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An Introduction to Litecoin and the LTCetc – ETC Group Physical Litecoin (ELTC)

One of the more intriguing things about the long-term bullish growth of the cryptoasset market is the rise of highly liquid large-cap altcoins. Altcoin is portmanteau of ‘alternative’ and ‘coin’ and refers to every cryptoasset other than Bitcoin.

One of the most enduring of these is Litecoin (LTC). Once released, it quickly rose to prominence and has remained popular ever since. As of 23 March 2021, Litecoin has amassed a market cap of $12.4bn, compared to Bitcoin’s $1.01trn.

Litecoin is now one of the most recognised, trusted, and most utilised blockchain-based payment networks in the world. This kind of longevity has been crucial to its incorporation onto all of the largest cryptoexchanges including 

Binance, Coinbase and Huobi Global, as well as mainstream recognition from major global payment processor Paypal.   

When Paypal announced in October 2020 that it would cross the Rubicon to start supporting cryptoassets, only four of the most recognised projects were chosen: Bitcoin, Litecoin, Ethereum and Bitcoin Cash. At Paypal’s recent Investor Day 2021 the payment company’s chief strategy and growth officer Jonathan Auerbach noted there were plans to expand support for these cryptoassets in the UK, “within months”, while Techcrunch reported that mobile payment app Venmo would receive the same functionality by mid-2021.   

For illustrative purposes only. Past performance is no guarantee of future performance. Source: https://coinmetrics.substack.com/p/coin-metrics-state-of-the-network-50a

 

Investor’s guide to Litecoin

Analysts tend to spend a large proportion of their focus on Bitcoin and Ethereum or the 'hot' coins of one particular month. The current situation does purport to offer an entry point for the long-term investor to amplify their crypto portfolio gains at a relatively low risk, given the project’s longevity, wide-scale usage and trading liquidity.

This relative underappreciation on an analytical level is clear: few investment banks have proposed long-term price predictions for Litecoin in the way JP Morgan or Citibank have for Bitcoin. This is starting to change, with more analysts devoting time to Litecoin price predictions.

Among the more recent investigations of institutional altcoin accumulation comes from Messari, whose screeners display the portfolios of crypto hedge funds and venture capitalists like Andreessen Horowitz (a16z), Coinbase Ventures, Pantera Capital and Winkelvoss Capital, for example.

Institutional investors are also starting to accumulate Litecoin in increased amounts. Litecoin is now the $39bn cryptoasset manager Grayscale’s third-largest holding behind Bitcoin and Ethereum and as of early March 2021 it has around 1.45 million LTC under management in its Litecoin Trust. This is a significant expansion since the beginning of 2021. Data from market intelligence provider Bybt.com also shows that Grayscale bought 80% of all the Litecoin mined in February 2021.

Litecoin was created in 2011 by the MIT-educated software engineer Charlie Lee, who helped develop some of the early iterations of Chrome OS and Youtube at Google, before going on to become the Director of Engineering at Coinbase, leaving in 2017 to develop Litecoin full-time. As the name suggests, Lee’s intention for Litecoin was to be a ‘light’ version of Bitcoin: an altcoin more suited to payments than the original cryptocurrency, with faster transaction times and lower fees. 

Litecoin Core, the code that underpins the blockchain, is written in the highly-popular and common programming language C++, while Python is used for some ancillary tools. That means its code is simple for external developers to use and understand.  

With its faster block times and higher transaction throughput, Litecoin was conceived as a more practical and scalable medium of exchange. So while Bitcoin’s use case has evolved into more of a store of value than a currency, Litecoin remains a popular payment alternative to fiat cash like US dollars or pounds sterling. 

The interesting point to note about Litecoin is its incredible durability. Cryptoasset data provider Coinmarketcap.com first started tracking valuation metrics in early 2013, and across that eight-year period only two coins have never fallen out of the top 10 projects by market cap: Bitcoin and Litecoin. 

   

Source: https://coinmarketcap.com/; Values as of 8 January 2021

While many pretenders and challengers have risen in prestige and then fallen into obscurity, Bitcoin and Litecoin remain the bedrock of the entire cryptoasset market.

 

Litecoin versus Bitcoin - Similarities and Differences

Bitcoin is an open-source software and as such, any developer can copy its codebase to create their own version. Thousands of Bitcoin-alike projects have been spawned from this single technological marvel. But only one has remained in the most traded, most used and most desirable category since data records began: Litecoin. Within two years of the Bitcoin whitepaper debuting to a small audience of cryptography enthusiasts on a little-known mailing list, Charlie Lee launched this new blockchain. Lee made some striking changes to Bitcoin’s functionality but the two blockchains share many features.

 

For illustrative purposes only. Past performance is no guarantee of future performance. Source: https://bitinfocharts.com/comparison/litecoin-activeaddresses.html

 

Similarities

Scarce: 80% of the all the litecoins that will ever exist have already been mined into existence. There is a hard cap of 84 million LTC. As of 23 March 2021, 67.4 million LTC have been created. Like Bitcoin, Litecoin undergoes a halving of its block rewards every four years to maintain a deflationary structure, and therefore retains a similar long-term value proposition. 

Secured by Proof of Work: Both the Bitcoin and Litecoin blockchains are secured by a Proof of Work consensus mechanism. This means that miners compete to solve challenging mathematical puzzles in order to win the right to confirm blocks of transactions, and win compensation in the form of block rewards. Block rewards for Litecoin mining are paid in LTC, whereas rewards for Bitcoin mining are paid in BTC. 

Highly divisible: Both Bitcoin and Litecoin are divisible into near-infinitesimal amounts. In fact, both are divisible to 8 decimal places, and the current minimum amount able to be transferred are 0.00000001 BTC and 0.00000001 LTC. 

Strong network effects: Aside from the original cryptocurrency, Litecoin is one of the oldest and most secure coins on the market as well as one of the most used digital currency payment platforms. One widely-cited 2017 research paper found that blockchains like Bitcoin appear to conform to Metcalfe’s Law, which states that the value of a network is proportional to the number of connected users in the network. While originally used to describe the increased value of connections in telecommunications, tech applications like Facebook and Tencent have been shown to act in this way, and cryptocurrencies have too. 

The implication here is that the more widely utilised a blockchain network like Litecoin becomes, the more its value grows over time. 

Supporting this conclusion is the fact that the number of unique Litecoin addresses has grown strongly over the past 12 months. According to data from BitInfoCharts, in March 2020 the number of unique Litecoin addresses holding the cryptoasset was just under 43,000. A year later, that number was over 200,000. 

 

Differences

4x faster: New blocks of transactions on the Litecoin network are generated on average every 2.5 minutes, compared to Bitcoin’s 10 minute average. As a consequence, Litecoin’s transaction throughput is also approximately four times faster than Bitcoin. 

As Lee explains: “Just a few years after Satoshi Nakamoto’s whitepaper ushered in a new financial and technological paradigm with Bitcon, I quickly realised that one of its major drawbacks was speed. A new block is added to the Bitcoin blockchain approximately every ten minutes and, thinking of a future where this incredible new technology would be widely adopted, I realised that transaction throughput would become a serious scalability problem.”

Dramatically lower fees per transaction: Throughout its history, Litecoin has maintained reasonable fees at a consistently low level. Unlike Ethereum, whose fees to process transactions rise and fall depending on how many people are utilising the network at any one time, Litecoin fees have remained remarkably stable over time.

Litecoin’s fee structure is one of the most attractive elements of its use. It costs around 1/1000 of an LTC to process a transaction and crucially, fees do not rise at larger transaction amounts. This stability and usability has allowed Litecoin to maintain a very strong userbase.

And while both Bitcoin and Litecoin mean fees per transaction can spike during periods of volatility, the baseline for Litecoin is several orders of magnitude lower. Taking a snapshot of the market in February 2021, for example, we can see that the mean transaction (tx) fees in USD for Bitcoin was $14.30, while for Litecoin it was $0.03 (NB, chart is shown on a logarithmic scale).

 

For illustrative purposes only. Past performance is on guarantee of future performance. Source: https://charts.coinmetrics.io/network-data/  

Scrypt not SHA-256: While Litecoin’s codebase is a copy of Bitcoin, and both networks are secured by Proof of Work, one very important technical difference remains. Litecoin uses a unique cryptographic hashing algorithm called Scrypt, which is specifically designed to make it prohibitively costly to perform large-scale hardware attacks on a network. As well as offering a very strong cryptographic basis for the Litecoin blockchain this produced two interesting effects. 

Firstly, in the early years of Litecoin, Scrypt made mining this cryptoasset far more accessible to individuals, who were able to mine and mint new Litecoin with the processing power available from most home computer CPUs. 

Secondly, it meant that Litecoin was not competing with Bitcoin for miners, as users could mine both Bitcoin and Litecoin at the same time. Attempting to mine two cryptographically identical cryptocurrencies in parallel requires twice the connections and twice the distribution channels, adding to cost-intensiveness. 

As the Litecoin Foundation explains: “It was considered of extreme importance to utilize a different mining algorithm to not compete with Bitcoin miners. Thanks to this decision, Litecoin dominates Scrypt mining, making it more secure and less prone to being successfully attacked. This decision has helped Litecoin maintain its reputation as a secure coin and has contributed to it withstanding the test of time, unlike other more easily attackable coins that have met unfortunate fates.”

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