- Stellar Lumens is now 3rd largest crypto by market cap.
- What makes Lumens different and add value?
- Share some views from prominent crypto investors.
- Lumens were created as a “digital representative” of any currency, aiding in cross border transactions.
- Goal is to be a fast efficient payment system and a clear ledger system.
We first started covering Bitcoin and other crypto currencies in early 2018. We spent hours at our local watering hole trying to wrap our brains around it, what was it? What about other alt coins like Stellar Lumens?
From Stellar: Stellar was made to support digital representations of any currency, but it also has its own built-in token, called the lumen
, created to fill a special role in the network. By design, Stellar requires that each account hold a small number of lumens at all times.
Did the Pandemic Change Things?
For me personally the pandemic changed my view on Bitcoin and other alt coins. They may become a premier and efficient store of value, in other words digital gold. Central banks and governments had no good option but to print out and send more money. Otherwise we would have seen human pain and suffering that the modern world is not familiar with. But with this comes inflation and the devaluation of the dollar. Bitcoin sure seems like a hedge against this. Now back to Stellar:
Why Stellar Lumens?
The need for lumens arose out of the fundamental design of Stellar’s ledger system. Simply put, it’s too easy to use. Without some nominal barrier or cost, the ledger could become filled with spam or nonsense, or used as a kind of arbitrary database system. These outcomes would defeat the intent behind Stellar: to be a fast, efficient payments system.
To solve this, we needed to introduce just the slightest bit of friction to deter bad or frivolous actors. Imposing a minimum balance on each account and a very small per-transaction fee were chosen as these deterrent costs. Right now, the minimum balance is 1 lumen and the minimum per-transaction fee is 0.00001 lumen. These are small enough to keep Stellar widely accessible, but big enough to discourage large-scale bad behavior.
Since Stellar is a universal system for digital money, we could’ve allowed people to pay these costs in dollars, pesos, yuan or anything else. But we felt none of these were appropriate. First, we didn’t want the network to “prefer” any particular national currency—if Stellar used dollars, say, then network prices would stay fixed for Americans but float for everyone else. And, even more, we wanted to create a digital-first asset that embraces the openness of the internet and is independent of economic and political factors.
Bitcoin Bull Run Helping Lumens?
Yes, the most recent Bitcoin rally seems to have broken through some kind of psychological resistance to $30,000/coin. I recall when it was under $1,000 and I would ask, why would anyone pay a thousand for this line of code? Here is our take on Bitcoin and crypto in general from investors/traders that have owned the coin for years.
- Bitcoin seems to defy the common logic of assets and currencies. It is and isn’t an investment, asset, currency, etc. It could be a store of value, a new technology expression and a new way of trading value.
- Bitcoin is in the eye of the beholder. It is worth what the whole network of trades believe it is worth.
- There may be winners and losers, like a pyramid scheme. So keep an eye out for how the traditional fiat money is transferred.
- Major institutions are taking positions and anyone can access Bitcoin via the CashApp. (SEE RELATED: Robinhood Vs. CashApp)
Bitcoin is famously capped at 21 million. On the other hand there are currently 50 billion total Lumens. Higher supply would indicate a lower per Lumen price. Here is information directly from Stellar:
Unlike the tokens of other blockchains, lumens aren’t mined or awarded by the protocol over time. Instead, 100 billion lumens were created when the Stellar network went live, and for the first 5 or so years of Stellar’s existence, the supply of lumens also increased by 1% annually, by design.
That inflation mechanism was ended by community vote in October 2019. And in November 2019, the overall lumen supply was reduced. Now there are about 50 billion lumens, total, in existence, and no more lumens will be created.
Nearly 20 billion lumens are out in the open market, and the Stellar Development Foundation retains the other 30 billion or so to develop and promote Stellar, per its mandate. Those lumens will enter the public markets over the next few years.
CEO of MicroStrategy Saylor sums it up on crypto in general:
“We find the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility, and community ethos of bitcoin to be persuasive evidence of its superiority as an asset class for those seeking a long-term store of value,” Saylor said. “Bitcoin is digital gold — harder, stronger, faster, and smarter than any money that has preceded it.”
Dabbling but not going crazy
Our personal approach to crypto is to dabble but not lose our minds. Yes, this means holding some Bitcoin, ETH and Lumens and other alt coins as speculation. Especially those that have the potential to add value and solve a problem. These can be purchased through CashApp and Robinhood. My personal rule of thumb is to hold some Bitcoin and other coins, but limit to 1-2% of total assets.
I have been playing a little game to get free meals using Bitcoin and CashApp. So I buy some Bitcoin on CashApp. Watch it go up and take the profits. It makes me like $30 so I can go buy my family lunch or dinner. Then I use a CashApp boost as well for a little extra savings.
Ok, I know that is silly, but just trying to give a sense of how I am using crypto at this point.
Early Dot Com era?
Here is our take on crypto currencies. I read somone comparing this time in history to the early dot com era. There were hundreds of dot com companies in the early days that had no chance of surviving. But as capitalist natural selection took its course, only the strong survived, creating major value to shareholders and society at large.
I think this a good analogy for the current crypto period. Some of these currencies may actually solve real world problems and create efficiencies we could only dream of before. These currencies are ushering new constructs such as smart contracts and changing the way money is moved around an increasingly globalized world and economy. An economy that also demands more and more efficiency and speed to pull as much value out of each transaction. I personally think there is great potential value in under developed economies with a lack of banking infrasrtucture but everyone is walking around with a powerful computer (smart phone) in their hands.
Cathie Wood of Ark, she could see Bitcoin hit $500,000
If you own any shares of Ark Investments ARK Next Generation Internet (ARKW), then you already have exposure to Bitcoin.
Many readers of Money Vikings know that we are big fans of Cathie Wood over at Ark exchange traded funds. She is long term bullish on Bitcoin for several reasons. She was previously famous for saying Tesla would skyrocket in value. The main stream media was skeptical, but she ended up being correct if you factor in the stock split. She sees several use cases for Bitcoin. Here is a synopsis from a Barron’s article on her point of view:
Some investors, she said, see Bitcoin as a digital alternative to gold or an insurance policy against inflation. With the Federal Reserve’s decision to keep interest rates low for the foreseeable future, that’s one reason Bitcoin’s price could be rising. And if institutional investors like hedge funds were to take a greater interest in Bitcoin, it could send prices even higher, Wood said. What’s more, Wood noted the supply of Bitcoin units tops out at 21 million. There are about 18.5 million currently in existence, she said.
Wood said institutions have been bumping up their exposure to the cryptocurrency recently, drawing a comparison to “the early days of institutions moving into real estate and emerging markets,” when allocations started small, then grew.
How will this evolve?
I have no idea how this will all evolve or end. But, there may be some technologies and concepts that create great value over time. Just be careful out there! Several times these coins have plummeted in value in a matter of hours and days. That is not a stable store of value.
Perhaps Stellar Lumens and Bitcoin will or has established itself as digital gold or a better and more efficient system of some kind. Wide scale adoption and acceptance is picking up steam. An “asset” with a finite supply that is difficult to replicate is a powerful concept. Time will tell if Stellar Lumens skyrocket and survive the test of time.