Is Litecoin a Good Investment? Why haters can be wrong about the controversial cryptocurrency
Litecoin was launched on October 13, 2011 by Google engineer Charlie Lee and is now the 10th largest cryptocurrency by market capitalization.
Litecoin coin is an “OG” crypto. Apart from Bitcoin, no other coin has stayed in the top ten for longer. BTC and LTC have been in the charts for 410 and 409 weeks respectively (other top performers are XRP with 396 weeks and ETH with 291).
It was created from a source code “fork” of the Bitcoin core blockchain (a fork is when a blockchain diverges into two separate paths, creating two different coins). The biggest differences between Litecoin and Bitcoin include:
- Lower transaction fees
- Another hashing algorithm
- A reduced block generation time
- An increased maximum coin cap
Don’t let that put you off! We’ll go into the specifics of these differences below and also look at how these factors have contributed to Litecoin’s success as a more “spendable” cryptocurrency. You may have heard that Bitcoin is referred to as “digital gold,” and with that mindset, Litecoin could be viewed as “digital silver”. But the history of cryptocurrency isn’t as flawless as you might think.
In an April 26 interview with CNBC’s Worldwide Exchange, Lee discussed Litecoin and compared and contrasted its properties with those of Bitcoin. Although Lee is something of a polarizing entity in the cryptosphere, it is worth hearing what he has to say about the cryptocurrency he invented. Let’s dive in.
CRYPTO-SAVVY is an occasional series of Inverse that explains the world of cryptocurrency and where it is headed next.
Litecoin vs. Bitcoin
The value of Litecoin over the past two years at CoinDesk
One of the main differences between the two cryptocurrencies is Transaction Fees (1). Cryptocurrency miners choose to validate the transactions that pay the most. The current average transaction fee for Litecoin is only $ 0.04 at the time of writing. With Bitcoin, that number is much higher, with an average transaction fee of $ 26.89.
“The Bitcoin blockchain is overloaded,” says Lee. “Everyone is vying to get their transactions to the next block, and they do it by paying more fees.”
Another fundamental difference between Litecoin and Bitcoin is theirs Mining Algorithms (2). Litecoin uses Scrypt, one of the first hashing algorithms implemented on blockchain networks. Scrypt’s developers intended it to be an improvement over an even earlier hashing algorithm, SHA-256 (used by Bitcoin). Lee chose Scrypt for good reason, but we need to take a closer look at cryptocurrency mining to understand why.
The basics: Mining can be carried out with a central processing unit (CPU), a graphics processing unit (GPU) or an application-specific integrated circuit (ASIC). ASIC miners have the advantage that they can solve the complex data strings that are required for mining (think “win”) the block much faster – they generate significantly more hashes (think “try”) per second than CPUs or GPUs.
As a result, bitcoin mining using the more expensive and hard-to-find ASICs is now something of an arms race. On April 28, Core Scientific, the largest mining pool in North America, announced it had purchased 112,800 Antminer mining machines from ASIC maker Bitmain. Core Scientific’s CEO says this latest purchase could help his company increase its global share of Bitcoin’s hash rate from 5% to 12%. To be clear, this would mean that an organization could plausibly process more than 1/10 of all Bitcoin blocks, and this, in the opinion of many, contradicts a philosophy at the core of cryptocurrencies: decentralization.
This is where Litecoin’s hashing algorithm comes in: Lee chose Scrypt because the algorithm is less susceptible to ASIC mining. While the Scrypt ASIC miners have become more common over the years, most of the mining on the Litecoin blockchain is still using CPUs and GPUs, making it much more accessible to the average person and less susceptible to “control” by the above centralized mining pools.
“Digital gold” versus “digital silver”
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In his CNBC interview, Lee also explains why he calls Litecoin the “digital silver” to Bitcoin’s “digital gold”. As we know, both gold and silver have been used as currencies throughout history, and since gold is worth so much more than silver, it is better suited for large items. Gold is the most marketable commodity when large values are being traded (like buying a car), while silver is the most marketable commodity for smaller transactions (buying groceries).
Lee seems to be referring to this “affordability” with this “digital silver” narrative. Due to the low transaction fees for Litecoin, the coin can be used more easily. Transactions in the Litecoin network are also faster (3) than in the Bitcoin network, on average every 2.5 minutes as opposed to 10 minutes for Bitcoin.
But from a technical point of view, that’s not all good news. While the Litecoin network can be four times faster, there is too four times as many coins (4). According to Coin Market Cap, the current supply of LTC in circulation is 66,752,415 (with the maximum supply being 84,000,000). Conversely, the circulating supply of BTC is 18,694,375 (with the maximum supply being 21,000,000).
For Litecoin, this could be seen as a negative attribute as Bitcoin is so valuable in part because of its scarcity, and this scarcity is why the leading cryptocurrency by market cap is often touted as the ultimate hedge against inflation.
However, things could get worse: There is no limit or a maximum supply cap for Ethereum’s native cryptocurrency Ether or another current favorite, Dogecoin. Instead, the supply increases every year. While supporters of Ether are quick to point out that proposed monetary policies are in the works that aim to contain inflation over time without relying on a supply cap, nothing concrete has emerged yet as Ethereum’s monetary policy is in flux .
“Why do people hate LTC?”
As mentioned briefly in the introduction, founder Lee, who sold all of his LTC holdings in December 2017 as the coin neared its all-time high of $ 310, is adding to the anti-Litecoin sentiment. Because of this, some people accuse him of pumping and emptying his stocks for his personal gain.
Another perspective, according to Ilir Gashi in her Medium article “Defeating the FUD: Charlie Lee Selling his Litecoin for a Conflict of Interest” is that Lee “sold his Litecoins because of an increasingly perceived conflict of interest”. Gashi’s article goes on to list specific reasons that help “clarify why selling Lee was the best thing for Litecoin to stay decentralized.”
This explanation makes sense. Distancing oneself from a project to avoid a conflict of interest is sometimes taken for granted in business and seems like a pretty legitimate reason for Lee to sell.
A quick Google search reveals a Reddit thread, “Why Do People Hate LTC?” – BTC supporters who believe that the Bitcoin network has everything investors want or need in a digital currency, some of them see Litecoin only as a copy / paste version of the world’s leading crypto.
Perhaps at first glance there is some truth to it. But in reality there are several significant differences, use cases, and uses for both coins if you dive a little deeper (and as I believe I have shown in this article). @ not me!
CRYPTO-SAVVY is an occasional series of Inverse that explains the world of cryptocurrency and where it is headed next.
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