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🤔 What is Litecoin?

Litecoin is a digital currency founded two years after Bitcoin to overcome Bitcoin’s limitations:

  • Speed
  • Scalability
  • High transaction fee
  • Asics minning resistance

Litecoin code was fork of Bitcoin’s code with slight changes to make it scalable to facilitate everyday transactions.

💡 What role does LTC token play ?

LTC is the native cryptocurrency of Litecoin blockchain. It is used for:

  • Medium of exchange: Users can transact LTC tokens as value for buying and selling goods/services.
  • Transaction fee: Users pay LTC tokens as transactions fees to include their transactions in Litecoin blockchain.

📝 Origin of Litecoin

  • Lee released Litecoin via an open-source client on GitHub on October 7, 2011. The Litecoin network went live on October 13, 2011.
  • It was a source code fork of the Bitcoin Core client, differing primarily by having a decreased block generation time (2.5 minutes), increased maximum number of coins, different hashing algorithm (scrypt, instead of SHA-256), and a slightly modified GUI.
  • In 2017:
    • Litecoin became the first of the top 5 (by market cap) cryptocurrencies to adopt Segregated Witness(a process by which the block size limit on a blockchain is increased by removing signature data from transactions that are included in each block).
    • In May, first Lightning Network transaction was completed through Litecoin, transferring 0.00000001 LTC from Zürich to San Francisco in under one second.
  • In 2020:
    • PayPal added the ability for users to purchase Litecoin along with Bitcoin, Ethereum and Bitcoin Cash.
    • First atomic swap between BTC and LTC was conducted.
  • Litecoin integrated Mimble wimble(protocol for hiding transactions)

👴🏻 Charlie Lee - Founder of Litecoin

  • Education:
    • 1995-1999: Bachelor of Science from MIT.
    • 1999-2000: Master’s in Computer Science from MIT.
  • Experience:
    • 2000-2003: Software engineer at Kana communication.
    • 2003-2007: Senior software engineer at Guidewire software.
    • 2007-2013: Software engineer at Google.
    • 2013-2017: Engineering Manager/Director of Engineering at Coinbase.
  • Litecoin:
    • Created Litecoin in 2011.
    • In December 2017, he revealed that he was selling and donating all of his LTC, as he was often being accused of tweeting about the cryptocurrency for personal benefit. Litecoin was then trading at an all-time high at around $350, Lee’s move was widely criticized.
    • He is the current managing director of Litecoin Foundation(a non-profit organization registered in Singapore).

😌 What problems does it solve ?

  • Performance: Blocks are added every 2.5 mins instead of 10 mins in Bitcoin. This results in:
    • Faster confirmation time.
    • Cheaper transaction fees as more blocks are available to record transactions.
  • No trusted third party: Users do not have to trust Litecoin team. The code is open source, anyone can see and verify how the code works.
  • Mimble wimble: Allows users to transact anonymously with anyone in the world.
  • Decentralization: Litecoin is a decentralized protocol that cannot be regulated by governments.
  • Fair launch:
    • A week before LTC launched, Lee released its source code and binary so people could test mining before it went live.
    • The time of launch was decided through a poll on the Bitcointalk forum.
    • Everyone was able to start mining at the same time, as they knew the launch date and time well in advance.

🤖 Litecoin vs Bitcoin

Litecoin code is a fork of Bitcoin. It has two major differences as compared to Bitcoin:

  • Blocks are added every 2.5 mins: This was done to add more space for recording transactions resulting in cheaper and faster transacti0ns.
  • Uses Scrypt hashing algorithm: Script hashing algorithm was resistant to Acics minning, unlike SHA-256 hashing algorithm used by Bitcoin.

🏛️ Governance model

Litecoin has similar governance structure as Bitcoin and Etherium:

  • Anyone can propose changes to Litecoin protocol.
  • Proposer will have to coordinate and convince thousands of miners running Litecoin nodes to update their software at the same time.
  • It will result in a hard fork if all the miners do not update their software at the same time.

🤑 How much money does the project have for future development ?

  • There was no premine:
    • No money was raised through ICO or venture capital funding.
    • Litecoin foundation/team was not allotted any LTC token.
  • The project does not have any ongoing source of revenue.

😨 Risks and challenges

  • Founder abandoned the project:
    • In December 2017, Charlie Lee revealed that he was selling and donating all of his LTC, as he was often being accused of tweeting about the cryptocurrency for personal benefit. Litecoin was then trading at an all-time high at around $350, Lee’s move was widely criticized.
    • It is evident from their website, Github account and social media accounts that no one is working on the project.
  • Government do not like privacy coins: Mimble wimble update will make it impossible to track transactions on Litecoin blockchain. This will result in:
    • Governments banning Litecoin.
    • Exchanges delisting Litecoin.
    • Bad publicity: Litecoin being used for money laundering, terrorist funding, tax evasion etc.
  • Slow:
    • Litecoin is 4 times faster than Bitcoin. But that is not sufficient for it to become means for global medium of exchange.
    • There are many other layer 1 projects that are much more scalable and being actively developed by a team of developers.
  • Lack of funds:
    • Litecoin foundation did not raise any capital and does not hold any reserves of LTC tokens.
    • There is no one financially incentivized to improve the protocol.
  • Centralization:
    • There was a reason why Satoshi Nakamoto choose 10 mins to add a new block to the blockchain.
    • Litecoin’s fast block time will require large amount of storage space for storing complete blockchain.
    • As a result, only large players capable of hosting large data servers will be able to run nodes and mine new blocks.
  • Asics resistance:
    • Litecoin decided to use Scrypt instead of SHA-256 (being used by Bitcoin) to make the minning process ASICS resistant.
    • Subsequently, ASICS developers caught up and designed new ASICS that were able to run Scrypt hashing algorithm.
    • Litecoin gave up on this fight even without fighting.
    • As a result, only a handful of minning pools control majority of the hash rate.

💰 Tokenomics

  • LTC tokens were not premined.
  • LTC tokens have fix max supply of 84 million tokens.
  • Litecoin blockchain started off with an initial block reward of 50LTC.
  • Block rewards are halved every 840,000 blocks (approximately 4 years).
  • Litecoin’s first halvings occurred in August 2015 and August 2019.
  • LTC emission schedule is as under:

Demand pressure

Token’s price increases due to demand pressure.

Demand pressure on LTC will come from:

  • Use as a medium of exchange.
  • Payment of transactions fees.
  • Speculators will acquire ALGO tokens for future price appreciation.

Supply pressure

Supply pressure on a token decreases its price.

Supply pressure on LTC will come from:

  • Miners: They will sell their earnings to cover their operations costs.

🧐 Indicators to watch out for

  • Difficulty: No more new miners are joining the network since 2018.
  • Twitter: Their Twitter account is growing:

👋Final remarks

I will not be investing in Litecoin because:

  • There are better alternatives that serve the same purpose.
  • What will be the use of Litecoin if Bitcoin itself is able to scale using layer 2 solutions like Lightning network etc.
  • The foundation does not have sufficient capital to fund future long-term development.
  • Their website and protocol have not been updated since a long time.

😊 Do further research

You can continue your research by using following resources:

Further reading