What is Litecoin?
If imitation is the sincerest form of flattery, then bitcoin must feel flustered all the time. Bitcoin is one of the most imitated and copied modern technologies. Due to its open-source licensing – inspired by its own “appropriation” of existing work and the sense that no one should own bitcoin – bitcoin has invited innovators and those seeking to cash in on the coin’s popularity and success to take on the code and strike their own claims. For the most part, these bitcoin clones are underwhelming or eventual failures.
There are those few, however, that manages to find their strive. These include bitcoin gold, bitcoin cash, DASH, Decred, and Vertcoin. Most of these attempted to change key problems with bitcoin and solve them in their own ways. One of these is one of the first bitcoin clones. Litecoin was started on October 7, 2011 – two years after the release of the Bitcoin Core – and is one of the few early clones to still have value. Litecoin has enjoyed a controversial path during its lifetime but is currently a top ten cryptocurrency – hitting as high as number three on the list of cryptocurrencies by market capitalization.
This article will look at what exactly is Litecoin.
The Problem with Bitcoin
Before one can discuss Litecoin, one must look at why someone would want to replace bitcoin. If one was honest about the commercial appeal and capability of bitcoin, one would equate it close to the commerce capability of gold. Both are valuable, and both will hold value long-term. However, both bitcoin and gold are not instantly convertible to fiat currency and take some time to process transactions. Just as gold would make a horrible day-to-day low-value currency, bitcoin is ill-suited for such small denomination transactions.
In large part, this is due to the relatively slow speed of bitcoin’s confirmation process. Confirmation speed is largely determined by the size of the block; larger blocks mean that miners do not have to wait as often for new blocks to record transactions. The downside of this is that larger blocks require more node memory to be served, requiring larger initial investments from would be full nodes. A way around this is to decrease the block generation time, but this could lead to the same memory monopolization problems.
Another problem bitcoin has is in its limited number of coins. At 21 million, the difficulty curve may grow too fast – especially considering runaway speculation. While the supply of bitcoin will not run out until 2140, there may come a time that bitcoin is too expensive to mine, creating a de facto end of the coin supply. In most regions of the world, this time has already come, as the electricity cost to mine bitcoin is more than the value of the coin. Only in areas where there is an energy surplus, like Canada, Iceland, and China is bitcoin still profitable.
Finally, especially in the early days of the bitcoin network, it was possible to launch a custom hardware attack. What this means is that – if someone wished – he/she could use application-specific integrated circuits to decrypt the encryption created by the hashing algorithm. A cracking machine with ASICs can produce enough brute force attempts – guessing one digit at a time – to eventually figure out an encryption key faster than an equivalent cluster of computers.
While the time needed to effectively decrypt a bitcoin message makes custom hardware attacks impractical for hack attacks, the idea that the encryption can be so easily undone in theory violates the foundation tenet of cryptocurrencies. A way to get around this is to use a hashing algorithm that makes it “expensive” to mine a block regarding memory and power consumption.
These limitations are not hidden from bitcoin or the bitcoin community. Bitcoin was a proof of concept and was, therefore, a system in its untested state. Most of these problems did not emerge until after Satoshi Nakamoto gave up control of the project. The problem is that there is a near-religious devotion toward keeping bitcoin as close to Nakamoto’s model as possible. This is, in part, due to bitcoin being the first cryptocurrency, therefore having value for its historical place. But, more of it is a stubborn determination. Many of the largest stakeholders had bitcoin from the start and had to endure multiple eulogies of the coin in the press, a litany of naysayers, and years of price volatility.
There is pride in the community in being able to “thumb their nose” at the doubters, and this may be bitcoin’s fatal flaw.
Creating Litecoin was not the original intent of creator Charlie Lee. Lee, at the time, was a former Google software engineer that sought to get into cryptocurrency by reviving a dead coin called Tenebrix. His Tenebrix-clone, Fairbrix, was an unmined ASIC-unfriendly coin that used Scrypt as a hashing algorithm. Scrypt works by creating a key for its encryption a password. Password-based key derivation functions are generally brute force-resistant, as brute forcing the password would take billions of computational cycles. Scrypt is unique among other password-based key derivation functions in the sense that it resources-intensive; it would either take a great deal of memory to process the calculation quickly or a long time to process the calculation with limited resources. This makes Scrypt more computationally-intensive than SHA-256 – bitcoin’s algorithm.
In the case of Fairbrix, the ASIC prohibition created a problem. The CPU dependency, along with the multi-coin client Fairbrix used, created a bug that stopped the Fairbrix blockchain from issuing coins, while simultaneously setting up a 51 percent attack that was implemented the moment the blockchain went live.
Abandoning Fairbrix, Lee went to the source and decided to fork the Bitcoin Core in his next attempt toward creating a viable cryptocurrency. He named his fork “Litecoin.”
Litecoin basically was Lee’s combination of the bitcoin code with his solution for destroying the Fairbrix bug. Litecoin also made several additional improvements on bitcoin:
- There are four times as many coins – 84 million, instead of 21 million;
- The block size, due to Litecoin’s 2017 adoption of Segregated Witness, is eight megabytes instead of bitcoin’s one;
- The block generation time is 2.5 minutes, compared to bitcoin’s ten minutes;
- It is more expensive (but not impossible) to make ASIC devices to mine Litecoin, making it easier to mine than bitcoin with a conventional desktop;
- Due to early adoption of Segregated Witness, Litecoin has adopted the Lightning Network before bitcoin; and
- Litecoin’s embracing of Scrypt makes Litecoin theoretically more secure than bitcoin; although, in practice, the difference between the two security-wise will never be bore out due to the nature of crypto-economics.
The rigidity of bitcoin makes it impractical as a currency. Lee’s original intentions for Litecoin was not to create a coin to replace bitcoin, but to create a coin that complemented bitcoin; silver to bitcoin’s gold. While bitcoin could be stored as a commodity, Litecoin was meant for everyday use. As it is more liquid, faster, and more accessible than bitcoin, using both coins would give the end user an equivalent experience to fiat currency.
Early in 2018, Lee divested from Litecoin, selling off almost all his coins to avoid conflicts of interest with the digital exchange Coinbase, where he served as director of engineering. It was during his tenure that Coinbase decided to list Litecoin, significantly boosting the coin price. Lee has been accused of collusion, even though he claimed it was a coincidence.
“Over the past year, I try to stay away from price related tweets, but it’s hard because price is such an important aspect of Litecoin growth,” Lee wrote. “And whenever I tweet about Litecoin price or even just good or bads news, I get accused of doing it for personal benefit. Some people even think I short LTC! So in a sense, it is 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.”
“For this reason, in the past days, I have sold and donated all my LTC. Litecoin has been very good for me financially, so I am well off enough that I no longer need to tie my financial success to Litecoin’s success. For the first time in 6+ years, I no longer own a single LTC that’s not stored in a physical Litecoin. (I do have a few of those as collectibles.) 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 since returned to the leadership of the Litecoin Foundation.
The Future of the Coin
It is hard to say what is in store for Litecoin in the future. At one point, Litecoin was on pace to replace bitcoin as the primary cryptocurrency, but today – while still a top ten crypto asset – Litecoin has been seen declining against bitcoin. As other currency-type cryptocurrencies, such as DASH and bitcoin cash, have emerged, Litecoin is increasingly finding it harder to stay relevant.
Despite this, in the last year, Litecoin has had healthy growth. A significant number of analysts have predicted that Litecoin will eventually surpass bitcoin cash and may even reach the $2,000 per coin level by 2020.
However, there is a growing consensus that feels that Litecoin’s marketing of being silver to bitcoin’s gold may be holding Litecoin back. “As we move into 2018 and the market-share dominance of Bitcoin continues to slip, the moniker of being ‘second-place’ to Bitcoin is damaging to widespread LTC adoption and the usability of the currency over its larger competitor,” the Independent Republic reports. “More than a handful of investors have pointed out that Litecoin benefits from having its price tied closely to Bitcoin: when BTC goes up, Litecoin follows. However, what about the situation where Bitcoin prices plummet? Or, more likely, fail to raise to an appreciable level relative to the rest of the market? Litecoin’s price may benefit in bull-markets from the rising price of Bitcoin (as almost all currencies do), but suffers exponentially from that correlation if Bitcoin fails to continue its growth. We may be seeing the waning days of Bitcoin’s true dominance in the cryptomarketplace.”
“That’s not to say Bitcoin is going away any time soon. It will likely continue to hold the top market spot for at least the foreseeable future (although Ethereum is a strong contender in 2018). There are enough powerful players backing BTC to ensure it has a strong presence in the marketplace (billionaires Marc Andreessen and Peter Thiel, to name a few). Likewise, Bitcoin holds a fascination in the public. CNBC may be kicking BTC while it’s down, but when the market turns again, or if BTC prices start to climb, expect another wave of positive press.”
Should Litecoin wish to “break out,” it will need to find a way out of bitcoin’s shadow. This, fortunately, speaks to Litecoin’s strength. Unlike bitcoin, which is stubbornly fixed in the image of its own past, Litecoin has embraced change. It is likely that the Litecoin would embrace a major change in the code or the structure of the foundation if needed easier and faster than what could be expected from bitcoin.
This is part of the reason for Litecoin’s longevity. One of the oldest still operating bitcoin clones and – arguably – the first “altcoin” – there is history behind “bitcoin’s silver.” However, the potential of the coin may not have been realized yet, meaning that Litecoin may be the sleeper of the crypto market – given a healthy dose of luck.