All of us are big time suckers of movies which portray lives of geniuses. Be it Steve Jobs, Mark Zuckerberg or John Nash. But if there is one person who is missing from that elite list,it would be Jed McCaleb – The Founder of Stellar Network and Lumens.
And if there were ever a movie made on him, it would have everything – Showmanship of a rare Genius, Love Affair, Ousting of the Founder (blink: Steve Jobs), Huge Money, Revenge, Law Suits and then The Resurrection. It’s time to meet Jed McCaleb – The Co-Founder of Stellar Network before understanding the currency he started.
Being universally regarded as a genius (even by his detractors), he is probably the only person on this planet who has built 2 crypto-currency companies at scale. But let’s first go back to 2001 when it all started.
Jed co-founded eDonkey2000 (ed2k) in 2001, a peer to peer file sharing company. Following Cease and Desist case in 2005, it was discontinued. But till that time, Jed had earned a name for himself in the programming world. When Jed learnt about bitcoins in 2010, he got really excited about the endless possibilities of decentralised currency. He reasoned that it needed a marketplace to trade. Hence he created Mt. GOX – A Bitcoin Exchange in 2010. Within 3 years, Mt GOX was handling more than 70% of World’s Bitcoin transactions.
If he made bitcoins popular (through Mt. GOX), he should also be attributed to nearly destroying it. In 2014 Feb, it suspended trading, closed the website and filed for bankruptcy. The company declared that 850,000 bitcoins have been lost and stolen whose combined value at that point in time was $450 Million. Though 200,000 bitcoins have been recovered so far, but the incident left a sour taste in people’s mouth.
Having founded 2 game changing companies (both of which failed), Jed didn’t stop here. He had understood the faults of bitcoin and decided to gift the world a better currency. He teamed up with David Schwartz, Arthur Britto, and Chris Larsen to create Ripple Labs.
It was a dream team. With Mr. Larsen presenting a suit-wearing, responsible front to the bankers and Mr. McCaleb cast as the mad genius who would innovate and disrupt, Ripple quickly became the consensus successor to Bitcoin.
And this is where the story gets complex and thus interesting. Jed was having troubles in his personal life; he got divorced with his wife Ms. Burzlaff and met another woman Ms. Joyce Kim. Kim has an all star LinkedIn profile with names like Cornell, Harvard, Columbia Law School, Innocence Project, Founder (or CEO) at 2 start-ups and a venture capitalist.
Things grew thick between the two and Ripple Labs acquired Kim’s company SimpleHoney. And this is where all hell broke lose. She (with support of Jed) started to interfere in company’s affairs which didn’t cut ice with others because of which she was ousted in 2013 summers. Around the same time, Ripple Labs was trying to make a deal with Stripe – Blue Eyed Boy of fin-Tech. As per a source with info on the deal, Stripe was investing $13 Million in cash which would have valued the company at $140 Million.
But the deal didn’t go through. And this resulted in Jed trying to force Larsen out of the company. But the board sided with Larsen and it was Jed who was finally ousted; pretty much like Steve Jobs.
After remaining in anonymity for around a year, Jed came back and came back with vengeance. He decided to build another distributed consensus based Cryptocurrency just like Ripple. He in-fact used the same code. But he had 2 aces up his sleeve.
- Potential to strike a deal with Stripe
- 9 Billion Ripple Coins (XRP) which he received along with Larsen at the time of founding Ripple. (Ripple has 100 Billion coins; out of which majority is owned by the company)
In May 2014, Jed made an announcement that he is going to dump his XRPs and one month later, Stellar (STR) was launched.
Stellar Network is Launched
In 2014, Jed launched Stellar Network along with Joyce Kim. And guess what!! Stripe invested in it with $3 Million loan which was repaid with 2 Billion STR. Considering that only 100 Billion STRs will ever be in circulation, this valued the company at $150 Million.
Until and unless you are living under a rock, you would know that Stripe is often labelled as the Blue Eyed Boy of Fin-Tech with prominent backers like Y Combinator, Andreessen Horowitz, Sequoia Capital and several PayPal cofounders.
And have a look at the team at Stellar now. You have obviously Stripe (Patrick Collison), Sam Altman (President at Y combinator) and Matt Mullenweg (Founder of WordPress). Impressive isn’t it?
There is just one last chink left in our star’s resume. Lawsuit! In 2014, Ripple Labs entered into an agreement with Jed that he will be able to sell his XRPs only as per pre-determined rule. Here is more on the agreement. This happened after Jed wrote about dumping XRPs in the market in May 2014. Therefore as per the agreement, Jed could only sell pre-determined XRPs, but in 2015 digital currency exchange Bitstamp entered into a legal suit over $1Million disputed funds. It cited that it was unable to decide the rightful owner of the funds – Ripple Labs (as per the agreement) or cousin on Jed.
Enough of the Co-Founder Now; Show Me the Currency
It was important to give the context on the founder before we took a nosedive into understanding the currency. More often that not, products carry the same characteristics of their founders.
Stellar Network is pitted directly against Ripple in moving money quickly at extremely low cost. Interestingly Stellar.org is founded as a Non-Profit Organisation with a mission of bringing low cost financial services to people to fight poverty. Lumens (XLM) is the native asset of the network meaning that it is the currency which will be used to deduct fees for the transfer. Lumens were known by Stellars in its earlier avatar. In 2015 the name got changed to Lumens.
In total, there are 100 Billion Lumens which will ever be distributed. Under their mandate, distribution is charted out as follows –
- 50% for the world via the direct signup educational program
- 25% for nonprofits to reach underserved populations via the increased access program
- 20% for the bitcoin program
- 5% for operational costs
Nonprofit Founders and Stripe have agreed to not sell their share for 5 years. If Stripe decide to auction any of their lumens, recipients will have a restriction of not selling for 5 years and net profits are returned to the Foundation.
Stellar has had one giveaway so far in the Bitcoin Program where it distributed 3 Billion Lumens. This giveaway happened in July 2016. Read more about it here. Their next giveaway round is scheduled to happen on 27 June 2017. Read about the giveaway here. Tip: With more than 16 Billion Lumens hitting the market and hence increasing the supply, it is expected that Lumens prices will see some correction.
This all looks good but isn’t Ripple doing the same thing?
Yes both Ripple and Stellar are trying to solve the same problem but they are taking different approaches. Also there are some significant differences in other aspects. Here is the detailed snapshot.
|Go to Market Strategy||B2B, Is tying up with banks to push for adoption||B2C, Is majorly focusing on individuals to drive growth|
|Ownership||The Company owns 61% of the Coins supply||Owns only 5% of the Supply|
|How consensus is Reached||Ripple Transaction Protocol||Stellar Protocol|
|Inflation||No concept||Built In|
|Support for Fiat or Digital Currencies other than native||Yes||Yes|
There are some key points worth mentioning here.
- Ripple is trying to solve the problem of fast money transfers by aligning itself with financial institutions. It has tied up 12 banks for trials. Here is the full set of financial institutions it is working with. Since financial industry is still highly regulated and governed by behemoths, Ripple has aligned themselves to walk with the giants.
- On the other hand, Stellar has taken a different approach to popularise itself. It is taking a contrarian strategy by going after the developing economies.
- Ripple is criticised heavily for concentration of coins in very few hands. This scare away the retails investors. Stellar has taken care of this problem from day one. It owns only 5% of the total available coins.
- There is a unique concept of inflation embedded in Lumens. They will increase the supply of Lumens by 1% every year. Lumens collected as fees would also be ploughed back into the network. To read more about the inflation, click here. On the other hand, Ripple destroys fees, meaning the total number of ripples in existence is slowly diminishing over time.
Interestingly, Jed answered the same question on Stack Overflow here.
Stellar Lumens Infographic
So which all Exchanges allow Lumens Trading?
Though lumens can be traded on more than 10 platforms but more than 90% of the trading is limited to top 5. Here is the breakdown of the market share.
And here is Lumen – USD price chart –
Like other cryptocurrencies, it has gone berserks in recent time with 21X increase in price.
So Do you plan to invest in Stellar Lumens? Would you back a guy with chequered history who is backed by people like Sam Altman and Patrick Collison?
Disclaimer: I don’t hold any Lumens at the moment. I am waiting for the next giveaway to happen post which I am expecting prices to fall. I might buy then