What is Litecoin?
Litecoin is often referred to as ‘the silver to Bitcoin’s gold’, and is one of the oldest cryptocurrencies that’s still traded on the market. It was created in October of 2011, meaning that Litecoin’s 10th anniversary is just a few months away.
A lot has happened since Litecoin’s release and in this article we’ll cover all of the most important developments.
Charlie Lee Sells his Stake
Litecoin was created by Charlie Lee who, unlike Satoshi, is a very public character. Since the release of Litecoin, Lee has been active in the community and overseen ongoing improvements to the project.
Despite this work, Charlie Lee is a fairly controversial figure in the community. At the peak of the 2017 bull run Lee sold his entire stake of Litecoin. Selling at the top was impeccable timing, however, the sale didn’t inspire confidence in the network.
Charlie Lee selling all of his Litecoin is equivalent to a startup founder selling their entire stake in the business. It’s better to see a project where the leaders have an active stake in what’s happening. Vitalik Buterin of Ethereum still holds tens of millions of dollars’ worth of ETH, for example.
The Litecoin Blockchain
Litecoin runs on a modified version of Bitcoin’s code, so the ‘silver to Bitcoin’s gold’ comparison does have some merit.
Silver often behaves as a more volatile version of gold. If gold goes up, silver goes up even more. If gold goes down, silver even more so. The same price movement generally holds true for Litecoin. LTC will often fall further than BTC, but LTC, like most alts, will probably outperform BTC in a strong alt market.
Both Litecoin and Bitcoin use a Proof of Work (POW) consensus mechanism, although Litecoin uses a different hashing algorithm. Litecoin uses the scrypt algorithm while the SHA-256 algorithm secures Bitcoin.
Litecoin’s hashing algorithm requires miners to have more memory, making the production of mining equipment more expensive. By making it more difficult to produce miners, the Litecoin developers are trying to avoid the centralization of mining. I.e. the large mining farms that dominate the Bitcoin network. Because the two coins use different hashing algorithms, ASIC Bitcoin miners cannot be used to mine LTC.
Besides the hashing algorithm, Litecoin’s block time is shorter than Bitcoin’s. On Bitcoin a new block is produced every 10 minutes, while the block time on Litecoin is just 2.5 minutes. Due to shorter block times, Litecoin can process about 50 transactions per second (TPS), compared to Bitcoin’s 7.
Privacy on Litecoin
Mimble Wimble (MW) is going to be one of the most important Litecoin updates in years. The testnet version of MW has been running since October and so far the results are positive. Once MW is activated the amount of data that’s associated with every transaction will be heavily reduced.
Mimble Wimble uses a technology called “blinding factors” that obscures transactions sent on the network. With Mimble Wimble, a third party can’t see your address or track any transactions you send. A full explanation of the technology is available here.
According to the Litecoin development community, Mimble Wimble should be activated sometime in the spring of 2021. If everything goes according to plan, MW will increase the value proposition of Litecoin since the network will temporarily have more privacy than Bitcoin, although it will still face competition from privacy coins such as Monero and Dash.
The LTC Token
The Litecoin LTC token is used to send value and to pay the miners who secure the network. Since Litecoin can clear about 8x more transactions per second than Bitcoin, LTC may be more suitable as a day to day currency.
LTC transaction fees are significantly cheaper than BTC transaction fees. As of February 2021, the average fee to send a LTC transaction is just $0.03. A full history of LTC transaction fees over the past couple of years is available here.
Like Bitcoin, Litecoin has an approx 4 year halvening cycle where the block reward to miners is cut in half. However, the effect of the halvening on Litecoin is different than that on BTC.
On the Bitcoin network, roughly six months after the halvening, BTC’s price rises and makes a new all time high. While this pattern may break in the future, historically the halvening has been a very good indicator for when the next bull run will kick off.
The same can’t be said for Litecoin. When we look at the Litecoin price chart, we can see that the Litecoin halvening typically doesn’t affect the price much.
Litecoin’s price depends more on what Bitcoin is doing than on the time of the halvening. If you’re trading Litecoin it makes more sense to focus on the price of BTC, as opposed to the fundamentals of the Litecoin network.
Litecoin as a Testbed
Since Litecoin is based on the BTC codebase, some people look at Litecoin as a testbed for updates that could eventually be applied to Bitcoin. Mimble Wimble is a great example. The Bitcoin development community can see how MW works on Litecoin and then decide whether to bring the new privacy technology to BTC.
The ongoing implementation of the Bitcoin Lightning Network (which will speed up and reduce the cost of BTC transactions) might take away Litecoin’s edge in the future, but the coin is still, for now, a respected industry mainstay.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.