There is a commonality among almost all of the top cryptocurrencies; they are intended to be used as a digital currency. While this may sound obvious, many of the altcoins within the system are actually designed to run proprietary systems or decentralized applications – basically any of the ERC20 standard tokens. In a market as volatile as the cryptocurrency ecosystem, no one should be surprised when a newcomer suddenly rises to the top. Even then, it’s quite the accomplishment that Stellar Lumens have seized the market cap that they are enjoying today.

Stellar.org

Stellar.org is the non-profit organization that operates the Stellar network. The highest tier of Stellar.org’s leadership is a triumvirate of the three founders; they are considered members for life, and help to elect the governing body in the form of a Board of Directors. That board makes the day to day decisions on how Stellar will proceed. This is a uniquely centralized take on governance within a cryptocurrency, particularly one of the top 10 whose stated purpose is as a digital currency. It allows Stellar to have a much more cohesive guidance than some of their competitors. So long as they listen closely to what the Stellar community wants, they may hold an advantage over more consensus based coins.

A New Option for Foreign Exchange

Much like their rival Ripple, Stellar seeks to position their Lumen cryptocurrency as the preferable means for foreign currency exchange. The current, conventional system is archaic and expensive – anywhere from 5-10% depending on method. This serves as a robust incentive for someone to create a cheaper, faster and more universal system for exchanging fiat currencies.

Stellar’s transaction fees are a pittance compared to traditional exchanges, in line with their status as a non-profit organization. A nominal fee is charged for each transaction within the network to help combat spam and DDoS attacks, but the process is otherwise free of fees. It is also exponentially faster than traditional exchanges – taking second instead of days.

The Lumen Cryptocurrency

Developing nations get the majority of their foreign currency from a single source - remittances. Expats in developed nations send home a portion of their pay, which has a much higher value in their home country. Unfortunately, it cannot always be used direct as foreign fiat currency, and must be converted to the local currency. That process is expensive or even impossible, depending on the location.

The Stellar Lumen is positioned to serve as a bridge currency for foreign exchange. Currencies that may not have a trading pair, or that are very rarely traded, will both be usable to purchase Lumens. From there, they can be converted into another fiat currency – effectively using the Lumen as a bridge currency between the two. IBM has already signed on to use the Stellar network for their South Pacific endeavors, expecting a fairly large volume of currency exchange through the pilot program.

So why Lumens?

Stellar is a non-profit that seeks to provide banking serves to developing nations. This is a lofty and praiseworthy goal, and support of the Lumen cryptocurrency helps them to move forward with it. The inherent value of a reliable bridge currency should keep Lumens trading at a fairly high price point per unit. As more companies and governments sign on to the system, the value will only increase.

But why not?

The Stellar network is not all that different from Ripple – they are both aiming to be a universal currency, and Ripple is far ahead of Lumen’s market cap. While Ripple is centralized and controllable at the currency level, Lumen is decentralized more in the vein of the original goals of Bitcoin. Ripple is the corporate version to Stellar’s non-profit, which may make Ripple a more attractive investment option.

This is part of my ongoing series of basic primers for cryptocurrency. If you found it useful, interesting or just like my style - consider following me!

Previous primers;
A Cardano Primer
A Ripple Primer
A Bitcoin Cash Primer
A Litecoin Primer
A NEO Primer
An Ethereum Primer

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