It is estimated that international transactions between financial institutions amount to billions of dollars annually. These massive inter-bank transactions often represent the bedrock on which the entire financial system and the economy are built, and primarily take place on the SWIFT network.
Now while the SWIFT network is deemed efficient and trustworthy, it has the drawback of incurring huge fees to facilitate these transactions. These fees are not reasonable for small or micro-transactions. Furthermore, the SWIFT network cannot be utilized effectively in areas which do not have the required technology and advanced financial systems in place.
This has created a gap and has lead to further financial inequality between the developed and the poorer countries. Hence, in a bid to address these issues and aim to make payment networks more inclusive, Stellar was born.
Stellar Lumens was created in an attempt to make monetary transactions cheaper, quicker and more reliable, thereby stressing on efficiency. It trades under the ticker ‘XLM’ and uses blockchain technology to facilitate transactions and uses the 32-byte public keys and the ‘Ed=D25519’ signature scheme as crypto addresses. It was co-founded in 2014 by Joyce Kim and Jed McCaleb, who is better known for being the creator of Ripple.
Unlike Ripple, however, Stellar aims to work with developing markets instead of well-established banking and financial institutes. Stellar operates on a digital distributed ledger which is decentralized and functions on a peer-to-peer network. XLM allows transactions in both fiat and digital currencies and can be used to facilitate trades between currencies where there isn’t a direct market, thereby serving as a bridge. This provides users the advantage of being able to carry out international transactions without the inconvenience of drawn-out banking procedures or currency exchanges.
Furthermore, transactions are carried out almost instantly and fees are often minimal. However, it is important to note that this is only possible when a liquid market exists between the currency in question and XLM itself.
The main distinction between Stellar and most mainstream cryptocurrencies is that instead of mining lumens, the cryptocurrency is annually generated at an inflation rate of 1 percent of the total supply. This pool is then distributed among investors based on the number of Lumens they hold. XLM Lumens are tradable on a variety of cryptocurrency exchanges, such as Binance, BCEX, BitMart, and Kraken.
Furthermore, over a dozen cryptocurrency wallets support Lumens; including Ledger, Stellarport and Astral. Interstellar, another prominent cryptocurrency wallet has recently generated a tremendous amount of buzz in the crypto space for proving its ability to fulfill the promise of lightning-fast transactions.
Stellar champions a selfless cause by aiming to empower users in impoverished countries by targeting unbanked communities that do not have access to mainstream payment services. This is carried out in a bid to help combat poverty. However, it has been met with many drawbacks in recent times with the end of the cryptocurrency boom. Furthermore, critics have often slated the feasibility of the network on the premise of tackling and combating various issues.
Despite this, it has been met with positive reactions from large corporations in recent times. In fact, Stellar has already been adopted by organizations such as Deloitte, Parkway Projects, and Tempo, all of which have started building services on the network. Additionally, IBM uses the Stellar network as a part of its Hyperledger Fabric Project to provide a passage for transactions across smaller nations, particularly those in the South Pacific. Hence, it has been said to have the potential to revamp how we process transactions on an international scale and has sometimes been dubbed as a more flexible and inclusive version of PayPal.
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