Friday, January 12, 2018 4:13:48 AM
1. How can I purchase Lumens (XLM) cryptocurrency?
Lumens are available on these exchanges: exchange list
There are two ways to purchase Lumens on the exchanges: buy directly using your country’s (fiat) currency, or buy another established cryptocurrency (such as Bitcoin, Ethereum, or Litecoin) and then use that cryptocurrency to purchase Lumens (on the same or different exchange). As of January 2018, there are not many exchanges where you can buy Lumens directly, but several promising projects are in the works and those exchanges could be up and running in the very near future (example: FairX.io, yicex.com, and peerex.co).
2. Why choose Lumens over other cryptocurrencies?
A small group of cryptocurrencies, including Lumens, are built for a “higher purpose” than just replacing hard currency or as investments. This select group aims to solve certain problems in the world. In the case of Stellar Lumens, the Stellar organization’s mission is to connect people to low-cost financial services, which will help everyone and especially the billions of underbanked people in the developing world. What separates Stellar from the rest of this group is that Stellar has progressed very far toward its goal of global adoption and continues at a fast pace. It has formed major business partnerships, including IBM, Deloitte, and Stripe. Stellar is already running a blockchain banking network in a 12-currency region which includes Australia and New Zealand. Since the technology is open source, the Stellar organization seeks input from tech professionals all over the world to build and continuously improve the technology, the result of which is an explosion of new apps and use cases all operating on the Stellar network. Also, since Stellar.org is a non-profit organization, we don’t have to fear a corporate overlord. The Stellar team is top notch, including Jed McCaleb (founder of Stellar, Ripple, and the first major Bitcoin exchange Mt. Gox). The team travels all over the world, showcasing what the technology has to offer and establishing new partnerships.
In summary, Lumens are more than just a cryptocurrency or investment. As the underlying currency of the Stellar network, Lumens are a necessary part of what will likely be a globally-adopted technology that serves an unmet need. The more valued the technology becomes, the more valued Lumens become. All other cryptocurrencies that are not attached to impactful technologies or have slow adoption will likely lose value over time or even disappear.
3. What is a Lumen, and how Lumens are in circulation?
A lumen is a unit of cryptocurrency that is the native (built-in) currency of the Stellar network. Its symbol is XLM (formerly STR). As of January 2018, approximately 18 billion are in circulation. It is planned that there will be a total of 100 billion Lumens distributed worldwide (it will take a few years for this to be completed). There is a built-in 1% annual inflation rate, which means that 1% is added to the total number of Lumens each year. By the way, Ripple’s cryptocurrency also has a planned total circulation 100 billion XRP’s.
4. What is the function of a Lumen cryptocurrency?
Lumens are built into the Stellar network; they are required for any transactions performed on the Stellar network. Lumens serve two purposes: security (anti-spam), and bridge currency.
One way lumens provide security is that each transaction on the Stellar network costs a small amount of lumen (about 0.00001 lumen), which prevents bad actors from flooding the network with small transactions (called a DoS attack). A second way Lumens provide security is the requirement that every account on the Stellar network must hold a minimum balance of Lumens (currently 20 Lumens, soon likely to be reduced to 10 Lumens), helping to ensure that all accounts are genuine.
For transactions that involve two different currencies (or two different assets), the Lumen facilitates the transaction by acting as a bridge. For example: US Dollar to Lumen to Chinese Yuan. It is important to note that, as a universal bridge currency, the Lumen must have real value (purchasing power) anywhere in the world. That is why Lumens are traded on global exchanges; people and businesses will be actively converting their specific currencies to Lumens and vice versa every day, thereby establishing the Lumen’s value.
5. Why does the price of a Lumen rise?
Since Lumens are openly traded on global exchanges, investors may see Lumens as a store of value. As more applications using the Stellar network become adopted, the volume of transactions performed on the network increases. Since Lumens are a necessary part of the system, Lumens become more “valuable” and the price of a Lumen may rise on the exchanges. As with any other cryptocurrency right now, there is also an element of speculation that can affect the price of a Lumen.
6. Does a rise in the price of Lumens defeat the “low-cost” advantage of the Stellar network?
The mission of the Stellar network is to provide low-cost, high-speed transactions for anyone in the world, including the unbanked billions of people in developing countries. As Lumen prices rise, it would seem reasonable that Stellar will keep pace by reducing the minimum balance requirement and even the per-transaction lumen cost. In this way, the real cost to open a Stellar account and to transact on the Stellar network can continue to remain low.
7. Does the price of Lumens need to remain stable in order for Lumens to serve as bridge currency?
Ideally, the two parties involved in a transaction would want the value of the bridge currency to remain stable until their transaction is completed. The value of Lumens is determined by the market and is therefore subject to fluctuation (as with any currency, whether digital or fiat). Fortunately, each transaction on the Stellar network only takes about 2 to 5 seconds to complete, so stability of Lumen price may not be a significant issue anyway.
8. Does the price of Lumens need to remain low in order for Lumens to serve as bridge currency?
The two parties involved in a transaction only care that the transaction gets completed successfully. Assuming sufficient stability during the transaction (as mentioned above), the actual price of a Lumen should not matter. For example, if the two parties are exchanging 10 US Dollars into 65 Chinese Yuan, each of these is equally possible: (10 US Dollars = 10 Lumen = 65 Yuan) , or (10 US Dollars = 0.5 Lumens = 65 Yuan).
9. Why is inflation built into the Stellar network?
Stellar adds 1% to the total Lumens each year, apparently to account for Lumens that are accidentally lost (for example, lost wallet info or errors during transfers). This 1%, as well as all Lumen fees paid for transactions on the Stellar network, are added to an “inflation pool” each year. Each holder of a Stellar account gets to vote for another account (or even their own account) that they want to receive the inflation pool, and any account holder that receives at least 0.05% of the votes will receive a pro-rated amount of the Lumens from the pool for that year (the pool Lumens are actually distributed weekly). The inflation pool is apparently an incentive for account holders to become good citizens of the Stellar ecosystem, making them popular enough to receive votes.
10. With a potentially large supply of Lumens, why would a Lumen be worth very much in the future?
For the sake of argument, let’s assume the entire supply of 100 billion Lumens has already been distributed. As mentioned earlier, Lumens are used to pay for transactions on the Stellar network (currently 0.00001 Lumen per transaction), and Lumens act as a bridge currency. For the purposes of transaction fees, the supply of Lumens is probably more than enough to meet that need. For the purposes of bride currency, it’s a different story. One source estimated that the worldwide total number of non-cash transactions (checks, credit cards, etc.) in 2011 was over 400 trillion US dollars, or roughly 1.1 trillion US dollars per day. Even if Stellar were to handle only 25% of all those transactions, Stellar would need at minimum 275 billion US dollars of bridge currency available each day, which would set the price of a Lumen at $2.75 each. However, for things to run smoothly, there must be adequate reserves of bridge currency, especially in times of crisis. It has been suggested that banks have a 30 day supply of reserves, so we could expect the same of the bridge currency. Since the Lumen supply is fixed at 100 billion (not including 1% inflation), the Lumen price should be 30 times $2.75, or $82.50 for each Lumen. Throw in other factors that further restrict the circulating supply of Lumens, like people holding onto Lumens as investments instead of spending Lumens, and the price of each Lumen will increase further. And since Lumens are purchased on exchanges, market forces may drive up the price even more. You get the idea.
This is just a hypothetical case to explain why I believe the value (price) of the Lumen will be much higher than it is today, even with the large supply. Whether you agree with that explanation or not, it is reasonable to expect that the inherent value of Lumens will increase as adoption and use of the Stellar network increases.
*Visit the Stellar official website,https://www.stellar.org/ and more specifically their Lumen FAQ.
" No Pain , No Gain" - Norton
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