Overview
Litecoin (LTC) was founded in 2011 by Charlie Lee as a peer-to-peer digital currency designed to be complementary to, rather than a competitor of, Bitcoin. It has been likened to “digital silver,” as opposed to Bitcoin’s status as “digital gold.” Litecoin regularly touts its similarities to “Big Brother” Bitcoin, but differentiates itself by enabling cheaper transaction fees, the ability to handle more transactions per second, added emphasis on merchant and retailer adoption, and an increased maximum supply.
Litecoin Strengths
- Litecoin has strong network effects and high liquidity, including being listed on nearly every exchange
- Litecoin is a leader in brand recognition thanks to close ties to Bitcoin, mainstream media coverage, and long track record since launching in 2011
- Because Litecoin is so similar to Bitcoin, technical upgrades and improvements can be “tested” on Litecoin first before being implemented by Bitcoin. This also prompted top Bitcoin developers to contribute to the Litecoin codebase and community over the years
- Litecoin is a faster and cheaper option to send value compared to Bitcoin
Litecoin Weaknesses
- Litecoin’s use case within the cryptocurrency space remains vulnerable as it cannot match the security and Store of Value (SoV) properties of Bitcoin, or the lack of volatility and speed of new stablecoins
- If Bitcoin successfully solves scaling issues, Litecoin’s value proposition as a faster, cheaper alternative would be eroded
- The influx of stablecoin projects threatens Litecoin’s use case as a stable medium of exchange
- Wealth centralization is higher than in Bitcoin or Bitcoin Cash
- One of Litecoin’s initial selling points was ASIC resistance, but it has since abandoned that goal. It now exhibits a similar hashrate distribution as Bitcoin and other PoW coins.
- Development of the project is stagnant compared to other top projects
Important Links
- Website
- GitHub
- Google Development Page
- Block Explorer
- Wallets - Ledger and TREZOR
- Where to buy? Coinbase and Gemini
Use Case
Primary use case
Litecoin (LTC) was founded in 2011 by former Google and COINBASE employee Charlie Lee as a peer-to-peer electronic currency designed to be complementary, rather than in competition, to Bitcoin. Litecoin regularly touts its similarities to Bitcoin but differentiates itself by enabling cheaper transaction fees, the ability to handle more transactions per second than Bitcoin, a different hashing algorithm, added emphasis on merchant and retailer adoption, and a 4x greater maximum supply. Paramount to both assets is the ability to retain the core properties needed to be broadly considered money: as a store of value (SoV), medium of exchange (MoE), and unit of account (UoA). Litecoin is often presented as the “digital silver” to Bitcoin’s status as “digital gold.” This relationship is further more intimate, as Litecoin is a fork of Bitcoin and has even been used as a live test environment before synonymous upgrades to Bitcoin and Litecoin.
Secondary use case
Both Litecoin and Bitcoin are used for direct peer-to-peer transactions, and they are both popular base-pairings for centralized exchanges due to their (relatively) long existence and user adoption. If Litecoin could be said to have a secondary function, it’s primarily in this role as a medium for dealing with centralized exchanges, due to its speed and relatively low transaction cost. Shuttling funds from one exchange to another using Litecoin is often cheaper and faster than using Bitcoin directly. The similarities in the names and the code itself, allows Litecoin to borrow a bit of the headline power that Bitcoin enjoys. Yet, over recent years, countless other digital assets, like stablecoins, have been built to deal with this very issue. They exist, at least partially, for the very purpose of dealing with trading in and out and to and fro different exchanges. Therefore, the popularity for Litecoin as a medium between exchanges has waned.
Future use cases
Litecoin is unlikely to develop other future use cases, as it is established as a currency coin. That said, it remains to be seen if Litecoin’s early start relative to competitors, close ties with Bitcoin, and purported improvements will be enough to ensure staying power in the ever-increasingly competitive landscape of cryptocurrencies. As Bitcoin improvements like the Lightning Network bring down transactional costs and increase speed, and more exchanges adopt stablecoin pairings, Litecoin continues to see its competitive advantages erode.
Competitive advantage
Litecoin’s primary advantage in today’s cryptocurrency-saturated world is its relatively long history (circa 2011), close ties to the Bitcoin brand, ubiquitous exchange adoption, and liquidity, and, whether a rational justification or not, a lesser "price tag" compared to that of Bitcoin. While the units of both Litecoin and Bitcoin are highly divisible to eight decimal places, Litecoin still enjoys the psychological advantage of a lower price point as compared to Bitcoin for the casual investor.
Litecoin’s place in the cryptocurrency ecosystem is becoming less clear as many new projects launch with similar, niche, or expanded features. Without a unique use case or clear competitive edge over other projects, Litecoin could become unnecessary as stablecoins become more prevalent and other projects discover scaling solutions leading to lower fees and faster transaction times.
For example, much of the security Litecoin enjoys is reliant upon the token price. If the price falls due to competitive pressure, so do the overall security and mining rewards, which could lead to a snowball effect of fewer users, miners, and hashing power.
Additionally, Litecoin may face a future direct challenge from Bitcoin due to the fact that both use the Lightning Network protocol as a second-layer solution. This may impact Litecoin’s niche as a faster processor of smaller transactions.
But for now, these newer projects cannot match the combined benefits of Litecoin’s Lindy Effect, brand name, liquidity, and security.
Challenges to adoption
The challenges to Litecoin’s adoption are generally the same supply and demand problems that affect Bitcoin and other cryptocurrencies. The supply of users is limited by various barriers to entry, and demand for Litecoin’s use cases is hampered by the lack of interest by merchants in the technology as a payment platform.
Supply-side barriers to entry (preventing user adoption)
- Lack of awareness by those that would otherwise find value in adoption
- Technical knowledge to set up and operate a wallet and to trade on an exchange
- Limited availability of merchants
- Competition, especially via stablecoins and competing projects
- Market volatility in user portfolios is a risk that could outweigh the potential benefit of low-cost transactions
- Income tax uncertainty in the use of crypto assets for purchase of goods and services
Demand-side barriers to entry (preventing merchant adoption)
- Limited supply of users disincentivizes merchants to invest capital to adopt the technology
- Payment infrastructure, namely transactions per second, is limited compared to traditional payment methods
- Market volatility in business portfolios is a risk that could outweigh the potential benefit of offering the payment method alongside traditional methods
- Tax and regulatory uncertainty for business accounting in transactions of goods and services
It can be seen that a negative feedback loop exists in the limited supply of users as a reason for limiting demand, and vice versa. With few Litecoin users, few merchants are incentivized to adopt Litecoin as a payment option. Until technology advances to enable Litecoin to live up to expectations as a payment option for goods and services, enthusiasm will remain out of the public perception, limiting supply and demand to only users and merchants who tend to be early adopters and are technologically savvy.
Vulnerabilities
Litecoin’s development is concentrated around the Litecoin Foundation and the Foundation’s Litecoin Core Development Team, so it is not entirely transparent or decentralized. Charlie Lee, the founder of Litecoin, seems to hold a non-insignificant amount of power and influence over the direction and health of the project as a whole, despite having sold his entire LTC position in 2017. This creates a confusing relationship with potentially misaligned incentives. An argument could be made that he no longer has a financial reason to make sure the project is a success or gains mass adoption. Critics would have preferred he enable a time lock on his holdings or commit his LTC toward community activities, rather than sell them outright.
Charlie Lee and the Foundation came under fire in 2019 for what the community perceived as a stagnant project with little development and overpromises of privacy features. While Lee put out a statement refuting these claims, the details only further highlight the project’s shortcomings when compared to more active projects. Litecoin has only six core developers, who mainly merge BTC code, written by others, into LTC. All while no major Litecoin upgrades were rolled out in 2019-20. It should be noted, however, that LTC is currently working towards implementing MimbleWimble, a privacy focused upgrade, into the project. While it has not yet been released, it is encouraging that the project seems to have not fully stagnated.
With that said, the project is open source. The Litecoin development team also has numerous points of contact via social media. The development team no longer works predominantly out of the master GitHub repo and 2019 has seen a drastic reduction in GitHub activity compared to years prior. Through 2019, there have been only ~20 commits to litecoin-project/litecoin. A reason for the decline can be attributed to the fact that most developers work on a personal branch and then merge finalized changes with the master branch.
Litecoin is always in a stage of active development to fix potential vulnerabilities, despite not having an official bug bounty program. In September 2018, a possible denial-of-service vulnerability was identified and fixed. The vulnerability consisted of miners’ being able to send duplicate inputs, potentially crashing the software (while simultaneously losing the potential income from the duplicate block). It’s worth noting that this vulnerability was also present in the Bitcoin ecosystem.
Although Litecoin did not originally plan on ASICs being a part of their ecosystem, an added benefit to their inclusion is a strengthened, albeit possibly more centralized, total hash power. As of Q1 2021, Litecoin, thanks in part to the addition of ASICs, is now the fourth most costly project against which to launch a 51% attack. Estimates for 51% attack against Litecoin indicate a cost of roughly $65,000 per hour, a far cry from the nearly $550,000 per hour to attack Bitcoin but significantly costlier than Ethereum Classic, which suffered such an attack in early 2019.
Much of the security Litecoin enjoys is reliant upon a high token price. As the price falls, especially after the August 2019 halvening, mining profitability decreases which could lead to fewer miners and less hashing power. Litecoin’s hash rate since the latest halvening has dropped ~50% as less block rewards mean less profits for miners. Currently, LTC mining profitability is at an all-time low.
As Bitcoin’s Lightning Network gains adoption and stablecoin usage increases, Litecoin’s place in the cryptocurrency ecosystem becomes less and less clear. Without a unique use case or clear competitive edge over other projects, Litecoin's relevance (and price) could fade away.
