Litecoin
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Litecoin

litecoin.com|LTC|October 7th, 2011 logo
Written on: May 24th, 2015 | Author: David M
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  • The first major alternative currency utilizing a Scrypt mining mechanism
  • Block settlement meant to take a quarter the time as the bitcoin protocol
  • Run up to August 2015 halving saw a doubling of price and a 27x increase in volume!
  • While Litecoin has been around since 2011, there seems to be little reason for it to exist - aside from its having existed for so long.

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Summary

Litecoin was one of the first successful alternative currencies to bitcoin. It introduced a new method of mining known as Scrypt to the wider cryptocurrency community. Scrypt was meant to replicate the early days of bitcoin, in which anyone with a powerful CPU could contribute to mining and have a reasonable chance of reward. This allows greater mining decentralization, and a corresponding reduction in the risks associated with centralization.

Litecoin has held steadily its position as one of the big three cryptocurrencies by both trading volume and market cap, trailing only Bitcoin and Ripple. Litecoin has built relatively healthy mining and merchant networks, and has a large and loyal community. However, changes specific to Litecoin, such as the rise of Scrypt ASICs, as well as the potential integration of sidechains to the bitcoin network, present a threat to Litecoin.

Innovation

Litecoin, branded at launch as silver to bitcoin's gold, quarters the time required by bitcoin to mine a transaction block, allowing for quicker transactions meant to appeal to small merchants. While this leads to less secure confirmations, larger transactions can simply wait additional transaction cycles to scale up security - with four transaction cycles more or less similar to bitcoin's level of transaction security. For most small transactions, the regular transaction cycle is meant to be sufficient.

However the meaningful innovation introduced by Litecoin - or at least popularized by it- is an alternative mining mechanism known as Scrypt.  Scrypt is meant to mitigate problems that arise from bitcoin mining's reliance solely on computational power for block settlement. Computational power allows for industrial levels of scaling - think rows and rows of microchips, running at blistering speed, with liquid freon used for cooling - which not only might serve to centralize mining power in a few hands, but leads to an expensive and wasteful mining process. Why burn through a million dollars in energy costs daily if there are cheaper and safe alternatives?

Scrypt introduces what is known as a "memory hard problem" to cryptomining. Without getting into too much technical detail, memory hard problems require speedy access to very large memory space which cannot be miniaturized, theoretically disallowing the same types of scaling described above. Utilizing scrypt thus allows for anyone with a powerful CPU to have a chance at successfully mining a transaction block.

However, in March of 2014, the first ASIC scrypt miner was introduced. After an internal community debate, it was decided by Charles Lee and team that alteration to the LiteCoin code to discourage ASIC mining not only could kill the network, it simply kicked the ASIC can slightly further down the road. He further argued that ASICs contributed to greater transaction security for Litecoin, and perhaps represented the maturation and mainstreaming of the coin. However, it is hard to pinpoint the technological advantage of Litecoin in a post-ASIC environment.

Specs

Litecoin's specs are calibrated to bitcoins, while making adjustments to account for a transaction speed four times faster.

Difficulty level: Retargeting is set every 3.5 days against bitcoin's 14 days; Coin generation: 50 coins at genesis per successfully mined block. The rate is halved every 840,000 blocks, our four times bitcoin's halving rate. This allows similar control of the money supply. Money supply: Litecoin is scheduled to produce 84 million coins, four times the amount of bitcoin.

Development team

Charles Lee is the public face of a six man development team that prefers anonymity. Mr. Lee received both his BA and MA in computer science and engineering from MIT, and developed the coin whilst working as a software engineer at google. Today he is the engineering manager at Coinbase.

Mr. Lee's first flirtation in cryptocurrency was his September 2011 launch of Fairbrix. Fairbrix was a clone of Tenebrix, an interesting innovation in that its proof of work utilized Scrypt, but distrusted by the community due to a massive developer premine. Fairbrix failed out of the gate due to a bug in the underlying third party client. He quickly launched litecoin utilizing Scrypt in October 2011, and it has been a success.

Launch methodology

Having witnessed first hand the fate of Tenebrix, an innovative coin that lost the trust of the crypto-community due to its massive premine, Mr. Lee went to great lengths to ensure a transparent, level playing field at launch. The litecoin source code and client were publicly released three days prior to launch allowing for miner readiness and quality assurance. A pre-launch of 150 coins - the genesis block and two confirmation verifications - was meant to launch the product and prove stability rather than for monetary gain, and was communicated up front.

Litecoin's future

Litecoin has achieved a reasonable level of uptake by merchants, though the sizable majority are related directly to the cryptocurrency marketplace. By virtue of the size of the network, Litecoin has cornered the "quick transaction" niche of the altcoin market, and there are no real contenders. There has also been sizable uptake by the mainstream mining community, as litecoin can be mined simultaneously with bitcoin at marginal additional cost.

Would litecoin survive robust sidechain development? Paradoxically, the rise of litecoin ASICs, while undermining somewhat litecoin's reason for being, have perhaps provided additional value in terms of network security, but also in the integration of new mining interests vested in Litecoin's survival. Litecoin also has a loyal community with many long-time holders, and there is an interesting debate there on the issue of Litecoin's potential in the face of sidechains. Another vote in Litecoin's favor is the size of its network and infrastructure - it has a solid trading volume, a large market cap, decent merchant integration, and a well-sized mining pool.

On the other hand, there seems little reason to for merchant integration of litecoin if a bitcoin sidechain allows for the same transaction speed, with a much more stable coin. Perhaps by virtue of the loyal litecoin community, there would be some value in merchants maintaining their integration, but it is hard to imagine much additional uptake. With the introduction of ASIC miners, the advantage of scrypt does not seem as pronounced, and besides, the same technology could be replicated on a sidechain while taking advantage of the more stable currency.

In our opinion, the value of Litecoin is becoming less to do with any unique technology provision and more to do with its simply being, which does not bode well for its long term prospects.

Bottom line

Litecoin made a solid contribution to cryptocurrencies by offering a secure network with quick transaction turnaround, and a sizable innovation in alternative methods of mining. Litecoin's fate is largely outside of its own hands, as advances in sidechain technology threaten to undermine it's reason for being.

IMPORTANT INFO

  • Symbol: LTC
  • Market Cap: $161m as of July 1st, 2015
  • Type of Altcoin: Alternative network
  • Mining methodology: Scrypt
  • Founders: Charles Lee
  • Block Time: 2.5 minutes
  • Money Supply: 84 million
  • Total release time: ~130 years
  • Difficulty level: Recalibration every 3.5 days
  • Rewards: 50 coins.  Halved every 840,000 blocks