A history of Stellar and the lumen

April 02, 2018
Chris Wheal

Stellar describes itself as a “platform that connects banks, payment systems and people”, enabling users to move money “quickly, reliably and at almost no cost”.


Blockchain and cryptocurrency Stellar: Shutterstock

At the time of publishing this introduction to the Stellar platform, its digital currency the “lumen” (currency code: XLM), it is ranked the eighth-biggest with a market capitalisation of $7.5bn, and more than 8.1 billion of its virtual coins distributed.

But there are not as many day traders wishing to trade Stellar as other cryptocurrencies: only around 1/150th of Stellar’s total market cap is traded on a daily basis, compared with Bitcoin’s 1/23rd and Litecoin’s 1/18th. Cardano, Stellar’s closest rival in size, trades about 1/63rd of its market cap every day.

A brief history of Stellar

Stellar was co-founded in early 2014 by Jed McCaleb and Joyce Kim and received some initial funding from the payments start-up Stripe while corporate donors have included such luminaries as Google, BlackRock and FastForward.

McCaleb is the chief technical officer at Stellar.org and also founded and briefly ran the ill-fated bitcoin exchange Mt. Gox and was also the co-founder of Ripple.

At its launch, Stellar was based on Ripple protocol and while the developers were working on its key “consensus code” (more on this below) the network forked – some claimed due to flaws in Ripple protocol. This was strenuously rebutted by Ripple.

The current system is based on similar models, but now using entirely new code.

Muhammad Yunus and Jed McCaleb

Jed McCaleb (right) with Bangladeshi social entrepreneur Muhammad Yunus: Courtesy of Stellar.org

Stellar was designed to be a decentralised payment network that would allow international transactions between any currencies, even for people wanting to exchange Steller for bitcoin. It can also act as a decentralised exchange for bitcoins.

In 2016, McCaleb, writing in Bitcoin Magazine, said: “Why Stellar? After years of working in the fintech space, I realised that the world’s financial infrastructure is fundamentally broken, leaving billions without resources.

“Since anyone can participate in the network, it can be particularly helpful for the two billion unbanked people worldwide.”

Development and growth

Stellar’s decentralised common shared ledger is built using the “consensus” system used by the Ripple Transaction Protocol (RTXP), rather than the “proof of work” system used by most other blockchain-supported ledgers, such as that used by Bitcoin, Litecoin and many other cryptocurrencies.

The key difference between the consensus protocol and proof of work is that the consensus model is supported by a network of servers that validate transactions by constantly comparing their transaction records.

These servers belong to the Stellar network and the various participants and counterparties using the Stellar system – banks, brokers, market makers – and a new ledger is created every few seconds to create a perfect record of all Stellar accounts and transactions.

Most blockchain ledgers are updated by a “proof of work” algorithm at one central point, used to confirm transactions and produce new blocks to the chain. Here, so-called “miners” compete to complete transactions on the network and are rewarded in digital tokens.

By using the consensus protocol, the Stellar network can be used more or less for free – notwithstanding any inevitable integration charges. The consensus protocol also ensures the network is highly secure against external attacks.

Stellar’s primary role, however, remains as an international payments system and it is partnering with a growing number of financial businesses to help accommodate cheaper and faster cross border transactions.

IBM computer

IBM has partnered with Stellar: Shutterstock

Stellar announced in October 2017 that it was partnering IBM in a cross-border banking enterprise. Deloitte, one of the world’s largest financial consulting firms, says that it reduced transaction costs by 40% by integrating Stellar into its IT systems, having set out using blockchain technologies.

Tempo Money Transfer, which operates a network of 190,000 locations in 120 countries, uses Stellar technology to enable its customers to pay remotely for key services.

Such partnerships, which also include a money transfer network with India’s ICICI Bank, help fulfil McCaleb’s – and Stellar’s – mission to bring financial services to the unbanked of remote parts of Africa and Asia.

Uniquely Stellar

But what really makes Stellar different from other cryptocurrency organisations is that it was founded as a not-for-profit enterprise.

Stellar’s blockchain technology has been successfully integrated at low cost with the IT systems of its many partners to give a level of interoperability that has confounded many of its payments network rivals.

It only charges a tiny fraction of a lumen per transaction (0.00001 lumen – meaning a single lumen can cover 100,000 transactions), and this is mainly to prevent malicious attacks such as a DoS attack, where the network is flooded with spoof transactions in order to try to slow the system down.

Speed of transaction is also one of Stellar’s key competitive edges. The consensus protocol is much quicker at verifying transactions than the proof of work model used by most of its rivals. This means a typical transaction takes a maximum of five seconds to complete, compared to the 10-15 minutes it can take Bitcoin or Ethereum.

Meanwhile, the lumen cryptocoins are distributed, rather than mined. Here’s how:

  • Around 50% of the tokens issued (it is estimated that 85 billion tokens are yet to be distributed) are given to different users in small quantities
  • Some 25% are given to companies and organisations that Stellar.org is unable to reach through its “Direct-Signup” programme
  • 20% is distributed to all Bitcoin and Ripple owners
  • 5% is held by the Stellar team for further developments

The lumen not only has its own token value, but – unlike bitcoin – is also used by the Stellar network as a bridging currency for transactions into fiat currencies or, in the case of cross-border transactions, between two different fiat currencies.

Key players

Jed McCaleb – Co-founder and chief technical officer. His Stellar.org biography states: “Jed believes in consciously leveraging technology to reduce inefficiency and improve the human condition.”

We learnt above that McCaleb also founded Ripple and Mt. Gox – the latter went bust in very spectacular way several months after McCaleb sold it to a French developer.

Joyce Kim – Co-founder and former executive director. Kim’s background was in the legal profession as an attorney at Sherman & Sterling and Wilmer Hale. In 2017 she became managing partner at Sparkchain Capital, an early-stage venture capital fund focused on investing in the world’s leading blockchain and cryptocurrency innovations.

“You’ll see more products were blockchain tech is used to expand the reach of the existing financial infrastructure,” she told TechCrunch last October.

What other people are saying

Jo Lang – IBM Blockchain Financial Solutions, on partnering with Stellar on its payments system:

“Lumens are managed by a non-profit. All of the ownership is public and transparent. To us, particularly going to bunches of banks around the world, it seemed like the only option.”

Raj Chowdhury – former head of innovation at ICICI Bank on India’s third-largest bank’s tie in with Stellar:

“We are able to conduct business seamlessly with parties with which we had no prior relationships. This technology is enabling us to conduct business a lot quicker and cheaper with low error rates and lower vulnerability to cyber threats.”

Ulysses Smith at Crypto Gazette:

“Stellar is one of the most amazing cryptocurrencies in the market. And given that it supports exchange with fiat currencies, the XLM is one of the best cryptocurrencies to use for transactions and even investment.”

Thomas Jankovich – principal at Deloitte on its partnership with Stellar:

“Banks are eager to replace the legacy systems of of ACH and SWIFT. With all of the friction involved in sending payments — 3-7 days to resolve transactions, high fees — we can erase those pain points using cutting-edge technology now.”

Michael Dowling – director and chief architect for IBM Blockchain Financial Services:

“Working with the Stellar team, we saw a perfect match: Stellar, like us, wants to see the world move past the 40-year old fragmented system that we all suffer in today, but move towards a system that is more fair and equitable for all.”


  • Early 2014: Stellar forks from Ripple
  • April 2015: Stellar updates its consensus protocol, launches the new network and renames its crypto token the lumen
  • June 2016: Deloitte integrates its IT system with the Stellar network to build a cross-border payments system
  • August 2017: ICICI Bank, India’s third-largest bank partners with Stellar to build a money transfer ledger
  • October 2017: IBM announces it is to partner with Stellar on a cross-border banking enterprise
  • November 2017: Stellar lumens ATM launched; the first initial coin offering (ICO) is launched on the Stellar network – Smartlands asset backed tokens; lumen token reaches $1bn market capitalisation
  • January 2018: Lumen hits a record high of $0.6883, briefly taking the market cap to $12.8bn
  • April 2018: Market cap at $7bn
Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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