# What is Stellar (XLM)? A Comprehensive Guide

NOTE: At the end of the article, we have a GetSmart Quiz for you. If you correctly answer all the questions, you will receive (1) entry to win $4,000 CAD of Bitcoin! Draws are held at the end of every calendar month. ## What is Stellar (XLM)? Stellar is a decentralized peer-to-peer network created by Jed McCaleb and Joyce Kim. It was formed back in 2014 when it was forked from the Ripple protocol and is often considered Ripple’s biggest competitor. However, the core differences between these systems are that while Ripple wants to work exclusively with banks and financial institutions, Stellar – on the other hand – is a payment system designed from the ground up by keeping the masses in mind. ### In Brief: • Stellar is a decentralized peer-to-peer network created by Jed McCaleb and Stellar Org. • The native token is Stellar Lumens (XLM) which has a fixed 1% annual inflation rate. • The Stellar Consensus Protocol (SCP) is the first provably safe consensus mechanism. • Anchors act as a bridge between the traditional finance world and the Stellar network. • Stellar and IBM had partnered to form the IBM World Wire. When it comes to the Stellar chain, here are some points to keep in mind: • It is decentralized and open-source. • The transaction confirmation time is around 3-5 seconds. • The native token (XLM) has a 1% fixed annual inflation rate. • Enables multi-sigs and smart contracts Also read: Ripple vs Stellar – The Ultimate Showdown ## The Stellar Network vs. Stellar.org Like the Ripple blockchain and Ripple Labs, Stellar also has two different entities – Stellar Network and Stellar org. The Stellar Network is the underlying blockchain technology that facilitates financial transactions. This technology is open-source, distributed, and community-owned. On the other hand, Stellar.org or Stellar Development Foundation is a non-profit organization that aims to develop tools and create social initiatives to help “unlock the world’s economic potential by making money more fluid, markets more open, and people more empowered.” Along with maintaining Stellar’s codebase, it supports various technical and business communities, along with being a speaking partner to regulators and institutions. ## Stellar Lumens (XLM) – The Tokenomics The native token of the Stellar network is Lumens or XLM. XLM helps power up the entire range of operations on the blockchain network. During launch, around 100 billion XLM tokens were created. As previously mentioned, XLM has a fixed annual inflation rate of 1%. XLM has three main functions in the ecosystem: • Pay transaction fees. • Account management on the Stellar network. • Finally, and most importantly, to fuel the Stellar payment system. In fact, let’s expand on the last point a bit more. Check out this diagram: Image Credit Imagine that you are living in the US and your friend Mary is living in the UK. Now, let’s go through the steps. • You want to send$100 USD to your Mary.
• Both of your banks – Bank A and Bank B – are connected to the Stellar network through “Anchors” (more on this later).
• Your transaction intent is first sent to Bank B to see if Mary is compliant with this transaction or not.
• Upon receiving Mary’s consent, Bank B deducts the amount from Bank A.
• Your USD amount is transferred to Bank A and converted to XLM in the Stellar network.
• The tokens are then moved to Bank B, wherein it’s converted into British Pounds and then gets credited to Mary’s account.

## How Do Transaction Fees Work On Stellar?

XLM transactions need to be cheap and efficient since their main use is in creating a global payments network. This is why the transaction fees associated with them are a lot more manageable than Bitcoin or Ethereum.

For comparison’s sake, think of it like this.

Over the past year, Bitcoin’s transaction fees have ranged from $6 to$60. Ethereum has hovered between $1.5 and$40. Stellar, on the other hand, has been fixed at 0.00001 XLM. In other words, 1 XLM is enough to cover 100,000 transactions!

The XLM transaction fees are relative to its price. So higher the price, the more the transaction fees.

Image Credit