Ever since crypto become popular around the world, many enthusiasts of the technology hailed it as the new financial system. No longer would we be enslaved by the banking system and Wall Street, they said. However, it is now clear to everyone that it is not possible to simply scrap off the current financial systems and switch over to crypto. The reasons for this are wide and varied, but we shall not get anywhere near that topic today. For now, we want to focus on one unique cryptocurrency that intends to be the bridge between crypto and conventional banking – Stellar. In the scope of the crypto sphere, Stellar is already of age and has been around for a few years but people have only recently began speaking about it. Even you may not have heard of it, and if you did you may have assumed it was just another coin come to the mix. As a disclaimer, it isn’t. Stellar is going to be disruptive, in a good way, and the only way to see how it does this is to understand what it is and how it operates.
Everything you need to know about Stellar
As we have already mentioned, Stellar is not new in the crypto industry, and it is quite different from many other coins in the market today. In order to cover everything about the coin and the company behind it, we have to look at it from various aspects.
History of Stellar
To tell the story of Stellar, we have to go back almost 5 years to early 2014 when the Stellar Development Foundation (SDF) was created by Jed McCaleb. But the story of McCaleb is even deeper. He is well known for being the founder of the Mt Gox exchange – yes, the one that got hacked and lost billions. However, McCaleb only created the exchange in 2010, and then later sold it to Mark Karpelés in 2011. It was soon after the sale that the exchange began having problems, and indeed McCaleb has often attributed the trouble at Mt Gox to the new owner to deflect any negative opinion of himself. As you’re going to see, his history with Mt Gox will keep following him for years. (Do you know all the: 5 Tips to Choosing the Ideal Cryptocurrency Exchange?)
Anyway, after selling Mt Gox, he approached The Ripple Foundation, which was at the time being run by Chris Larsen. After a few years working together, McCaleb was kicked out of Ripple soon after Joyce Kim was and they went ahead to create Stellar. The story behind McCaleb’s departure from Ripple is quite fascinating and reads like a soap opera as it was published in the New York Observer in 2015. As the story goes, McCaleb tried to oust Larsen, but was unable to get the majority needed by the board, and he instead was kicked out. By now you may be wondering what this has to do with Stellar, but I just thought it would be interesting to find out about the origins of the company.
Presently out of a job, McCaleb created Stellar as a fork of Ripple in 2014. According to him, he soon realized there was a problem with the ecosystem and he reported that it even crashed at one point. This prompted him to change the process by which the ledger is maintained from using miners to algorithms (more about this later). To get the project up and running, Stellar received $3 million in seed funding from Stripe, a popular payment processing provider. McCaleb named the native coin for Stellar, ‘stellars’ initially. Later on, the coins would be called Lumens, as they are today.
It would appear there was a lot of interest in Stellar because even before it went live, there were already about 3 million people registered on the platform and a few exchanges had already promised to list lumens among their other coins as soon as they were available. In 2015, Stellar made the final upgrades to their network and the platform finally went live in November, 2015. Despite this interest in the coin, Stellar did not take off quickly and that could be attributed to McCaleb’s history with Mt Gox. But his past was not enough to overshadow the potential of the stellar network, and lumens started to become very valuable around 2017 (about 2 years since its launch).
At the time of the launch, lumens were valued at around $0.002 and they remained at abut that value until the start of 2017, sometimes even dropping in value. However, the value of the coin kept rising al through the year and ultimately reached an all-time high of $0.85 in January, 2018. That is about a 42,400% growth if one had invested in the coin at the time of its launch. Not surprisingly, McCaleb is a billionaire. From then till now, Stellar lumens have gone the same way as any other coin, declining in value all through the year. Unlike other coins, though, the drop in value of XLM has not been as hopeless as some other coins. For example, XLM is now trading at $0.25, which is an over 70% drop. On the other hand, a coin like Ripple (XRP) has dropped from a high of $3.65 to the current value of $0.5 – over 86% decrease in value.
This ability by XLM to retain value despite tumultuous situations is in the unique nature of the company (to be discussed in coming sections) and the partnerships with major companies. One of the main partner with Stellar is IBM, who have been using the platform to send money around the world. In addition, they intend to build a stable coin, Stronghold USD, to work through the Stellar network. There was of course the deal with Stripe at the beginning and another with Deloitte, SHIFT and Wanxiang Group. All these companies and more have identified the utility of XLM and are thus partnering with the company to make use of it. (Before going any further, have you seen the: Nexo Price Predictions and Forecast for 2019)
So what exactly does Stellar do? Let’s find out.
What does it do?
The main idea of Stellar was to create a platform for cross-border payment, and they claim to be the ‘future of banking’. McCaleb’s idea was to allow for cheaper, faster and more efficient ways of transferring money around the world based on the advantages of blockchain. And in order to achieve this, he acknowledged that it would be better to work with the banks rather than against them. Basically, XLM are the tokens used to represent fiat currency as it is being sent across the world, making it a bridge between crypto and fiat currency. For example, if I wanted to send a pal of mine in Australia some $1,000 while I am in London, I would convert my sterling pounds to XLM and send them to his wallet, after which he could convert them to Australian dollars. That’s not complicated, is it? (Do you know: What Is The Future Of Cryptocurrency In Finance?)
It is favourable for this purpose both because of speed and the low transaction costs. A normal transaction in Bitcoin can take up to 10 minutes as you wait for the transaction to be confirmed on the network, but on the Stellar network the same could take between 2 to 5 seconds. Very few alternative coins offer this kind of speed, and it is all thanks to the structure of the network. Then there are the low fees involved in every transaction, around 0.00001 lumens per transaction regardless of amount. Actually, the only reason for the fee was to prevent flood attacks, but otherwise the cost would be much lower. Compared to money transfer services like Western Union and MoneyGram, the cost of transacting on Stellar is a lot lower and thus more suitable to people making small payments. (Investing In Cryptocurrencies: Watch These 5 Profitable Cryptocurrencies)
The use of Stellar has been remarkable in the South Pacific where there are several islands that still do not have modern banking infrastructure. IBM has been making this possible using lumens and a contract with the Australian government and they are hoping to link many islands. The company is also reaching out to countries that are in developing economies for the same purpose. That is why Stellar is a non-profit organization and even you can make a tax deductible donation. It is understood that people in developing countries, although they may not have access to conventional banking systems, have access to mobile phones and that these can be used as a way of banking. Due to the low costs involved, then micropayments can be made with Stellar and give more people access to financial services.
Not only is XLM suitable for money transfer, but it has also been used in ICOs because of its speed and low transaction charges. In the 8 months between January and August 2018, over $1.3 billion had been raised in ICOs funded in XLM, and the trend still continues to this day. Given that about $7 billion was raised in ICOs throughout 2017, it is safe to say that XLM contributed at least 20% of the total funds in ICOs, second to Ethereum. This is also perhaps the reason why XLM has remained remarkably valuable all through this year. The reason why ICOs in Stellar are so popular is because they are highly customizable and can include features like escrow, inflation, bonds, collateralized debt, issuing dividends, etc. All this is possible thanks to the structure of the Stellar network and features.
How does it work?
By now, everyone should know how a typical blockchain works – there are miners along the network who use their processing power to hash blocks and keep the network running. In return for their ‘efforts’, they are rewarded in crypto for every block they mine successfully. This kind of system is called proof-of-work because the person getting the reward has put in an effort, and it is the same kind of system used even on Ripple. Basically, it is the miners who ensure that the ledger is kept updated and that the information is correct. To do so, the ledger is hashed into blocks through processing some complex mathematical problems. Once the ledger is hashed at a certain block, the information cannot be changed yet can be cross-checked for authenticity. (Make use of your coins through the: 5 Most Popular Uses of BTC and other Coins)
When McCaleb left Ripple, he wanted to create a new system of doing things, and he came up with the Stellar Consensus Protocol (SCP). In this system, there are no human miners on the network, but rather just decentralized server doing all the work. It is very similar to the traditional blockchain, only now the work of the humans is delegated to computers. There is still a ledger, but it is these servers that check the information and create blocks. Without the need for human miners who need rewards, the transaction costs are actually null. The only reason for including the cost of transactions is to discourage flood attacks that could paralyze the network with multiple miniature transactions. (Consider these: Litecoin Price Predictions and Forecast for 2019)
You may also be asking yourself where the money seems to come from without the miners. If you take a look at the ledger of, say, Bitcoin, there is always a trace of where your Bitcoins came from – they don’t just show up from the air. As an example, if you hold 1 Bitcoin, it can be traced back to the exchange you bought it from, the person who made the deposit at the exchange’s wallet and all the way up to the miner who was rewarded for it. On XLM’s ledger, your money seems like it has been received as credit by an anchor. This small difference should not bother you because you can still trust that your money is still safe. (Investor Tips 2019: What To Include In Your Portfolio)
By the way, XLM cannot be exchanged wit fiat currency only, since other coins are also accepted. Say, you had some Bitcoins in your wallet but thought the cost and time involved in sending them were too constraining. XLM wallets accept several coins including Bitcoin, so you could theoretically deposit your Bitcoins with them and exchange them for XLM then send the XLM to your preferred recipient. That is the good thing about XLM, they don’t constrict you to a single option but rather offer you multiple alternatives to choose from. (How Did Tether Cryptocurrency Survive The Crypto Market Selloff?)
What makes it different?
The main differences between XLM and many other coins have already been described above, as they all have to do with the difference in the XLM network. The main difference is that it uses the SCP which makes use of decentralized servers and not human miners. This system has caused a lot of controversy among crypto enthusiasts who claim that it is not really decentralized or secure.
These enthusiasts argue that blockchain was created to be decentralized and to take the power out of the hands of corporations and into individuals. Since XLM is in charge of the entire ledger, then it is not really a decentralized system. It is because of this that they also believe the system is not secure because a hacker can get into the network and modify the ledger and because there aren’t multiple parties to verify the ledger, that hacker could essentially take control. Both of these fears are unwarranted because the servers used by XLM have been distributed around the world and it would be impossible to take control of all of them. In a sense, you could equate the servers to human miners to achieve the same level of security.
Indeed, XLM has never been hacked ever since it was launched, and that should give investors some comfort. Only one incident regarding XLM has occurred where an online wallet website was hacked and XLM stolen, but that was not the fault of XLM but that of the wallet provider. The wallet provider was BlackWallet.co and $400,000 worth of XLM was stolen. Also take comfort in the fact that even IBM, a leader in cloud computing, has chosen to put their trust in XLM. Plus, they’ve got the added transaction fee to prevent any denial of service (DDoS) attacks.
It really comes down to users having faith in the company itself and specifically in Jed McCaleb at the helm. His reputation has always been an issue with investors who fear that he may have been complicit in the Mt Gox hack. Then there is a concern because the XLM team is quite small for a company with about a $5 billion market cap – 10 employees, 3 board members and 8 advisors. Well, that’s really a matter of taste. On one hand, more employees could mean more hands on the deck to deal with any disturbances that may arise, but then more cooks in the kitchen…
Consider another coin with a lot of participants like Bitcoin. There have been myriad problems with Bitcoin because it is extremely difficult to get any updates until there is a consensus. Just to put SegWit into place took the Bitcoin community months because it was not possible to reach the required threshold for making the update. At some point, coins like Bitcoin Cash and Bitcoin Gold even forked away from the main blockchain because of these problems. With XLM, this would not be a problem because upgrades to the network can be agreed upon around a conference table and put into place before the day was over.
There is no doubt, XLM is a very different animal in the crypto industry, and that can be a good thing in a market that is still trying to find its footing. Now we should look at how this different coin is doing in the markets and whether it is worth investing in come 2019.
Price performance of XLM lumens
As we have already mentioned, XLM has been performing above average so far this year and has even beat some of its competitors (Ripple). As we prepare for the new year, now is the time to look at those factors that have made it such a good performer and whether they will continue to hold. For an investor, coins should be approached in the same way you do any asset like a stock, currency pair or commodity.
When it comes to coins, the most important fundamental factor is demand – are people interested in a particular coin. With XLM, there is no doubt about the interest by individual users, investors and corporations since it can serve all of them. For the individual looking for a coin that is fast and cheap, XLM is definitely a good option. Whether they have fiat or another coin and want to switch over to XLM, that would be possible and even welcome. To an investor, there’s nothing better to hold than a coin which has remained in the top 10 of cryptocurrency markets for a majority of the year. In fact, XLM is the 5th most popular coin today according to CoinMarketCap and has a market cap of $4.9 billion. As an addition to an investor’s portfolio, there are only a few better, and certainly a welcome addition. Already we’ve seen major corporations like Stripe and IBM partner with XLM, and this shows the confidence in the coin. (Consider some: Ethereum Price Prediction Update And Forecast For Autumn 2018)
Confidence in crypto is not a small matter, since there have been so many coins that have come and gone with the wind because they really did not have any real-life applications. A study showed that a majority of ICOs being held were of coins that rally didn’t have any actual applications in the world. XLM has already proven that their coin has a real utility in the world with their many partnerships and uses. Whatever your interest in crypto is, XLM is really the way to go, and such confidence means the coin isn’t going anywhere any time soon and will still be in use for years to come. Even as a long-term investment, therefore, keep an eye on XLM. (Check out: The Most Prominent Cryptocurrency Hacks and Scams You Should Know)
Another great sign of confidence in a coin is its acceptance among crypto exchanges. CoinMarketCap reports that there are over 2,000 different coins in the market today, all fighting for a chance to be bought and invested in. That means the mere fact of being listed in an exchange is an honour, especially when talking about the world’s largest exchanges. To give an equivalent, consider how much companies hope to be listed on stock exchanges like Nasdaq and the NYSE. In this sense, XLM is among the best companies in the world because you can find it being offered by the world’s best coin exchanges like Coinbase, Kraken, Bitfinex, etc. In short, if you want to buy XLM, you will be spoilt for choice; and if you have some to sell… let me put it this way, I’ll give you my address. (Before investing: Learn How Cryptocurrency Scams Operate And Avoid Them)
It is so important to handle a coin that is marketable or else you would just be holding a random sequence of numbers and letters. The confidence by exchanges also shows you that they believe it is a legitimate coin since no exchange would ever want to be associated with a fake coin. They are very picky about who they list. And it is not just the exchanges, but the wallet providers too who have the same problem, but they too have accepted XLM. To make things short, XLM is meant to go just one way – up. The only question is how soon, 2019? (Does BTC Stand A Chance To Becoming The Worldwide currency?)
We can come up with some decent predictions about XLM come 2019 once we take a look at the overall sentiment in the crypto market. At the moment there is still a lot of uncertainty and an overall bearish sentiment in the markets. Yesterday, the SEC turned down yet another request for a Bitcoin ETF bringing the total number of applications rejected to 9 including the one by the Winklevoss brothers earlier in the year. The rejection sent many coins tumbling as hope was dashed from investors, but there is still a light at the end of the tunnel. VanEck and SolidX also presented their request for a Bitcoin ETF, and only theirs has been accepted for review by the SEC and not been immediately turned down. In an interview with CNBC, one of VanEck’s directors explained that their request was similar to that of a gold ETF, showing that it would likely be accepted by the regulator. He further explained that the approval of such an ETF would bring in institutional investors looking to expand their portfolios with crypto but didn’t know how to handle the volatility involved. (Which Are The Most Influential Cryptocurrency Markets By Country?)
Just yesterday, XLM managed to weather the slump in crypto prices because it coincided with the largest ever airdrop of coins ever seen. $125 million worth of XLM (about 500 million coins) was deposited into people’s wallets. Airdrops are a popular way for coins to get exposure in the industry, and this one was the largest one ever. It was being given to everyone who held a wallet with Blockchain, one of the most popular wallet providers in the world. Besides, 500 million XLM is not too much since 100 billion XLM tokens were created when Stellar went live. That XLM managed to outperform many other coins was significant since this pushed its position upwards to help it beat Litecoin and EOS to become the 5th most popular coin. (We were wondering: Will Cryptocurrencies Recover From Their Price Slump In 2018?)
So far, all the above points to the fact that there is a lot of potential in this coin, but just how much potential in terms of value? For a sense of the markets, we looked at how other experts were leaning regarding the coin and their predictions. One of the most insightful was Crypto News who believe that XLM could hit $1 by January, 2019. Keep in mind that the all-time high value of XLM was around $0.85 in January, s we believe this may be a little too optimistic. There is a bit of merit here, though, since Stellar keep adding to their list of partners by the day. McCaleb apparently announced that they will be partnering with 30 more banks soon, giving the coin a huge boost, while IBM itself would be adding 8 new validators. There were also partnerships with services like Hashcash, SatoshiPay, Mobius and others along the way. Investing Haven had an even more optimistic prediction that XLM could reach as much as $4 before the end of the year. Of course, they were quick to add a disclaimer that this was just the amount of potential in the coin if there were no setbacks in the meantime. (Ask yourself: What Would Happen To Bitcoin Price When It Is All Mined?)
This is not only overly optimistic but unrealistic. Furthermore, if you’re going to predict a coin’s value by its ‘potential’, then you can pull any number from the air. More conservative and reasonable, our preferred street, is the prediction by Wallet Investor who see XLM go to $0.35 before the end of the year and continue to grow steadily throughout 2019. Many investors have been burned by crypto this year including myself, and we are all reluctant to invest in coins. This means that it would be very difficult to see another drastic spike in coin value during the remaining weeks and so it is important to keep expectations low. How low? Only the technical analysis will tell us.
In the chart above, we can see how the value of XLM fluctuated all through this year. The overall trend is downward and that shows overwhelming bearish sentiment in the markets. Some of this has been attributed to market correction as often happens in any market after a significant growth. Just look at the current decline in the S&P 500 to see what we’re talking about. So there is definitely some market correction going on here. Add to that, XLM is still up considering its value one year ago when it was still trading at $0.035. Thus, even with the correction, we’re still much higher at current values. (Some of the: Bitcoin Price Prediction Update And Forecast For Autumn 2018)
From the Stellar price chart above, we can also start to see the makings of an uptrend as indicated by the upward trending trendline in red. It is still a very slight uptrend, but it has already been tested a few times and shows that it might continue to hold until the end of the year and perhaps even in the first few weeks of 2019. If this trendline continues the same way it is, then we might start the year 2019 at the $0.28 level. This is also the level at which we have the next level of resistance, so it will be very interesting to see what happens when we get there. This level was tested once before and it held strongly sending prices tumbling back down to the $0.23 support, so it is a strong resistance. Bullish market sentiment could be enough to break through this level and send XLM to the $0.32 area in the first quarter of 2019 or perhaps up to the $0.35 area as predicted by Wallet Investor. If all factors remain constant for the rest of the year, a $1 price prediction by the end of 2019 is not out of the question because the coin seems poised for great things.
Keep in mind, this is just a conservative prediction based on just the technical factors. In the crypto market, prices change at the drop of a hat from the tiniest bit of news from any region of the world. Fortunately, we can all take solace in the idea that crypto has already taken multiple hits from all sides. Regulatory changes, market correction, bearish sentiment, and still coins have remained pretty stable for most of the year. It is only reasonable to assume that now the only way is up after prices have hit the floor. If you were to invest today, target $1 as your take profit level in 2019 as that is very reasonable and more achievable. But always keep an ear to the ground for sudden changes from anywhere that could create even sharper spikes in value.
For more reasons as to why Stellar could be one of the best investments, check out this quick video explaining everything in more detail: