What Is Lumens (XLM)? A Complete Guide to Stellar’s Native Currency

Lumens, often referred to by their ticker symbol XLM, are the native cryptocurrency of the Stellar network. Launched in 2014, Stellar was designed to facilitate fast, efficient, and low-cost cross-border payments and currency exchanges. Unlike many other cryptocurrencies, Stellar focuses on connecting financial institutions, payment systems, and individuals to enable seamless transfers of money anywhere in the world. 

Lumens play a crucial role in this ecosystem, serving as the network’s operational token to pay transaction fees and act as a bridge between different currencies. This article will explore what Lumens are, how they function within Stellar, and why they matter in the broader landscape of digital finance. Also you can check the XLM price here.

What Are Lumens (XLM)?

Lumens (XLM) are the native digital currency of the Stellar blockchain. They are unique because they do not require an issuer or trustline, meaning they are intrinsic to the network itself. Lumens serve multiple purposes within the Stellar ecosystem:

• Transaction Fees: Every transaction on the Stellar network requires a small fee paid in Lumens, which prevents spam and ensures the network remains efficient.
   
• Minimum Account Balance: To maintain an account on Stellar, users must hold a minimum balance of Lumens. This requirement helps secure the network and prevents ledger bloat.
   
• Bridge Currency: Lumens act as an intermediary currency to facilitate exchanges between different fiat and digital currencies, especially when no direct market exists between two currencies.
   

The Stellar network requires each account to hold a modest number of Lumens at all times, typically a few XLM, which helps maintain network integrity and security.

How Does Stellar Use Lumens?

Stellar’s core innovation lies in its ability to enable instant and low-cost cross-border payments. Lumens are integral to this process. When a user initiates a transaction involving different currencies, Lumens can be used as a bridge to convert one currency to another quickly and inexpensively. For example, if someone wants to send British pounds to a friend in Spain who needs euros, Lumens facilitate this exchange by acting as a universal intermediary.

The network also uses “anchors,” trusted entities that hold deposits and issue credits on the Stellar network. Anchors enable users to convert fiat currencies into digital tokens on the network and vice versa, making the system accessible and practical for everyday use. This model supports financial inclusion by providing banking-like services to unbanked populations.

Transaction fees on Stellar are extremely low, often costing less than $0.01 per transaction, making it an attractive option for micro-payments and remittances. The network’s consensus mechanism, the Stellar Consensus Protocol (SCP), allows transactions to be confirmed within seconds without the need for energy-intensive mining.

The Technology Behind Lumens and Stellar

Stellar uses the Stellar Consensus Protocol (SCP), a unique consensus mechanism that differs from traditional proof-of-work mining used by Bitcoin. SCP relies on a federated Byzantine agreement system where trusted nodes validate transactions, enabling fast and energy-efficient processing.

Lumens are not mined; instead, the initial supply of 100 billion XLM was created at launch. Originally, Stellar had an inflation mechanism that increased the supply by 1% annually, but this was discontinued in 2019 following a community vote. Currently, the total supply is about 50 billion Lumens, with no new tokens being created.

The network also enforces minimum balance requirements to prevent ledger spam. Each account must maintain a minimum balance calculated based on the number of ledger entries it holds, such as trustlines, offers, and data entries. This system ensures the network remains scalable and secure over time.

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How Lumens Compare to Other Cryptocurrencies

Lumens differ from many other cryptocurrencies in several key ways:

• No Mining: Unlike Bitcoin or Ethereum (prior to Ethereum 2.0), Lumens are not mined. This eliminates the need for expensive hardware and high electricity consumption.
   
• Focus on Cross-Border Payments: While Bitcoin is often seen as digital gold and Ethereum as a platform for decentralized applications, Stellar’s primary focus is on enabling fast, affordable international money transfers.
   
• Low Transaction Costs: Stellar’s transaction fees are a fraction of a cent, much lower than many other blockchain networks.
   
• Anchors and Fiat Integration: Stellar’s use of anchors to bridge fiat and digital currencies is a distinctive feature that enhances usability and adoption.
   
• Inflation Policy: Stellar initially had an inflation mechanism to encourage spending rather than hoarding, but this was removed to stabilize the supply.
   

These characteristics make Lumens particularly suited for remittances, micropayments, and financial inclusion initiatives, especially in regions underserved by traditional banking.

Conclusion

Lumens (XLM) are more than just a cryptocurrency; they are a vital component of the Stellar network’s mission to create an open financial system accessible to everyone. By serving as a bridge currency and powering fast, low-cost transactions, Lumens enable seamless currency exchanges and cross-border payments. 

Stellar’s innovative consensus protocol and integration with anchors make it a practical and scalable solution for global finance. Whether you are a beginner or an enthusiast, understanding Lumens provides insight into how blockchain technology can transform the way money moves around the world.

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FAQ

What is the primary use of Lumens (XLM)?
Lumens are used to pay transaction fees on the Stellar network, maintain minimum account balances, and act as a bridge currency for exchanging different currencies.

How fast are transactions on the Stellar network?
Transactions on Stellar are typically confirmed within a few seconds, making it one of the fastest blockchain networks.

Is Lumens mining-based?
No, Lumens are not mined. The total supply was created at launch, and the network uses the Stellar Consensus Protocol instead of proof-of-work mining.

Can Lumens be used for direct payments?
While Lumens can be used for payments, their primary design is to facilitate currency conversions and cross-border transactions rather than direct retail payments.

What are anchors in the Stellar network?
Anchors are trusted entities that hold deposits and issue credits on the Stellar network, enabling users to convert fiat currencies into digital tokens and vice versa.

How many Lumens are currently in circulation?
After the removal of the inflation mechanism, approximately 50 billion Lumens are in circulation, with no new tokens being created.