Litecoin was not designed to be an investment. The ‘silver to Bitcoin’s gold’ cryptocurrency launched in 2011 by Charlie Lee aimed, and so far succeeded, to be a fast, cheap, and safe means of peer-to-peer (P2P) payments.
Throughout the years, its basic use cases and discreet developments push it out of the top of most traded or most valuable cryptos. Yet, its similarities with Bitcoin and old age make the currency’s approaching halving, a crypto-casino to which the most successful players in the market are looking forward to cash on.
What is Litecoin?
Litecoin (LTC) is widely considered to be the first alternative coin (altcoin) to appear in the market. Created in 2011 by Charlie Lee to be “the silver to Bitcoin’s gold,”, its initial goals were:
- prevent mining hardware attacks;
- act as a decentralized cheap, fast, and secure means of payment;
- open the way for mass crypto adoption.
Mining hardware attacks
In the ancient ages of cryptocurrencies, the problems were of a different scale and nature. Charlie Lee, a former Google Engineer at the time and currently the director of engineering at Coinbase, was worried that large ASIC-based mining firms could gain excessive control over Bitcoin.
So he came up with an alternative, Litecoin. A cryptocurrency in everything similar to Bitcoin but with a different hashing mechanism. Instead of SHA-256, the blockchain uses a modified version of Scrypt.
At the time, this Scrypt was a popular alternative since it allowed for CPU and GPU-based mining yet, as it is more memory intensive, made it harder to develop ASIC-miners hardware.
ASIC miners eventually found a way to circumvent the challenges posed by Scrypt, but by then corporatized miners were no longer a major concern. The network stayed the same, and nowadays it is mainly dominated by large mining pools run by tech firms.
Decentralized, cheap, fast, secure mean of payment
Besides reassuring network decentralization, Litecoin’s other main purpose was to become an open-source global payment network.
Although Scrypt hashing is more sophisticated than Bitcoin’s, it has the advantage of generating blocks faster. A transaction made with LTC takes around 2,5 minutes to be verified, which compared with BTC 10 minutes, makes Litecoin more suitable for daily transactions.
Its adequacy for daily use goes beyond transaction speed. The currency experienced no downtime in almost 12 years of existence.
Also, due to market laws (Litecoin has low demand and high supply), and a less energy- intensive Scrypt Proof-of-Work (PoW) mechanism, the decentralized coin has consistently low to nill transaction fees encouraging small payments to be done through crypto.
In 2022, the network reached the 75% consensus threshold to activate the Mimblewimble Extension Blocks (MWEB) update that allows users to opt-in to confidential transactions, which leads to an increased level of privacy while using the network.
Finally, as one of the oldest projects in the ecosystem that consistently ranks as one of the top 20 market capitalization crypto, Litecoin is safe.
At the start of the year, its blockchain reached its hash rate all-time high, meaning that more nodes than ever were taking part in validating transactions, making it close to impossible for a hacker to perform a 51% attack by taking control over the network.
This coherence of delivery makes Litecoin a favorite amongst small and big businesses. Companies like Paypal, Twitch, Travala, and NewsEgg allow users to pay for their services with it, while in London, the real estate giant RE/MAX has been accepting the currency as payment since 2015.
Together with Bitcoin and Ethereum, Litecoin is one of the cryptocurrencies most commonly used for payments, succeeding at its initial purpose of working as a P2P payment system.
Supporting Bitcoin’s mission
Everything in Litecoin’s infrastructure, apart from its hashing mechanism and hard cap, works just like Satoshi Nakamoto’s gold coin. Rather than imitation, this reflects a sign of the times when the market was reigned by principles of crypto-anarchism and cooperation.
By increasing security and making crypto easier to use, Charlie Lee’s contribution had an intention - supporting Bitcoin’s mission of creating a decentralized alternative to money that could benefit the majority of people and not just a selected few.
Through the years, Litecoin’s ‘silver’ status was challenged as other currencies. While it kept a low profile being a P2P means of payment, other projects, more bold and dynamic, joined the ecosystem.
It didn’t help the decentralized project when, after leaving Google and spending two years working on the project, Charlie Lee abandoned Litecoin to join the ranks of Coinbase in 2013. Already as head of engineering at his new firm, a conflict of interest between his position and his creation led him to sell and donate all his LTC.
“So in a sense, it is a conflict of interest for me to hold LTC and tweet about it because I have so much influence. I have always refrained from buying/selling LTC before or after my major tweets, but this is something only I know. And there will always be a doubt on whether any of my actions were to further my own personal wealth above the success of Litecoin and crypto-currency in general.” Charlie Lee’s post on Reddit after selling all his LTC in 2017
But despite Lee ‘going to buy cigarettes’ on Litecoin twice, the currency didn’t flunk. Its clearly defined mission kept attracting investors and developers’ efforts.
Because of its similarities with the crypto queen, Litecoin has been used as a testbed for Bitcoin. Updates such as the Lightening Network or the Segregated Witness (SegWit), have been tried out first on the LTC blockchain before being voted in on BTC.
Like Bitcoin, Litecoin has a hard cap. But while the maximum supply of the number one crypto is 21 million, the supply of its loyal second is 84 million, four times higher. Estimates point to 2142 as the year the last LTC will be minted, until then, there are still 11 million coins (13.39%) to be created by miners.
To control inflation Litecoin, like Bitcoin, halves every four years.
The first Litecoin halving took place in 2015, four years after the currency launched, and it decreased the block reward from 50 to 25 LTC. In 2019, the reward was again halved to 12.5 LTC.
The third halving is expected in the first days of August 2023, decreasing block mining compensation to 6.25 LTC.
With a market capitalization of $6.51 billion, Litecoin is far from having the same impact on the market as its crypto daddy, which has a market cap 85 times higher. When Bitcoin halves the world smiles and bull runs wild, increasing its value. On a smaller scale, Litecoin’s price also increases.
According to an analysis published in October last year on Nasdaq’s website, “historically, in regards to market action, the Litecoin halving has seemed to contribute to two notable events — one, a surge in price leading up to it, and two, a crypto bull market that ensues the years following it, leading into Bitcoin’s halving.”
In the months leading up to past halvings, LTC price was zigzagging registering a bearish-to-bullish trend and this time seems to be no different.
Amidst the chaos left after the Terra ecosystem crash and FTX meltdown, Litecoin was one of the first to show signs of recovery, showcasing halving anticipation by rallying 43% in November. In February, it momentarily retracted its $100 status, before falling below the $70 mark, which investors were quick to turn around. In April, it again surpassed the $100 dollar mark, aided by the widespread market high due to the Ethereum Shappela update.
As the oldest altcoin in the market approaches another halving, long-term whale investors are shaking the waters in preparation for massive gains.
Whales are most impactful for Proof-of-Stake (PoS) blockchains, where having tokens equates to having validating power, but they are most prominent in older networks, of which its tokens were bought at a time when crypto was cheap and inconsequential.
According to research from the Bank for International Settlements (BIS), the longer investors keep their crypto, the better the investment performs, which makes whales the most successful crypto investors.
Litecoin whales have become, in the coin’s 12 years, experts on watching the market and making the right asset moves. As the halving approaches they are moving Litecoin’s price as if it was their own puppet, ready to cash on the big day.
Is Litecoin still relevant today?
From time to time the relevance of Litecoin is put into question, with some people believing the project has no future and that it will eventually die out to give way to more sophisticated blockchains.
As with other projects, the future of this asset will be dictated by its utility. And while it is true that Litecoin has many features required for a P2P payment system, the price volatility only is enough to make it less attractive than, say, stablecoins.
And now too, with Litecoin supply changes approaching, the public is much more interested in the effects on its price rather than in advancements of its original goals. We are interested in both and will report if anything significant is Observed.