A week ago, IBM announced cooperation with Stellar.org and a number of banking partners to make cross border payments possible on the blockchain. The solution using both private and public blockchain, bringing Hyperledger Fabric and the public Stellar network together to implement the solution.
While still being in development, the payment network is already processing (live!) transactions among 12 different currencies, connecting Australia, the Pacific Islands, New Zealand and the United Kingdom.
While following the announcement we saw a sharp rise of the Stellar Lumen cryptocurrency (XLM), it has since somewhat declined. What does this deal mean for Stellar and for the price of Lumens? What is Stellar anyway?
While we’re sure most of our readers know a great deal about Ripple, let’s start there. Stellar was co-founded by Jed McCaleb, the same person that started Ripple in 2011. Yes, that is the same McCaleb that founded Mt. Gox – but, to be fair to the guy, he sold it long before the bitcoin theft took place. In 2014, disagreeing with the direction in which Ripple was going, McCaleb left the company and co-founded Stellar. While Ripple (XRP) has been one of the top cryptocurrencies for years, Lumens have not had that luck. Could the IBM deal change this?
Let’s examine the key differences between Stellar and Ripple. Ripple has long been a controversial cryptocurrency and Stellar addresses a lot of these controversies. Ripple is a private for-profit company, which discourages not just the crypto-anarchic part of potential investors, but also some enterprises and business networks that do not want to be locked to a specific vendor. The Stellar protocol, in contrast, is supported by a nonprofit organization, the Stellar Development Foundation.
A large part of the controversy surrounding Ripple is the distribution of XRP tokens. Today, over 60% of all Ripple tokens are still owned by the Ripple company. Those tokens will be sold over time to bring profit to the company, which will dilute the supply of XRP on the market, having a negative effect on the price. The Stellar Foundation, being nonprofit, will, however, only retain 5% of all Stellar network tokens (Lumens), to support their operation costs. This makes Lumens much more distributed. While Ripple is accused of being a centralized blockchain network, Stellar is much more community driven and a decentralized network.
Lumens have long struggled to get the attention that it’s older cousins were getting, but the IBM deal could change this. While the deal is important in itself, it also brings Stellar into the spotlight, making it visible to other enterprise users. A lot of companies that were considering using Ripple will be now comparing it to the Stellar protocol. A lot of them will see the same benefits that IBM saw when opting for Stellar, bringing new deals to the foundation. The decentralization and fair distribution of tokens will also bring a lot of original crypto investors, driven by the original blockchain idea and alienated by the Ripple’s approach, close to the Stellar’s approach to blockchain.
The crypto investors have been on the lookout for new high risk/high profit opportunities for quite some months now. Could Lumen be the next big opportunity?
This article is not an investment advice. Do your own research and invest wisely.