Why Stellar Network Needs Lumens (XLM)

Bittime - Stellar is a payment network and digital currency system that aims to facilitate global money exchange. Since launching in 2015, Stellar has processed more than 450 million transactions with more than 4 million active accounts. 

One of the key elements of the Stellar network is its so-called digital currency Lumen (XLM). Although Stellar is designed to support the digitization of various currencies, XLM has a special role that makes it necessary in the Stellar network. This article will explain why the Stellar network needs Lumens.

1. The Role of Lumen (XLM) in the Stellar Network

Lumen (XLM) serves as the native currency in the Stellar network. Each account in the Stellar network is required to hold a certain number of Lumens, which are used for various technical and economic purposes. One of the main reasons for Lumens' existence is to keep the network safe, efficient, and free from abuse.

Avoid Network Abuse and Spam

Without minimal costs or friction, Stellar risks falling victim to spam or being used as an inefficient database. As the Stellar developers explain, with no transaction fees or specific requirements, people can simply use the Stellar network to store data or make irrelevant transactions. This will reduce overall network performance and efficiency.

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To solve this problem, Stellar decided to require each account to hold a small amount of Lumens. This way, each user must commit to the network, thereby preventing unwanted abuse or spam.

As Low Transaction Fees

Apart from that, Lumen is also used to pay transaction fees in the Stellar network. Each transaction on Stellar requires a small fee paid in the form of Lumens, which is 100 stroops (0.00001 XLM). Even though this cost is very small, it is quite effective in reducing the possibility of spam or attacks from bad actors. These fees also encourage users to think before making excessive transactions.

Ensuring Network Economic Stability

It is important to note that the total number of Lumens on the Stellar network is fixed, namely 100 billion XLM. Of this amount, around 50 billion XLM has been circulating in the market, and the other part is held by Stellar Development Foundation untUK supports the development and promotion of the Stellar network. 

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Limited Lumens availability helps maintain economic stability in the network. With no Lumens that can be “minted” anymore, the value of Lumens is more stable compared to tokens that can be mined or created in other blockchain networks.

2. Improve Stellar Network Functions

The Stellar Network is not just for sending money, but also for support decentralized exchange of assets. Stellar's decentralized order book system allows users to buy and sell various assets, be it digital currencies such as Bitcoin, digital dollars, or other assets. Lumen plays a role in maintaining cross currency transactions (crefficient oss-currency transactions). By requiring users to hold Lumens, transactions between assets can be processed faster and more transparently.

Stellar also mempossible path payments, yesIt's a mechanism that allows someone to send one type of currency and receive another currency in one transaction. To ensure all this runs smoothly, Stellar needs Lumen to manage fees and process transactions quickly.

3. Security and Consensus in Stellar Networks

One of the important aspects of the Stellar network is Stellar Consensus Protocol (SCP) which ensures fast and secure consensus between node in the network. SCP works in a slightly different way than the proof-of-work-like consensus mechanisms that Bitcoin uses. 

Lumen has an important role in maintaining the integrity of this consensus. The existence of Lumen helps ensure that only valid and relevant transactions are accepted, avoiding abuse of the system or manipulating the network for personal gain.

4. Why Not Use Another Currency?

Ada question is why Stellar does not use other currencies such as dollars, euros, or even Bitcoin as transaction fees within its network. The main reason is for the Stellar network to remain stable neutral and free from dependence on a particular national or economic currency. 

If Stellar uses dollars, for example, so transaction fees may remain fixed for users in the United States, but may vary for users in other countries. This would create injustice for most users outside the United States.

By using Lumen as the only transaction fee, Stellar can maintain a system that is more open, fair, and independent of economic and political fluctuations that may occur in certain countries.

5. Encourage Network Use and Strengthen the Ecosystem

Additionally, Lumen helps strengthen the Stellar ecosystem as a whole. The lumens required for each account or transaction act as an incentive for users to engage more deeply with the Stellar network. Apart from that, by introducing Lumen, Stellar also gainedintroduce shape the first digital asset which is used globally without depending on the currency of a particular country. This is in line with Stellar's vision to provide a more inclusive and global payment system.

Conclusion

Lumen (XLM) is not just a digital currency on the Stellar network, but plays a fundamental role in maintaining the integrity and efficiency of the system. By ensuring each user holds a set number of Lumens, Stellar can prevent network abuse, reduce transaction costs, and guarantee secure and fast consensus. 

Lumen also helps ensure that Stellar remains neutral, open, and independent of the influence of any particular currency or economy. All of these factors make Lumen a critical component in the success and sustainability of the Stellar network.

FAQ Stellar Wallet

What is Stellar Wallet?

Stellar Wallet is an application for storing and managing Stellar Lumens (XLM) and other assets on the Stellar network.

How to create a Stellar Wallet?

Choose a wallet type, register with a trusted provider, create an account, save the recovery phrase, and fill the wallet with XLM.

Why choose Bitdeal?

Bitdeal offers a wallet that is secure, easy to use, and supports a variety of features, with 24/7 customer support.

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Reference

Medium, Stellar (XLM) — Quick Introduction, accessed December 26, 2024

Stellar, Learn Stellar Lumens, accessed December 26, 2024.

Author: MF