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What Is Litecoin And Is It A Good Investment?

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What Is Litecoin And Is It A Good Investment?

Litecoin is one of the top five cryptocurrencies currently. Within the cryptocurrency space, the digital currency has been referred to as the silver to bitcoin’s gold. Litecoin (LTC) currently has a market capitalization of $12 billion and is trading at around the $230 mark.

The History of Litecoin

In 2011, a software engineer at Google named Charlie Lee came across an article about the dark web marketplace Silk Road. Through the article, he was introduced to bitcoin, the first decentralized digital currency, which was still in its infancy at the time.

After familiarizing himself with blockchain technology, Lee created his first digital currency which he named Fairbrix. This coin was a clone of the coin Tenebrix, which was popular at the time but finally fell through because its creator had pre-mined millions of coins for himself. Lee created Fairbrix in an attempt to level the playing field by ensuring no coins were mined beforehand. His coin successfully launched but eventually fell through due to technical difficulties.

In early October 2011, Charlie Lee initiated the open-source client of a new cryptocurrency on GitHub. His second attempt at creating digital currency would involve a hard fork of the leading cryptocurrency, bitcoin. Lee named this altcoin Litecoin. It went live on October 13, 2011.

Lee explained that litecoin was designed as a response to the scalability problems witnessed by the Bitcoin network. “I’ve always known that it would be hard for bitcoin to scale and be the one coin that does everything for everyone. So my vision for litecoin has always been to complement bitcoin – to be the payments currency. Where bitcoin would be digital gold, litecoin would be silver. It’s more useful for payments. And bitcoin would be better for store of value,” Lee said.

Due to his belief that cryptocurrencies should be as fair as possible, Lee ensured only 150 litecoins were mined before the launch. These coins came by as a result of the genesis block as well as two successive blocks in order to verify the validity of the genesis block.

The Technical Aspects

While litecoin (LTC) is identical to bitcoin in many ways, there are a few notable differences that enable this altcoin to stand out as well as outperform other digital currencies, including bitcoin, in some regards.

Firstly, Litecoin’s design means that its blockchain generates a block every 2.5 minutes, which is significantly smaller than Bitcoin’s block generation time of 10 minutes. Due to this factor, the transactions on litecoin’s network are much faster. Moreover, it can handle micro-transactions better than the Bitcoin network.

Secondly, the total number of litecoin that can be created is 84 million as opposed to bitcoin’s 21 million, a result of the faster block generation. Noting that litecoin is based on bitcoin, a four-time increase in block generation would result in a four-time increase in block rewards hence the maximum of 84 million litecoin.

Thirdly, while litecoin uses proof-of-work as its consensus mechanism, it differs from its predecessor in the algorithm it employs. Bitcoin uses SHA-256 hashing algorithm while litecoin utilizes the Scrypt algorithm. SHA-256 is dependent on computing power while Scrypt requires both computing power as well as significant amounts of memory in order to verify the validity of transactions.

Lastly, litecoin was the first cryptocurrency to implement Segregated Witness (SegWit) in an effort to better its blockchain. “We have all the cool scaling technology. But the reason we adopted SegWit was not for the scaling features, but because it allows for instant payments off-chain,” explained Lee.

The altcoin is also one the pioneers of the atomic swap, allowing seamless exchange of cryptocurrencies without a third party. On February 15, Atomicwallet announced the successful on-chain atomic swap between Decred and Litecoin. But until Lightning wallets are widespread, atomic swaps are far from mainstram use. Other important developments anticipated in 2018 are;

  • MAST, which follows on from SegWit, improves privacy by lumping transaction through a Merkle Root and introduces smart contracts on the Litecoin blockchain – MAST could make it in the next core release.
  • Confidential Transactions (CT) are coming to Litecoin and will be the next point of focus once MAST is completed – there is a high likelihood CT will be done by the end of 2018.

Is it Profitable to Mine Litecoin?

When litecoin was first introduced to the world, it was possible to mine it with a home computer. The hashing algorithm, Scrypt, is a memory hard function which means that mining would not be made easier by simply increasing the computing power.

This made it difficult for companies to create application-specific integrated circuits (ASIC) for litecoin mining. Creating such ASICs was an expensive as well as a time-consuming endeavor that companies were not willing to embark on, especially considering the success that bitcoin-specific ASICs were experiencing.

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However, in recent times litecoin-specific ASICs have been developed such as the Antminer L3. The introduction of these machines has all made it almost impossible for people to compete and turn a profit in the mining market if they are mining individually.

Without an ASIC, the chances of turning a profit are drastically reduced. However, if one joins a mining pool, it may be possible to receive enough block rewards due to the pooling of resources to mine the block to make it worthwhile over time.

Price Activity

Litecoin has been showcasing steady growth since its 2011 launch achieving a billion in market capitalization towards the end of the year 2013. Bolstered by the increasing global interest in cryptocurrencies in 2017, the altcoin reached its all-time high of $372 in December of the same year.

The price of litecoin in terms of bitcoin over the long-term is shown below, with the market eyeing the fractal resistance at 0.033888. Moreover, the lagging line (purple) does not indicate any further resistance, as there are no peaks above the current price level. Notice that the resistance provided by the peak at 0.01630 has been broken and now turns into support.

LTC-BTC (Monthly, Bittrex)

Therefore, over the course of 2018, it is likely that we see LTC-BTC reach fresh highs on the Bittrex exchange, with the recent move above the fractal high from May 2017 opening up a test of 0.033888, the all-time high.

The digital currency has always been compared to bitcoin due to the many similarities between the two. For a long time, the currency had the second highest market cap after bitcoin. It has since slipped to the fifth place.

Community Politics and the Litecoin Foundation

Led by its creator, Charlie Lee, the Litecoin community is an active group that has been pushing for the widespread option of the altcoin. Lee quit his job at leading bitcoin exchange Coinbase in July 2017 in order to focus his energy entirely on litecoin.

As a response to the allegations that permeated the cryptocurrency space regarding his profits from the price activity of litecoin, Lee sold his litecoin except for a few coins that he would keep as collectibles. He further added that he felt the need to distance himself from the cryptocurrency as the notion of a face of a decentralized currency was self-contradictory.

Explaining the move, he said: “This is definitely a weird feeling, but also somehow refreshing. Don’t worry. I’m not quitting litecoin. I will still spend all my time working on litecoin. When litecoin succeeds, I will still be rewarded in lots of different ways, just not directly via ownership of coins. I now believe this is the best way for me to continue to oversee litecoin’s growth.”

Lee has gone on to head the Litecoin Foundation, a non-profit organization that is dedicated to bettering the altcoin in a number of ways. The foundation aims to further widespread literacy with regard to litecoin.

Litecoin Adoption

The Litecoin Foundation is spearheading a few initiatives aimed at increasing merchant adoption of the cryptocurrency. Also, it is also pushing for the creation of litecoin-enabled payment processors.

A number of merchant processors now support litecoin. These include AliantPayments, BTCPay, BitcoinPay, Coin Payments, Globee, GoCoin, and LitePal. While these payment processors support many other digital currencies, the litecoin-only processor LitePay is set for launch on the end of February 2018.

Cryptocurrency trading platform Coinbase added litecoin to its small roster of tradable coins in early 2017. This signaled a growing belief in the future of the coin. Following this announcement, the value of the coin leaped by over 25 percent, and renewed investors interest in bitcoin’s “little brother.”

On the effects of increasing litecoin adoption, Lee stated: “LTC/BCH has just surpassed 0.02. This is higher than when I sold my litecoins. In other words, LTC has outperformed BTC since that time. Just saying! The market agrees that my efforts on Litecoin adoption is overcoming the negatives.”

Should You Invest in Litecoin?

Altcoins have come and gone since the first alternative cryptocurrency, Namecoin, emerged on the scene. Litecoin, however, is one of the few altcoins from the early days of cryptocurrencies that has not only survived but has also managed to maintain its “digital silver” to bitcoin’s “digital gold” status. Since its inception, litecoin has managed to stay a regular fixture in the top ten largest cryptocurrencies by market capitalization.

Furthermore, litecoin also perceived by many as the better transactional currency than bitcoin due to its faster transaction times and lower transaction fees.

Moreover, with the launch of Litepay as well as the recently announced Coinbase for merchants payment tool, nothing stands in the way of increased litecoin adoption as a digital spending currency. This, of course, bodes well for the future value of litecoin.

Litecoin has also witnessed less volatile price movements in comparison to other digital currencies like bitcoin and ether, which has made it a long-time staple holding in diversified cryptocurrency portfolios.

If you already have holdings in bitcoin and other digital currencies, such as ether, ripple, and monero, litecoin can act as an excellent diversifier as well as a potential returns booster.

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