Silver to Bitcoin Gold
One of the main alternatives to Bitcoin is Litecoin. Although there have been hundreds and thousands of newer cryptocurrencies and blockchain projects that have been created since Litecoin began in 2011, it may be a good idea to look at why the network has continued to remain among the top 10 coins by market capitalization for so long. Litecoin may often be overlooked for the same reasons people want to jump to the next big thing before fully understanding why Bitcoin is so unique and valuable. Others might believe Litecoin is too similar to Bitcoin much less an exciting investment. Let’s take a deeper look.
The creator of Litecoin is Charlie Lee so its inception is not shrouded with the same mystery as Bitcoin who has a pseudonymous creator in Satoshi Nakamoto. In 2011, Charlie realized that many alternatives were being created and experimented with, but there weren’t many ways to improve on Bitcoin. Charlie did however think that if there were to be an alternative a new coin would be better as a complement to rather than a competitor of Bitcoin. Charlie explains his thoughts in this video:
What Makes Litecoin Different?
Let’s describe the differences between Litecoin and Bitcoin software. Instead of the 21 million maximum coin supply in Bitcoin, Litecoin will have a maximum of 84 million coins, roughly four times as many. Secondly Litecoin was designed to be faster so it could be used for smaller everyday payments. Hence the time between each block confirmation is around 2.5 minutes instead of 10 minutes for Bitcoin. The last difference is that Litecoin uses a different mining algorithm called Scrypt that makes it more difficult for people to build specialized machines called ASICs to outcompete smaller miners. Therefore, a larger number of people could participate in mining with just their computers.
Beyond the few changes in software, Litecoin’s brand as ‘silver’ to Bitcoin ‘gold’ is very easy to understand and memorable. “Gold is the money of kings, silver is the money of gentleme,” an American minister Norm Franz was quoted as saying in the past. The US dollar was based on the Spanish silver dollar during the revolutionary war era. Hence historically, silver has a good reputation as a money alongside gold. Although Litecoin being ‘silver’ is more of a marketing and branding tactic than anything of substance, branding is a key differentiator when competing technologies have marginal differences and being the first to stake the claim to the idea of being silver is probably sufficient enough to create an advantage.
Litecoin’s Fair Distribution
Another important difference between Litecoin and Bitcoin or other alternatives is that the Litecoin network launch was considered an extremely fair launch. Bitcoin, although announced publicly on a cryptography mailing list and launched officially in early 2009, was unnoticed for roughly an entire year while Satoshi and one or a few others mined it. When Litecoin launched there were many thousands more crypto advocates eager to start mining. Charlie gave plenty of notice, released the software code a week before launch so others could practice mining on a test network before officially mining. Cryptocurrency creators and developers who implement software often allocate a portion of coins to themselves before or after launch. Some even launch a coin stealthily before everyone else to get an advantage in mining rewards. Therefore most cryptocurrency advocates are very particular about which networks are fair and have the ‘fairest’ distribution. The Litecoin network had one of the fairest launches of all the cryptocurrencies. Furthermore, Litecoin uses the Scrypt mining algorithm that further enhances the perceived fairness of its distribution. Perhaps Litecoin’s fair launch is one of its greatest differentiators from other networks and even Bitcoin.
Over time the other advantages of Litecoin seem to have diminished. ASIC manufacturers eventually created specialized hardware (ASICs) that make it unprofitable to mine using ordinary computers. With the advent of the Bitcoin lightning network and other general purpose networks like Ethereum, Litecoin’s advantage in speed has also diminished. Litecoin transaction fees are lower than Bitcoin’s so it could still be seen as an alternative settlement layer rather than a payment system. Litecoin’s shorter block time compared to Bitcoin slightly reduces its network security because it doesn’t allow the same amount of time for messages to be broadcast throughout its network for redundancy. Also Litecoin’s lower prices makes it more vulnerable to a 51% double-spend attack explained here. One benefit to lower Litecoin prices is that the transaction fees are currently 35x lower than Bitcoin. Hence if Bitcoin’s transaction fees start to increase to offset Bitcoin mining rewards in the future, Litecoin still might be a preferred intermediary settlement choice for smaller amounts. Currently as of 5/17/20 it costs 1.4 cents to send Litecoin compared to over $4 to send Bitcoin. Eventually Bitcoin mining rewards will need to be replaced by transaction fees to keep its network secure. Bitcoin transaction fees may eventually be $50 or perhaps even up to $500 in the future to provide strong security. If Bitcoin fees rise to those levels we can expect Litecoin transaction fees might be in a much more reasonable range of $1 to $15.
The other key to Litecoin is that it’s far more similar to Bitcoin than other coins. Most crypto networks have added features that diminish the value of the network as a money. Perhaps because Litecoin retains many of the most valuable characteristics of Bitcoin it is a better alternative than most other networks that have added many more significant changes. Litecoin has the 2nd longest history out of the alternatives and shares the ‘collectible’ qualities of Bitcoin. It has no formal governance, although perhaps the community may not have as many ideologues as Bitcoin to protect it. Litecoin is also generally socially scalable like Bitcoin.
Litecoin miners also do not compete with Bitcoin miners. Litecoin software requires a different mining algorithm. If Litecoin were to have used the same mining algorithm as Bitcoin, it would risk an attack from Bitcoin miners switching to Litecoin. Hence Litecoin has an advantage over Bitcoin Cash and Bitcoin SV because it does not have to compete against Bitcoin miners and is the dominant network for Scrypt mining. Recently Bitcoin Cash became much more vulnerable to a 51% attack after their ‘halving’ occurred and many miners switched from mining Bitcoin Cash to mine Bitcoin. This may be temporary because Bitcoin’s rewards will also be reduced by half. However because Bitcoin Cash and Bitcoin SV compete for the same mining community and are only a fraction of Bitcoin’s market value, these networks will always be more vulnerable to a 51% attack and thus less secure than Bitcoin.
Charlie's Keys to Success As Money
Back in 2014, Lee outlined the following keys to success for Litecoin as a money:
- Network Security
- Market Capitalization
- Exchange liquidity
- Merchant support
- Currency exchange
Although not as robust as Bitcoin, Litecoin has relatively good network security because it effectively uses the same software as Bitcoin. Litecoin’s market capitalization has been consistently among the top 10 since its inception. (As of 5/17/20) It has the 4th most liquidity out of all cryptocurrencies. Although Litecoin satisfies the first three requirements, merchant support and currency use have been meager for Litecoin just as it is in Bitcoin.
Litecoin can experiment a little more than Bitcoin so if there is any significant feature that can improve Bitcoin without sacrificing security, Litecoin could try it first. One major feature upgrade that most core Bitcoin advocates probably wouldn’t object too is to add more privacy to the Bitcoin network to improve fungibility. Charlie Lee and Litecoin developers have considered adding Mimble Wimble privacy technology and that could allow Litecoin to gain more popularity in the future.
Litecoin is ‘silver’ to Bitcoin ‘gold’ and should be seen as a Bitcoin Lite that shares all the same characteristics that make Bitcoin a good money. All the differences have become less significant over time, but the ‘fair’ network launch and added privacy could make Litecoin a very good complement to Bitcoin.
If you live in the US or Europe here are a couple good ways to buy Litecoin:
1) Coinbase is a reputable Silicon Valley based firm backed by major venture capital companies:
You can also use Coinbase to buy if you’re from: Canada, Mexico, Australia, Chile, Singapore
3) You can use another reputable exchange Binance almost anywhere in the world outside the US.