What Is Litecoin?
Litecoin, or LTC, is a very well-established name within crypto. Having joined the crypto economy as far back as 2011, LTC has been with us since the crypto dark ages.
If we look back to April 2013, only seven coins were available on exchanges to buy. Excluding Bitcoin and Litecoin, that leaves Peercoin, Namecoin, Terracoin, Devcoin, and Novacoin.
All five of which still exist today, but none of which are relevant anymore.
LTC is the exception. It is the only altcoin from the crypto dark ages still prospering today. Yet, despite having been with us since the beginning of time, not everyone is entirely sure what Litecoin is or what LTC does.
That’s why today we look at Bitcoin’s first cousin in the crypto economy, along with its role in today’s crypto climate.
So what is Litecoin?
Litecoin is a Bitcoin fork created by former Google engineer Charlie Lee back in 2011. Having first appeared on a popular Bitcoin forum marketing itself as the “Lite version of Bitcoin.”
Functionally, being forked from Bitcoin, it is very similar to BTC, except for a few modified parameters. Chiefly, a slightly different mining algorithm named Scrypt, which we will come back to later.
It behaves very much like Bitcoin except for its main selling point – which is, “it’s 4x better than Bitcoin.”
But I digress. What exactly is a fork?
What is a fork?
If we’re going to get technical, we need to let you know what a “fork” is.
In crypto, if a project is “forked,” this means the source code was taken from another project. Usually, these source codes are later modified to create a variation of their ancestor chain.
Typically we only hear about soft forks and hard forks.
Soft fork
For context, a soft fork is similar to an upgrade and retains backward compatibility. Meaning, new blocks generated by the new nodes will still be accepted by old nodes even if they choose not to update.
A well-known example of a crypto soft fork would be Bitcoin’s SegWit upgrade.
Hard fork
By contrast, a hard fork is an upgrade to the protocol that runs the network, which is not backward compatible. As a result, miners will have to choose which network they want to mine for, which ends in creating two different coins.
Some notable examples of hard forks are Bitcoin Cash, Bitcoin SV, and Ethereum Classic. So, does that make Litecoin a soft or hard fork?
Short answer, neither.
Hard forks such as Bitcoin Cash or Bitcoin SV are created from the same genesis blocks as their ancestor chain. As such, they are merely running a sustained extension of their parent chain (which in this case is Bitcoin.)
On the other hand, Litecoin’s genesis block was not copied from Bitcoin but was created independently by Charlie Lee. Thus, resulting in creating a brand new chain, rather than splitting off from the active Bitcoin blockchain.
Litecoin makes its distinction from Bitcoin in terms of individual identity by running a modified Proof of Work protocol, known as Auxiliary Proof of Work.
In addition to AuxPoW, LTC also uses a different hashing algorithm known as SCRPYT-N rather than the SHA256 hashing algorithm used by Bitcoin.
Initially, Scrypt was designed to resist ASIC miners (the specialised machines required to mine Bitcoin.) For a while, it achieved this aim, allowing GPU and CPU miners to remain competitive.
However, more recently, ASIC miners have been created specifically designed to get around the anti-ASIC properties of SCRYPT-N, all but rendering this an obsolete benefit.
Perhaps most notably, its primary selling point over SHA256 based PoW protocols is the ability to merge-mine any SCRYPT-N based protocols, which led to a significant relationship with Dogecoin.
The Dogecoin Benefit
Dogecoin has been merged-mined with Litecoin since 2014, which up until this most recent bull run didn’t offer Litecoin all that advantage.
Whether you love memecoins or hate them, Dogecoin became so desirable during this most recent bull run that it increased the number of people looking to mine DOGE, leading to more people mining LTC.
These people end up receiving both DOGE and LTC for their efforts hosting the network, and the more people hosting means the more secure it becomes.
Additionally, while Dogecoin’s supply is near limitless, Litecoin only has a hard limit of 84 million LTC. Thus, offering investors a token to sell in the short term and a token to hold for later.
Crucially, this relationship is one of the reasons for Litecoin’s recent success.
However, Dogecoin didn’t do it alone. There have been another group of people who have been helping LTC grow, and that’s the institutional investors.
Typically, these investors are looking for more stable, less risky assets to place their wealth. They aren’t obsessed with turning $100 into $ 1’000’000, but they are obsessed with not losing money.
When you look at the fundamentals, if these institutions believe in the long-term prospects of Bitcoin, it only makes sense that its forked cousin, with a decade of progression and few controversies, would be seen as a natural choice for diversification.
It is essentially Bitcoin, except it has 4x the block size, meaning it can process 4x the amount of transaction per block, and it does this 4x faster by producing blocks every 2.5 minutes, as opposed to Bitcoin’s 10 minutes.
Not forgetting, because it’s Litecoin, yes, it also has 4x the total amount of coins, and it will finish mining these coins 4x quicker than Bitcoin.
So, what is Litecoin’s place in the market?
Litecoin serves a strange role in the crypto market overall.
Its initial benefit of being 4x faster than Bitcoin is no longer its current main benefit.
Nicknamed the Silver to Bitcoin’s Gold
Currently, the main advantage of Litecoin seems to be that it has earned the nickname of being the silver to Bitcoin’s gold.
While this may sound unflattering, it is a good marketing pitch by whoever coined that term. That is because, ten years after its launch, being 4x the size and speed of Bitcoin doesn’t cut quite the same niche it once did.
Especially not when projects like Solana and Algorand offer substantially quicker transaction times and cheaper fees. When considering this, being known as the next best thing to Bitcoin is certainly not a negative.
Longevity
Alternatively, what it does have that no other coin has is longevity without incident. LTC has been with us for a decade, and during that time, there have been no significant incidents or controversies.
In addition, having seen three bull runs already, the development team behind Litecoin appears committed and not just looking for the quickest way to owning a yacht in the Caribbean.
Litecoin is everywhere
Finally, Litecoin is simply everywhere. Being listed on almost every exchange online, Litecoin is one of the most liquid assets on the market. That can be an essential factor when considering investing in altcoins.
For example, someone who recently invested $11000 in Shiba Inu back in August 2020 discovered the hard way that just because you’re a billionaire doesn’t mean you can withdraw it.
Despite their fortune, at its height, being worth $5.4 billion, there was nowhere near the liquidity to withdraw that amount of money.
Luckily, this is an issue Litecoin is unlikely to encounter. If one exchange goes dry, there’s always another where you can buy or sell your LTC holdings.
What about the negatives?
Generally, Litecoin is pretty well built. However, if you’re looking for defects, then there are a few.
Proof of Work Protocol
Firstly, it is a Proof of Work protocol. Meaning, although it is more secure, it is also far more energy-intensive to run.
Though not ideal, it is worth noting that it is significantly smaller than Bitcoin to run, meaning for the moment at least, Litecoin doesn’t have anywhere near the energy requirement as its older cousin.
Not Flashy
Secondly, it’s not flashy.
Seen as both a positive and a negative, though we thought we’d include it here as we believe without Dogecoin, 2021 could have been different for Litecoin.
On the contrary, having Dogecoin for the marketing allows the Litecoin development team to focus their efforts on the protocol itself. Removing the need for a massive marketing budget provides a perfect environment to create a robustly designed protocol.
We can ask ourselves, why would LTC need to spend money on promotion when it’s merge-mined with one of the world’s most recognisable and talked about brands in crypto?
Whale Problem
Lastly, although nowhere near as bad as certain other altcoins, Litecoin does have a bit of a whale problem.
Though their overall percentage share of the LTC market has decreased during this bull run, meaning this will be less of a problem as we progress, it is worth noting.
For example, Bitcoin’s largest wallet holder owns 1.5% of the market share for BTC, and second place holds 1%. Alternatively, when we look at LTC, we can see the largest wallet is 7%, and the second-largest wallet is 3.5%.
From here, the percentages do begin to decrease. However, it is still worth mentioning as large wallets can significantly impact the price of a cryptocurrency.
As you can imagine, should that 7% wallet begin to exit its position, it can be challenging for the price to maintain upward momentum.
Then again, if you think that’s a lot, you may be surprised to discover 23% of all DOGE on the market is stored in the largest Dogecoin wallet, so clearly, LTC is not the worst offender.
Conversely, Ethereum, the world’s largest altcoin by market cap, also has 5% of its total supply in a wallet unsecured by a smart contract, and next is 3%.
Therefore, while high, the Litecoin whale distribution isn’t too far above par.
Conclusion
While the market has certainly changed since 2011, Litecoin, perhaps through a little bit of good fortune, has managed to find a way to be as relevant as ever in 2021.
Its selling points are not necessarily as flashy as other altcoins on the market.
Yet, Litecoin is steady with robust tokenomics, institutional adoption, lack of controversies or security breaches, and a development team who passionately believe in their product.
Litecoin has survived longer than any other cryptocurrency that’s not named Bitcoin. When you think of how many crypto scandals and misfortunes have come over the last decade, Litecoin has managed to survive and thrive through it all.
While all investments in cryptocurrencies could be deemed risky in general, Litecoin is one of the least risky altcoins available.
Not that history is guaranteed to repeat, but so far, LTC has seen significant price rallies in all three previous bull runs, with each bull run bringing a new all-time high.
As a long-term investment, LTC could be seen as a good buy when diversifying your portfolio. As although it might not be the most flashy, it doesn’t need to be.
Its longevity is what brings its prestige. Although it may never be the crypto asset that turns $100 into $1’000’000, it is likely to be one of the cryptocurrencies still valuable in the future, even when many other promising altcoins begin to disappear.
We hope you have found this article informative, and you are leaving with a better understanding of what Litecoin is, how it functions, and its role in the current market.
Elbaite is the cryptocurrency exchange designed for Australian traders seeking safety, security and simplicity. Make an account today to start your Litecoin investment journey!
Disclaimer: The information on this website is purely for information. Elbaite is not a financial adviser, and nothing stated here is to be taken as financial advice. You should seek independent legal, financial, taxation or other advice relevant to your financial situation before making any investment decisions.
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