XLMwallet basics: How Stellar lumens (XLM) work

Last time (link), we looked at how Stellar manages to be so fast. It processes transactions faster than any other blockchain — and at the same speed as Visa or Mastercard. In this post, we’ll take a detailed look at lumens — the cryptocurrency that fuels Stellar.

As of now, Stellar lumens are no. 10 on the list of the largest cryptocurrencies on CoinMarketCap, with a capitalization of $1.8 billion, give or take. Sure, it’s not much compared to Bitcoin’s $135 billion or even Ethereum’s market cap of $17.5 billion. But the numbers are misleading. In fact, some experts think that Stellar — and not BTC or ETH — could become the real digital currency of the future on the global level. It has some advantages that other coins lack:

- Very high processing speed;

- Almost no transaction fees;

- Multicurrency support.

The first thing you need to know about lumens is that they are not mined — they are minted. This solves a whole lot of problems. There’s no need to waste energy on solving crypto puzzles, as in the Proof of Work. You don’t need to design complex staking mechanisms to implement Proof of Stake. No gigantic mining farms, no government crackdowns on miners. Taking mining out of the equation was one of the best solutions that Stellar Foundation could make.

Those initial 100 billion XLM were distributed to different organizations. The payment system Stripe invested $3 million in Stellar, so it received 2 billion lumens — or 2% of the whole emission. 50% were to be allocated to individuals who signed up with an invitation link — up to 300 XLM per person (about $18 at the current price). 25% are supposed to go to partners, 20% — to BTC and XRP holders, and the remaining 5% go to the Stellar Development Foundation itself.

Now, the total supply of lumens is not the same as the circulating supply. Right now, there are about 21 billion XLM in circulation — that is, not held by the SDF. How is this number formed?

First of all, Stellar distributes XLM gradually. So far about 9 billion lumens have been distributed through direct programs. The remaining lumens are stored by the Foundation for now, waiting to be allocated to new owners.

Second, Stellar has a built-in inflation mechanism. New XLM are minted at the rate of 1% each year (1 billion XLM). Stellar was launched in July 2014, so 5 billion lumens have been minted so far.

To get the available supply, we have to add up the 9 bln distributed to individuals and partners, 2 billion that were paid to Stripe, 5 billion that the SDF kept for operational needs, and 5 billion that were minted as inflation. The result is 21 billion (actually, it’s about 20.9 billion).

Stellar also has a very interesting mechanism of distributing newly minted coins. They are allocated to existing XLM holders, but there’s a whole algorithm behind it. In our next post, we’ll tell you all about lumens inflation — so that you know how you can stake some XLM in your XLM wallet and participate in these giveaways. Stay tuned!

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