What Is Stellar (XLM)?

Stellar (XLM -0.32%) is an open-source, decentralized payments network. It uses blockchain technology to allow users to transfer funds quickly and at a very low cost. The payments network does not show preference to any national currency; instead, the network has its own native cryptocurrency, Stellar Lumens.

Since launching in 2014, the Stellar network has processed billions of transactions, established partnerships with major companies, and become a popular cryptocurrency investment. Here's a detailed look at how Stellar works and whether it's a good buy.

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What makes Stellar unique?

Plenty of digital currencies offer cheap, lightning-fast transactions. Stellar's advantage is that it works with any type of money. You could use Stellar to transfer a digital representation of the U.S. dollar, the euro, Bitcoin (BTC +2.74%), or any other currency on the planet.

Although many types of cryptocurrencies are intended to replace current financial systems, that isn't the case with Stellar. It's designed to enhance the world's financial systems by providing a single network where they can all work together.

For individuals, there are a couple of ways to use Stellar. Stellar apps and third-party services acting as network anchors give users an easy way to transfer funds to someone else, no matter where they live. You can also use it to purchase digital versions of different currencies -- a valuable option for people in countries that don't have a strong national currency and want to use another currency for their savings.

As an open-source network, the Stellar infrastructure is available for anyone to use and build on. Companies can use it to develop their own blockchain wallet, app, or crypto token. They can also use Stellar's network for payments and converting digital currencies to cash, and vice versa. And the Stellar Development Foundation has recently supported use of Stellar for a broader range of uses, including NFT minting and smart contracts.

Where Stellar came from

Stellar was created in 2014 by business partners Jed McCaleb and Joyce Kim. McCaleb was the founder of crypto exchange Mt. Gox and co-founder of the payment protocol Ripple, which he left due to conflicts about the future of the project.

Along with the Stellarn network, the team also launched the Stellar Development Foundation. Stripe CEO Patrick Collision collaborated on the nonprofit corporation, and Stripe provided $3 million to Stellar in exchange for 2% of the initial launch (2 billion XLM).

The Stellar Development Foundation is the organization behind Stellar. It supports the network's technical and business communities, maintains the codebase, and releases regular reports on the Stellar network.

How Stellar works

Stellar has a ledger that it uses to track ownership of all the accounts and crypto tokens on its network. It maintains the ledger and processes transactions with its own unique algorithm, the Stellar Consensus Protocol.

The Stellar ledger stores every account's balances and operations (what they want to do with their funds). For example, an account could have a balance of 1,000 XLM and 100 U.S. dollar tokens and a pending operation to send 100 XLM to another account.

All balances and operations are broadcast to the entire network every five seconds. Transactions are validated by computers that run the core Stellar software, which are called nodes. For each pending transaction, the nodes verify that the correct amount is transferred.

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Is Stellar a good investment?

Stellar is often considered to be an underrated cryptocurrency investment. It demonstrates real-world usability and has established some excellent partnerships. The Stellar network is growing, with the number of year-over-year payments jumping by 378% from 2020 to 2021.

Like other cryptocurrencies, Stellar is volatile, and there's no guarantee that it will be a long-term success. One potential concern is that Stellar has similar uses to the Ripple payment protocol, but Ripple's native cryptocurrency, XRP (XRP +6.10%), has a much bigger market cap.

Ultimately, the decision to invest in Stellar depends on what you think of its future as a payment network and the team behind it. If you believe that blockchain technology is the future of cross-border payments, then Stellar could be a good choice.

How to buy Stellar

Stellar isn't quite as widely available as Bitcoin, Ethereum (ETH +4.82%), and other market leaders, but it's still easy to find. You can buy it on several of the top cryptocurrency exchanges. Here are a few of the major exchanges that offer it:

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About the Author

Lyle Daly is a contributing Motley Fool stock market analyst covering information technology and cryptocurrency. Lyle has been a contributor at the financial services company since 2018. His work has been featured on USA Today, Yahoo Finance, MSN, Fox Business, and Nasdaq. Before joining The Motley Fool, he wrote for financial brands including Intuit.

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@LyleDaly

Lyle Daly has positions in Bitcoin, Ethereum, and USDC. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Ethereum, International Business Machines, and XRP. The Motley Fool has a disclosure policy.