One of the top 10 cryptocurrencies by market cap, Stellar Lumens should be on your radar, particularly since Stellar Lumens have had 20x increases in the past, but could it happen again? Here’s what to consider when buying Stellar Lumens.
Overview: What are Stellar Lumens?
Stellar.org, the organization that supports Stellar Lumens, was co-founded in 2014 by Jed McCaleb, who also founded Mt. Gox, which was once the largest Bitcoin exchange worldwide. Stellar Lumens are the currency Stellar uses to make the magic happen and Lumens is the intermediary currency used to convert one fiat currency to another and spirit funds across borders.
Boasting real-time settlement in mere seconds, Stellar poses a meaningful challenge to existing money transfer systems, which can take days and can be much more expensive.
In a crowded sea of cryptocurrencies, Stellar has support from some tech and finance powerhouses including Google.org, BlackRock and FastForward as the project’s corporate donors. Well-known payment processor Stripe provided initial funding as well, a loan already repaid with Lumens.
An investment in Stellar Lumens is an investment in the Stellar organization because the fate of the currency is directly tied to the organization’s growth and the adoption of the Stellar network as a payment platform. This symbiotic relationship is similar to the structure found with Ripple Labs, which uses Ripple tokens (XRP) to facilitate transfers.
An important distinction between the two entities is that Stellar is a non-stock non-profit organization focused on accessibility to all with a goal of promoting global financial access, literacy and inclusion. Ripple, arguably the closest
An important distinction between the two entities is that Stellar is a non-stock non-profit organization focused on accessibility to all with a goal of promoting global financial access, literacy and inclusion. Ripple, arguably the closest crypto token in regard to function, is squarely focused on banks, financial institutions and money transfer services.
One hundred billion Lumens were created at the onset of the project and the Stellar Development Foundation allocates only 5% to support operational costs. The balance of the Lumens are distributed by various means, including giveaways to communities or investors who hold Bitcoin or Ripple.
Stellar also provides the ability to create sub-types of tokens within the system. These proprietary tokens can be used in a number of application-specific scenarios, like creating an in-game currency, for example, or creating a currency used in conjunction with a social network.
Where Can You Buy Stellar Lumens?
Stellar Lumens tokens can be purchased through a number of cryptocurrency exchanges, including Coinbase, Changelly, Kraken and Bittrex. If you have Bitcoin (BTC) or Ethereum (ETH), Binance.com is another way to trade for Lumens (XLM).
You’ll also find Stellar Lumens as a common type of cryptocurrency used in giveaways and promotions. For example, Coinbase is giving away up to $50 in Stellar Lumens for learning about the currency and inviting others to learn more as well. If you want to build a larger position, however, you’ll have to buy Lumens on an exchange or trade for another cryptocurrency you hold in your portfolio.
How to Buy Stellar Lumens
Buying Stellar Lumens is a fairly simple process but there are some steps you’ll want to follow to ensure the transaction goes smoothly and that your newly acquired Lumens are stored safely. With some exchanges, you can buy anytime or anywhere using mobile crypto apps. Others may be web-based.
Step 1: Choose a Crypto Wallet
XLM crypto wallets are available as hardware wallets, mobile apps, desktop apps, or web wallets. Of these options, hardware wallets are always the most secure option because access to the wallet is restricted by a hardware device.
Popular options for XLM wallets include:
- Ledger Nano X, Ledger Nano S (hardware wallets)
- Lobstr (Android, iOS, web)
- Blockchain.info (Android, iOS, web)
- BlockEQ (Android, iOS, Desktop app)
- Stargazer (Android, iOS, Desktop app)
- StellarTerm (desktop, web)
Some exchanges like Coinbase offer their own wallets for some cryptocurrencies but many investors feel more secure keeping at least some of their cryptocurrency elsewhere.
Step 2: Choose an Exchange
As cryptocurrencies continue to grow in popularity, cryptocurrency exchange options continue to grow as well.
- Coinbase: Coinbase is among the best-known cryptocurrency exchanges and supports buying and selling for 15 popular coins or tokens. While you won’t find more obscure coins at Coinbase, options include many of the more common cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Ripple (XRP), and Stellar Lumens (XLM).
- Changelly: As its name suggests, Changelly puts its focus on exchanging one type of cryptocurrency for another. However, you can also buy XLM on this popular exchange. Purchases can take up to 30 minutes to settle.
- Kraken: Known for its security and a large selection of crypto assets, Kraken is another good choice for buying XLM. Five different types of fiat currency can be used with the exchange, including US dollars, but you can also fund trades by depositing other cryptocurrencies. Trading on Kraken is similar to trading Forex, with the currencies paired for trades.
- Bittrex: If you’re a technical trader, you’ll enjoy Bittrex. Full-featured technical charts allow you to time your trades based on dozens of technical indicators. Be aware that purchasing in USD may not be available yet in all states as the crypto-focused exchange rolls out fiat support.
Step 3: Fund Your Account
Funding your account is usually a straightforward process, but you’ll want to familiarize yourself with the fees on each exchange. Generally speaking, credit or debit card purchases are among the more expensive ways to fund your account.
Some exchanges charge up to 4% of the deposit or purchase amount to cover processing fees. ACH transfers from your bank account are usually the least expensive way to fund your account. Other options, like wire transfers, may also be available but can have a pricey one-time fee that reduces your purchasing power.
Step 4: Buy Stellar Lumens
Of the exchanges mentioned, Coinbase has the easiest-to-understand buying process. Coinbase was designed with beginners in mind and the ease of navigation makes the exchange’s goal obvious. You can buy XLM directly or exchange another supported cryptocurrency for XLM.
You can also convert from XLM to other currencies with no fee. Buying and selling transactions usually result in fees, however. Coinbase, for example, charges a fee based on the amount of the transaction, which ranges from $0.99 up to $2.99 for transactions of up to $200, after which a fixed percentage applies.
You may also want to consider the spread, which refers to the difference between the buy and
High fees can put your investment into negative territory right from the start, so you may want to consider larger purchases and choose your funding method carefully to reduce the impact of fees as a percentage of your investment.
Step 5: Track Your Investment
If you only have one crypto asset, tracking your investment is easy. What often happens is that once the crypto bug bites, you’ll find yourself owning several cryptocurrencies spread over a multitude of wallets and exchanges.
A crypto portfolio tracker can gather all your crypto assets in one place so you can track your investments easily, which becomes a must in a market as dynamic as crypto investing.
Should You Buy Stellar Lumens?
Cryptocurrencies as a whole have an uphill climb when compared to many established fiat currencies. However, some cryptocurrencies bring benefits that can’t be achieved with traditional fiat money. As the most established cryptocurrency, Bitcoin is often considered to be the crypto equivalent to gold.
Stellar Lumens has a different appeal based on the utility of the network. When you consider a purchase of Stellar Lumens, there are several pros and cons to consider, any of which can affect your investment’s long-term value.
- Open source: With the Stellar network built on open source code, development is easier for third parties and applications that tap into the Stellar network’s efficiency can be built and scaled quickly.
- Fast transactions: Some estimates put the Stellar protocol at up to 3,000 transactions per second, with transaction confirmations delivered in 3 to 5 seconds. By contrast, Ethereum and Bitcoin are both below 20 transactions per second. The Stellar Consensus Protocol (SCP) is at the heart of speedy transactions, including trusted votes and excluding untrusted votes to build a consensus when settling transactions. In isolated tests with optimized hardware, the protocol performed at over 10,000 transactions per second.
- Low transaction costs: Per-transaction costs can take a bite out of transfers. Bitcoin transfers costs vary but can be several dollars per transaction at times. Ethereum costs $0.20 to $0.30 per transaction in average transaction fees. Stellar can perform transfers for nearly nothing, with the small transaction fees in place only to prevent spammers from flooding the network with denial of service attacks. Stellar’s low fees make it a near-perfect solution for micropayments.
- IBM adoption: IBM announced its launch of World Wire in Q1 2019, a global payments system based on the Stellar network. At launch, World Wire supported nearly 50 currencies and could complete transfers between over 70 countries, with growth expected to continue. Stellar on its own doesn’t have the name recognition and trust of a global player like IBM, but when companies like IBM build around your network, you know you’re onto something special.
- Supply inflation: To date, only about 20% of the total supply of XLM is in circulation. Theoretically, a 500% increase in price would be needed to outrun the coming increase in supply. Expect this supply increase to be gradual, but also expect it to affect pricing if demand doesn’t increase at the same or higher levels.
- Competing solutions: XLM is most often compared to Ripple (XRP). Ripple has a head start both in the amount of time the network has been in place and in the number of larger organizations that have partnered with the company or adopted the technology. More established has its value and can help Ripple to build on its success, pushing competitors to the periphery. This puts Stellar in a position where it runs in second place among two similar solutions.
- Adoption rates: Stellar’s intended reach is broader than Ripple, which focuses on larger financial institutions. Still, adoption has been slow with the exception of a handful of key players like IBM and Deloitte.
Adding Stellar Lumens to Your Portfolio
The tech behind Stellar Lumens is compelling and when global powerhouses like IBM build around the network, the long-term opportunity has to be considered. In Stellar’s short 4-year history, Lumens have already pushed their way into the top 10 cryptocurrencies by market cap, although still a fraction of XRP’s market cap.
To some, this indicates a strong opportunity for growth in value going forward. When buying cryptocurrency or any other type of investment asset, invest some time in due diligence before investing hard cash and always maintain a safe level of diversification to protect against market volatility.