Stellar Lumen is an inhouse native asset founded by Jed McCaleb in early 2014. A common misconception is that Stellar is an offset of the Ripple. The two, however, have a lot of differences and are very different from each other in terms of essential operation. The founder and developer, Jed McCaleb himself had clarified his stand. He had stated that they are two independently different codes. Stellar is more advanced and has numerous fixes and improvements from the classic Ripple. The primary differentiator in the vision and goal of Stellar was how it fit into the future of Cryptocurrency.
Let us look at what Lumens is and how does Stellar Lumens (XLM) work?
We know that unlike any other cryptocurrency, Stellar has a design innovation in which it creates its own tokens. These tokens are called lumens. The lumens are created with a specific role to play in the network they are a part of. Each account in Stellar has to have a certain prescribed amount of lumen associated with it at any point in time during its operation.
The need for lumens to be introduced was simple. Stellar’s ledger was often barraged with spam, junk, or its database was infiltrated as it didn’t have any nominal barriers. Due to this, the efficiency of Stellar’s payments would be at an all-time low. Stellar introduced its SCP or Stellar Consensus Protocol. The SCP decentralized the network, and the ledger was evenly panned out across the web. Usually, with other cryptocurrencies, banks act as a third party to ensure the transaction is completed by exchanging one currency and changing it to another.
Stellar does this through what they penned as Anchors. Anchors are nothing more than money deposit boxes. They act as an intermediary bridge between the exchange of one currency to another. So basically, all the transactions in Stellar are done in the form of credit. The network has its currency in the way of lumens. Lumens are used to denominating network requirements. Stellar has over 4 million accounts to date. All of them use lumens to conduct transactions and maintain a minimum balance in their Stellar account. Lumens are exchangeable. For example, they act as a pseudo currency. If you want to trade in dollars to rupees, lumens can be exchanged as Indian rupees to complete peer to peer responses.
This is the way the Stellar lumens work.