismsfor validating transactions, Stellar utilises a unique type of consensus process called the Stellar Consensus Protocol (SCP). Developed by the Stellar Development Foundation, the protocol eliminates the need for miners through a Federated Byzantine Agreement (FBA) algorithm that uses quorum slices (a portion of the network) to validate transactions.
Each node in the network typically chooses a set of trustworthy nodes to validate transactions. Immediately when a transaction is approved by these nodes, it is added to the blockchain ledger. This process has made the Stellar network very fast, processing up to 1,000 transactions per second (TPS).
Additionally, transaction fees are drastically reduced compared to other protocols with a fee of 0.00001XLM (1/10,000th of a cent) per transaction. Anyone can become a node in the network by installing and running the Stellar Core software. No expensive mining hardware is needed. However, these benefits come at the cost of involving a kind of 'trust' in the system.
XLM price history
Stellar has been in the crypto market for over seven years, experiencing both bull and bear marketsduring that time. Let’s take a look at some of the key price movements of XLM since its launch:
- 2015: The first year of trading for XLM was fairly quiet since it wasn't trading on leading digital asset exchanges. Some crypto data platforms don't even have a record for this year. However, data from Coinmarketcap shows XLM was trading below $0.005 at the time. This may be in part due to the crypto market crash that happened a year earlier.
- 2017: XLM started making moves this year as Lightyear.io, a for-profit entity was launched as the commercial arm of Stellar. This saw XLM crossing the $0.05 limit for the first time and later a high of $0.0623. Stellar later announced a benefits program that would award partners up to $2 million worth of XLM for developing projects. XLM later touched a significant price of about $0.2 in December following the start of the crypto bull market, crowning the year with a 34,900% increase in the value of XLM.
- 2018: As cryptocurrencies were soaring to new all-time highs, XLM rode the bull market as it skyrocketed to its current all-time high of $0.9381 in January 2018. However, in the following months, XLM joined other cryptocurrencies on a downward spiral. Even with the announcement of Lightyear Corporation acquiring Chain, Inc, the downward trend of XLM continued ending the year with a 77% decrease.
- 2019 - 2020: The price of XLM crashed further in this period, touching a low of $0.028 in April following the Covid-19 pandemic. As 2020 was coming to an end, XLM showed signs of growth hitting a high of $0.2298 in December.
- 2021: XLM rallied with the rest of the crypto market in the first two quarters of the year, jumping to a high of $0.7965 in May. However, this rally was short-lived as the crypto market corrected, sending the cryptocurrency to around $0.2. At the time of writing, XLM still trades around this price.
What is the market capitalisation of Stellar Lumens?
XLM has a market capitalisation of $5,271,002,438, placing it at number 37 among the top cryptocurrencies in the market. Lumens runs on a decentralised blockchain ledger, which makes it transparent for anyone to view the complete history of transactions since the network’s launch. You can use block explorers like stellarchain.io to check out the transaction history.
If you want to track a particular transaction, copy and paste the TxID on the search bar of the block explorer. While you can view these transactions, the identity of users remains uncompromised.
Stellar trading guide
Stellar remains a leading blockchain network, with over seven years in the market. As such, the network’s cryptocurrency is supported by most leading exchanges and crypto-friendly brokerage platforms. Now, let’s look at how to invest, trade and buy XLM tokens.
How to trade Stellar Lumens (XLM)
XLM presents several trading opportunities for traders as it exhibits the high volatility seen in many other cryptocurrencies. Stellar Lumens traders can buy and sell XLM using crypto CFDs with a brokerage like Axi.
The steps below can get you started.
- Do your research on XLM and how it has performed in the past.
- Develop a strategy that aligns with your investment purposes and risk tolerance.
- Choose a brokerage or crypto exchange that supports XLM trading.
- Deposit on the platform using fiat currencies or cryptocurrencies.
- Put your strategy to work.
- Track your trades to effectively optimise your strategy.
How to invest in Stellar (XLM)
The innovative solutions provided on Stellar has attracted lots of investors to its platform. Investing in Stellar is as simple as following the steps outlined in this section to buy, trade or hold the XLM token.
How to buy Stellar (XLM)
XLM is listed on several top cryptocurrency exchanges. To purchase XLM, you need to open an account with a crypto exchange, own an XLM wallet, and have money at hand to make your purchase. Below are the steps you need to take to buy lumens.
- Register on a crypto exchange that supports XLM. You may be asked to perform a two-step verification process.
- Deposit the fiat currency or cryptocurrency you intend to use for your purchase.
- Open an order.
- Once the order is filled, the XLM tokens will appear in your exchange wallet.
- For enhanced security, you may want to transfer your XLM to a wallet that enables you to manage your wallet's private keys by yourself.
How to store Stellar
XLM is stored in digital wallets. You can store XLM on exchange wallets, web wallets, software wallets, hardware wallets, and paper wallets. You can safely store XLM with the following steps:
- Choose a wallet based on your investment purpose - hardware wallets for holding, web/exchange wallet for active trading.
- Set up the wallet and backup your passphrase or private keys.
- Transfer the XLM tokens to your wallet using your wallet address.
- You have successfully stored your XLM tokens in your wallet.
Advantages of Stellar
Discover the advantages and disadvantages of Stellar Lumens below:
- Stellar processes transactions with minimal fees compared to traditional finance or other leading blockchain platforms.
- The network uses less energy for its operations than many other leading blockchains.
- Stellar helps simplify cross-border payments.
- The Stellar Network helps to improve the services of financial platforms.
Disadvantages of Stellar
- Some criticise its consensus mechanism is too centralised.
- Stellar has a low market capitalisation compared to other top blockchain networks.
What price is Stellar expected to reach?
Considering the first few unimpressive years of XLM, many never believed it would survive this long in the crypto market. However, the native token of the global payments platform has weathered the storm and still holds a place among top cryptocurrencies.
While it’s impossible to make an accurate price prediction for Lumens, Wallet Investor forecasts a 392.92% increase to $1.045 in five years, meaning a $100 investment today will be worth $492.92 in 2027.
The crypto market is known for unexpected price swings that defy analysis most times. Hence, it’s important for you to carry out your own research and not base your investment decisions on other people’s price predictions.
