WTF is Stellar, Stellar Lumens, and Their Partnership with IBM?


Estimated reading time: 4 minutes, 40 seconds

Stellar is an open source blockchain built on the idea of exchanging value, with the main goal of ultimately becoming the future of banking. Anyone can use Stellar to to make peer-to-peer payments without worrying about the difficulties of sending money across borders or exchanging different currencies. With Stellar, you can send money quickly and cheaply. Transaction times only take 2-5 seconds to settle. Furthermore, they have a very low fee of .00001 lumens (fractions of a cent in USD). Lumens is the networks native token.

But why have a fee at all if your mission is to help provide services to the underbanked? Even such a small amount can help safeguard the Stellar network from spam and bad actors. Each account requires a minimum balance of .5 lumens (1/10 of a cent). This helps keep the ledger free of an excess of abandoned accounts by encouraging people to use the minimum number of accounts they need.

While custom tokens can be created and traded on the Stellar blockchain, lumens (XLM) are its native unit of digital currency. Think of it like the Ethereum or NEO network.

When Stellar was first launched in 2014 their native asset was called stellar. This was changed in 2015 with the release a network update. Changing the name of coin from stellar to lumen helped distinguish the currency from the Stellar network and nonprofit Stellar Development Foundation (SDF).

The SDF was created by Jed McCaleb, former co-founder of Ripple. Their mission has been to make low-cost financial services available to the developing world to help fight poverty.

Find out more about the Stellar Development Foundation here.

Stellar vs Ethereum: ICO potential

Both the Stellar and Ethereum blockchains have been popular options for ICO’s throughout 2017. Ethereum may be more ubiquitous in the crypto world, maintaining a spot near the top of the list of cryptos by market cap. Meanwhile Stellar has only recently broke into the top 10 as of this January (2018).

In spite of this, Stellar has some serious advantages over Ethereum. Stellar is faster and far cheaper to use. This is, in part, because it has its own integrated exchange, while Ethereum requires fees for a third party exchange. Transaction speed is an important metric due to how volatile the crypto market can be.

On the other hand, Ethereum does have Turing complete smart contracts. This means it could be a better match for ICOs that have a need for more complicated smart contracts. However, most projects probably won’t have a need for contracts that complex.

Partnership between Stellar and IBM

Stellar and IBM have partnered on many interesting projects that make use of Steller’s distributed ledger. One of these projects is IBM’s Universal Payment Solution. It could remove traditional barriers and change how people move money in the South Pacific.

IBM wants to make it much easier and quicker to settle cross-border payments in different currencies. Financial institutions in the region trust IBM to integrate Stellar’s protocol allowing payments to be settled on their public network. This has the added benefit of making the transactions immutable.

Lumens are currently a bridge for currencies from thirteen different countries to make cross-border transactions. It’s possible to complete transactions almost instantly. Rather than the three to five days it would take with traditional methods.

In the future, IBM plans to expand on this program by using their Token Lifecycle Management Product to issue tokenized assets on the Stellar network. Lumens will still have utility as they power transactions. These tools are helping to financially include developing nations with the rest of the world.

Furthermore, Stellar and IBM are helping improve the world in a different way with their partnership with Veridium Labs LtD. The Stellar distributed ledger is not just for transferring currencies. It can manage any kind of value including carbon credits. Carbon credits are tradeable certificates or permits used by companies to offset the amount of greenhouse gases they produce. To further fight the problem even further, they use funds from these credits to finance carbon reduction projects.

CEO and co-founder of Veridium, Todd Lemons, believes that carbon credits are underutilized because of how difficult they are to use and how complex the current system is. To solve for this, Veridium will issue tokenized triple gold REDD+ carbon credits created by InfiniteEARTH onto the Stellar blockchain, leaving IBM to manage trades.

By simplifying the processes of acquiring and trading carbon credits as well as reducing costs, IBM and Veridium are working to increase their use. This work makes an intangible cost to the environment easier to offset by business that need to produce greenhouse gases.

Looking forward

Stellar looks to have bright future. They are currently in talks to acquire Chain for approximately $95,000,000 USD (500,000,000 lumens). Chain is a start-up building blockchain tech for financial use. Stellar has made progress towards their mission of helping the underbanked by forging partnerships with IBM and others. Their partners take advantage of Stellar’s distributed ledger and speedy, low cost transactions to achieve goals that would not be possible in a world without blockchain.

WTF IS is our series where we explore some of the most frequently asked questions about blockchains, cryptocurrencies, and the technology surrounding these fields. Want to acquaint yourself with blockchain? Then WTF IS is the perfect series for you!

If you enjoyed this video and series idea, please give us a “Like.” And don’t forget to subscribe to our channel so you can stay tuned for more installments of WTF is and other series! Feel free to reach out too if you have ideas for us to cover!