Litecoin – a fork of Bitcoin – has been dubbed by creator Charlie Lee as the ‘silver’ to Bitcoin’s ‘gold.’ That is, Litecoin does not intend to compete directly with Bitcoin. Instead, Litecoin aspires to be the industry leader in the daily transactions space. Litecoin shares almost all of the same characteristics as Bitcoin. The main differences are that Litecoin has shorter block times (2.5 min compared to 10 min for Bitcoin), a larger supply (84 million to 21 million for Bitcoin), and uses a different mining algorithm (Scrypt instead of SHA-256). By using shorter block times, the Litecoin protocol is designed to increase transaction speeds and decrease fees compared to Bitcoin. While shorter block times expose Litecoin to greater security risks, Charlie Lee explained he is willing to sacrifice a little on security to increase speed for daily transactions. He further surmised that Bitcoin needs to have the highest level of security to store users’ savings. Litecoin could then operate like cash, where it’s acceptable to sacrifice some security for increased convenience when users are transacting in small amounts and a security breach would not result in financial ruin.

Pros: Contains many of the benefits of Bitcoin including decentralization, immutability, and limited supply in addition to improved scalability due to the 2.5 min block time; fast confirmation times (~a few seconds); low transaction fees (~$.20 per transaction); first cryptocurrency intended for daily transactions

Cons: Decreased block time comes with increased security risks; several competitors in the daily transactions space (Bitcoin Cash, Dash, Nano); if Bitcoin solves its scaling problem there may not be a need for an additional cryptocurrency for daily transactions; vulnerable to a 51% attack if a mining pool or anyone else controls over 50% of the mining power

Analysis

To perform an objective analysis, each cryptocurrency is rated based on the following factors: (1) validation method; (2) leadership; (3) community participation in development; (4) transaction volume and market capitalization; (5) industry participation; (6) security; (7) usability; (8) technical features; (9) growth; (10) legal risks; and (11) estimated time of arrival.

Validation Method

Litecoin uses the same proof-of-work (POW) system as Bitcoin to validate transactions, but a different mining algorithm in Scrypt.[1] Originally, miners could run Scrypt on CPUs but hashing power has increased considerably and now requires ASICs. Because blocks are generated every 2.5 minutes rather than every 10, Litecoin experiences a much larger number of stale blocks and orphaned chains than Bitcoin.[2] This means that miners find blocks which are not added to the blockchain, because another block has its chain extended first. Additionally, the shorter block time leads to an increased number of blocks, making data storage expensive. Between the expensive data storage and likelihood of finding orphaned blocks (where miners do not receive a reward), only a few miners participate in the Litecoin network.[3] Thus, Litecoin mining is centralized (only three mining pools control over 50% of the hash power: LitecoinPool.org, Antpool, and LTC.top), making it vulnerable to a 51% attack.

Leadership/Community Participation

Litecoin is led by its creator Charlie Lee, a former Google engineer and MIT grad.[4] Mr. Lee has a strong vision for the future of Litecoin. As the first major adopter of the Segregated Witness (SegWit) upgrade, Lee is a strong proponent of the Lightning Network as an off-chain solution. He envisions Litecoin and Bitcoin using the Lightning Network for atomic swaps to exchange one coin for the other.[5] Although the Lightning Network may allow Bitcoin to scale to the point where it can perform its own daily transactions, Charlie Lee believes Bitcoin Lightning Network transactions will be more expensive than Litecoin Lightning Network transactions. As such, he sees a scenario where users who want to transact in Bitcoin convert to Litecoin, transact in Litecoin, and convert back to Bitcoin via an atomic swap to reduce transaction fees.[6]

Transaction Volume and Market Capitalization

Litecoin has about 1/10 the transaction volume of Bitcoin (~$400M in transactions per day). Even though confirmation times and transaction fees are significantly lower for Litecoin, the network has not been fully tested. Nevertheless, Litecoin does have the 5th largest market cap (~$9B) of all cryptocurrencies.[7]

Industry Participation

Recently Alza, a major European online retailer, announced that it is accepting Litecoin.[8] RE/MAX London also accepts Litecoin as a form of payment. Additionally, it can be purchased through several exchanges, such as Coinbase, Bitstamp, Binance, and many others. However, Litecoin has yet not received widespread acceptance and may only be used at very limited locations.

Security

As mentioned above, Litecoin is not as secure as some other cryptocurrency such as Bitcoin, due to its relatively short block times. Charlie Lee also intimated that he would be willing to increase block size as well to increase transaction times, despite further security risks. He explained that for Litecoin some vulnerability is okay, because he does not envision users having large amounts of Litecoin at any given time.[9] Instead, he sees users keeping their savings in Bitcoin and converting small amounts to Litecoin for daily transactions, like withdrawing cash from an ATM. Even so, some studies have shown that reducing block times to as little as 1 minute have little negative impact on security.[10]

Usability

As the silver to Bitcoin’s gold, Litecoin is intended to be used for day-to-day transactions including micropayments.[11] Lee explained, “Bitcoin can be used for like moving millions of dollars between banks, buying houses, buying cars. It’s really secure. Litecoin can be used for cheaper things.”[12] While this idea makes sense in theory, it is yet to be seen whether Litecoin can maintain low transaction fees and fast confirmation times when the network is flooded with billions of transactions per day. It appears that off-chain solutions like the Lightning Network or solutions that do not require a blockchain are better suited to handle exponential increases in transaction volume[13] and micropayments. But, Lee envisions a world where Lightning Network complements Litecoin and increases its value rather than destroying it.

Technical Features

As described above, Litecoin has almost all of the same features as Bitcoin. The main differences are block times of 2.5 minutes, a limited supply of 84 million coins as opposed to 21 million, and Scrypt for its hashing algorithm.[14] Whereas Bitcoin’s mempool had been reaching close to 300 MB of unconfirmed transactions in January, because of its shorter block times the amount of unconfirmed transactions for Litecoin is typically under 1 MB.[15] Additionally, Litecoin was the first major cryptocurrency to adopt SegWit, meaning it has been testing the Lightning Network for longer than many others including Bitcoin.

Although Litecoin has some similar drawbacks as Bitcoin Cash (increased security risks and mining centralization), Litecoin has been around much longer and isn’t trying to compete directly with Bitcoin.[16] Additionally, Litecoin embraces off-chain scaling solutions like Lightning Network, whereas Bitcoin Cash appears to believe it has the best solution to scaling.

Growth/Legal Risks

Litecoin’s main competitors are other cryptocurrencies that intend to be used for day-to-day transactions, such as Bitcoin Cash, Dash, Nano, etc. Despite the fact that there are many competitors in this space, Litecoin was the first to market, and has room to grow as the demand for cryptocurrencies that can perform day-to-day transactions and micropayments increases. Additionally, Litecoin has a limited supply although it has 4 times as many coin as Bitcoin. As the number of Litecoin left to mine decreases, Litecoin’s value should go up. On the other hand, if Bitcoin can address its scaling issues Litecoin may lose some of its advantage in this niche market within cryptocurrency.

Estimated Time of Arrival

Litecoin was launched in 2011 and is now fully developed and ready for use. However, the Litecoin network has not been tested to the same extent as Bitcoin’s, and we won’t know for sure how well Litecoin can handle daily transactions until its required to confirm hundreds of millions or even billions per day like a credit card company.

ETA: Now

Conclusion

Litecoin has strong leadership with a well thought out vision for the future, and a concrete plan to make that vision come to fruition. Nonetheless, it is unclear whether gold and silver can co-exist if and when off-chain solutions are widely adopted.

[1] https://www.coindesk.com/information/comparing-litecoin-bitcoin/

[2] https://www.coindesk.com/lower-bitcoin-block-time-scale/

[3] https://www.litecoinpool.org/pools

[4] https://twitter.com/SatoshiLite

[5] https://www.youtube.com/watch?v=U2KP8koYC3s

[6] https://segwit.org/my-vision-for-segwit-and-lightning-networks-on-litecoin-and-bitcoin-cf95a7ab656b

[7] https://coinmarketcap.com

[8] https://www.alzashop.com/alza-introduces-a-payment-by-litecoin

[9] https://www.youtube.com/watch?v=U2KP8koYC3s

[10] https://www.coindesk.com/lower-bitcoin-block-time-scale/

[11] https://bravenewcoin.com/news/for-bitcoin-is-being-a-store-of-value-more-important-than-a-payment-system/

[12] https://www.express.co.uk/finance/city/905756/Litecoin-bitcoin-fork-miners-China-South-Korea-Charlie-Lee

[13] https://lightning.engineering

[14] https://www.coindesk.com/information/comparing-litecoin-bitcoin/

[15] https://dedi.jochen-hoenicke.de/queue/litecoin/#3m

[16] https://www.express.co.uk/finance/city/905756/Litecoin-bitcoin-fork-miners-China-South-Korea-Charlie-Lee