The Case for Litecoin

Litecoin, the cryptocurrency created in 2011 by MIT alumni Charlie Lee, has continued to stand its ground as one of the most utilized and traded cryptocurrencies 9 years after its inception. It is currently the second oldest cryptocurrency (after Bitcoin) that continues to maintain its position within the top 20 cryptocurrencies ranked by market capitalization.

Litecoin was created with the intention of being a fairer alternative to other cryptocurrencies that existed at the time, such as Tenebrix, Ixcoin, Solidcoin, to name a few. In 2011, much as we see today, the cryptocurrency space began to see an influx of experimental coins appear. Unfortunately, many of these coins carried issues with them such as coin creators pre-mining millions of coins for themselves, security issues or bugs in the code.

Due to these limiting factors, with Litecoin, Charlie Lee found an opportunity in following the path that Bitcoin originally paved, which was one of sounder principles and a well working product. At the time of Litecoin’s launch in 2011, Bitcoin had only existed for a little over a year but had proven itself to be reliable and well-functioning within that time frame. Knowing that Bitcoin had the most proven track record, Charlie Lee decided to base Litecoin off of Bitcoin’s code — except, he added a twist to it. Litecoin was to utilize a different mining algorithm (Scrypt instead of SHA-256) and a faster block time of 2.5 minutes compared to Bitcoin’s 10, along with 4x the total amount of coins.

It was considered of extreme importance to utilize a different mining algorithm to not compete with Bitcoin miners. Thanks to this decision, Litecoin dominates Scrypt mining, making it more secure and less prone to being successfully attacked. This decision has helped Litecoin maintain its reputation as a secure coin and has contributed to it withstanding the test of time, unlike other more easily attackable coins that have met unfortunate fates.

In the grand scheme of things, the crypto space is still fairly young (only about a decade old) and is still somewhat of a testing ground for certain coins to experiment. Unlike Litecoin, there are cryptocurrencies that actually share the same mining algorithm as Bitcoin (for example, Bitcoin Cash/Bitcoin SV) which causes them to be much more susceptible to being 51% attacked at also much less of a cost. Essentially, if a coin does not dominate the mining algorithm and is holding onto the short end of the stick, there is a constant lingering threat of being 51% attacked.

Another refreshing aspect of Litecoin is that it had a fair launch. Litecoin is recognized as not having been pre-mined but technically, it did have a minuscule pre-mine of about 150 Litecoins (the genesis and 2 Litecoin blocks) and was done only with the purpose of confirming that the genesis was valid before it kicked off. The interesting thing about Litecoin is that the launch date was actually announced in advance. In 2011, the cryptocurrency community was starting to establish itself, making it interesting in the respect that there was actually an opportunity for people to prepare themselves to start mining it as soon as the light turned green. I can imagine this as the countdown beginning at the start of a Mario Kart race (“3, 2, 1,…go!”). This actually slightly differs to the way that Bitcoin launched. The months following Bitcoin’s creation, not many people knew about it and a significant amount of Bitcoin’s were mined within that time without much competition. Satoshi (the creator of Bitcoin) is known to currently be holding about 1 million Bitcoins in his wallet.

Unfortunately, many of the most popular currencies had pre-mine events occur. Whether or not holders of these currencies willingly and gladly accept that is another discussion. Many people who are involved in the cryptocurrency space are in it to promote decentralization (having no central figure with significant influence over the money) and essentially, coins that have been pre-mined lean more towards the centralized side of the spectrum. This is where the topic of fairness and sound money principles come into play. Is it fairer for a cryptocurrency to be equally as available to everyone from the get-go, or is it ok for entities to obtain a significant percentage of coins for themselves before anyone else has the chance to? By definition, Bitcoin was not pre-mined because the ability to mine it was possible and publicly available to anyone who had an internet connection at the time. In Satoshi’s case, it was more-so an advantage of timing (the cryptocurrency community size was a drop in a bucket at the time). Cryptocurrencies with true pre-mines made it practically impossible for the general public to obtain coins prior to the launch date. There is a significant difference between owning fairly obtained coins (by mining them alongside other miners since the beginning) than having obtained a stash for oneself before making that a possibility for others.

Today, Charlie Lee is heavily criticized for selling the mined Litecoins he obtained over the years. In my opinion, the critique could be understood had he unfairly obtained a significant amount of Litecoins for himself before making the currency publicly available, but that is not the case. Charlie Lee began simultaneously mining Litecoin with other miners at the start of the previously-announced launch date, contributing his electricity and time (along with everyone else who participated) to compete for those Litecoins. The only advantage he arguably had was also timing — the matter of luck of being involved in the crypto space at the time, just as many of us are today. Charlie Lee was a participant in the Litecoin ecosystem and had the right to sell his earned Litecoins along with the other miners who took the same risk.

As previously mentioned, the goal of decentralization is for there not to be an entity who can manipulate the currency. In a decentralized money, there is no “CEO”, no central authority. Charlie Lee, having sold his collection of mined coins over the years, contributed to making the Litecoin network more decentralized. Some participants in the crypto community continue to be disappointed by his decision to sell, but interestingly enough, three years have passed since then and the Litecoin community has continued to thrive and is currently working on several new projects. Whereas many cryptocurrencies have drastically fallen off their stool due to creators selling large stashes of their coins (most of these being pre-mined coins), Litecoin has continued to flourish in a decentralized, grass roots and community-driven manner. At the moment, there are still many popular cryptocurrencies in which a significant portion of the supply is being held by a few people. The question is, how will these coins hold up once these people have sold their stash? Will they be able to survive? On a positive note, Litecoin has already passed that phase.

Not having had a pre-mine contributes to Litecoin being a ‘fairer’ coin, but it does have its downside — the lack of being able to fund bounties (for developers) via the pre-mined coins, for instance. This was a conscious decision that was taken at its inception and encouraged the creation of other methods for funding development/marketing, etc. such as community-driven projects that focus on donations and partnerships (e.g. Litecoin Foundation). For example, development for the Mimblewimble project has been donation-based (including Charlie Lee personally matching all donations). It’s important to note that Litecoin itself and any associated groups/foundations are separate entities and the currency will continue to exist with or without these (the Litecoin Foundation has existed for less than half of Litecoin’s total lifespan, for example). Nonetheless, since this is a decentralized currency, participation from people from all corners of the globe is encouraged. Thus far, the Litecoin Foundation has done a good job of being transparent and helping the ecosystem grow by also organizing yearly events such as the Litecoin Summit convention.

Although most of Litecoin’s code is pulled over from Bitcoin (which means that Bitcoin developers are indirectly working on Litecoin), Litecoin also has a history of deviating from Bitcoin when the time is needed. An example of this was the SegWit implementation. Due to constant infighting within the Bitcoin community over SegWit’s implementation, Litecoin took the lead and implemented it first, testing the waters for Bitcoin. A few years later, Charlie Lee announced that he was the anonymous figure that had created the 1 million dollar SegWit bounty (a test to prove that transactions were safe and SegWit was ok to implement).

Due to Litecoin’s similarities with Bitcoin’s code, it’s very easy to test new technologies on Litecoin before they get implemented on Bitcoin. Some people argue that Litecoin being a ‘testnet’ for Bitcoin is not a necessity because Bitcoin has its own testnet but, there’s no value being transferred on Bitcoin’s testnet and thus no real motivation for one to want to ‘break’ it. Litecoin has millions of dollars being transacted on its network which would incentivize hackers to want to hack it and potentially gain rewards. In other words, it could be safer for Bitcoin to test certain new developments on Litecoin first rather than its own test-net. That’s not to say that Litecoin openly takes risks with its blockchain — quite the opposite. Litecoin has historically been quite conservative in its code by pulling almost everything from Bitcoin, but has pounced at obvious opportunities (after careful review), such as Segwit. Its conservative nature is also what’s helped it persist for 9 years now. As the saying goes, money is meant to be boring. One cannot make aggressive changes to a blockchain and not consider bugs/security issues, etc. Care and special consideration must be taken to ensure long-term reliability.

Litecoin has also deviated from Bitcoin by working on increasing fungibility via Mimblewimble extension blocks with the help of Grin developer David Burkett (which is in its final phases of development). Not to mention, Litecoin may also become Bitcoin’s testbed once again by adding smart contract capability via Jeremy Rubin’s CTV (CheckTemplateVerify). Similarly to Bitcoin, Litecoin also has its own Lightning Network which will offer a cheaper on-ramp onto the network and also has a native Lightning Network wallet that’s undergoing development. In addition to the above, a privacy-based wallet (Mustard wallet — based on the Wasabi Wallet) was created for Litecoin recently and a game (Litebringer) was just built on Litecoin’s blockchain. It’s safe to say that Litecoin definitely has developers contributing to its ecosystem, contrary to the recurrent myth. In a way, it’s good that Litecoin doesn’t require too many developers (due to pulling most of its code from Bitcoin). This can open the doors for there to be more focus on developing surrounding infrastructure.

Litecoin, being one of the oldest cryptocurrencies in existence, has proven itself to be a reliable and secure money. It also has the advantages of name-recognition and high liquidity (available on almost all exchanges). Due to this, it consistently ranks in the top 4 in trading volume. On a global scale, it’s also currently the second most available coin in cryptocurrency ATM’s, after Bitcoin. There’s no doubt that Bitcoin continues to be the ‘gold standard’, especially when it comes to security, but Litecoin has proven itself to be the silver to Bitcoin’s gold. Interestingly enough, according to Coinbase’s metrics, Litecoin’s price is 98% correlated to Bitcoin’s.

They have the tendency to move together — the main difference being, Litecoin tends to make more volatile swings than Bitcoin (which could be attributed to the difference in market caps). Some people are attracted to Litecoin because of this potential for increased volatility.

By looking at the original Litecoin thread on forums from 2011, one could see that Litecoin has stayed true to its founding principles. Also, by looking at the thread, one could see that fear mongers have been calling for Litecoin’s death since 2011 by saying it’s a useless copy — but, the opposite has held true. 9 years of persistency as a top ranking coin while many others have fallen demonstrates that the market values Litecoin. After all, Litecoin has taken the stance of not competing with Bitcoin but rather to complement it, which has proven to go a far way. Here is an interesting tweet thread that demonstrates Litecoin’s persistence over the years as a top ranking coin by market capitalization when compared to other altcoins.

The cryptocurrency space is still young, but there’s no doubt that coins based on sound principles have persisted the longest. In continuing the mission of spreading sound money principles, the next frontier will be increasing fungibility on Litecoin via Mimblewimble with extension blocks (David Burkett has announced that the testnet will be ready at the end of September). It’s a long road ahead, but the future is bright and there’s more development than ever. Litecoin has continued to see a continuous flow of new address creations (approx. 40k-50k new addresses a day) and according to “HODL waves”, a significant percentage of Litecoins (approx. 60%) have been hoarded for over a year. As the world continues to be plagued by unsound economic decisions and national banks across the world move towards increasing inflation rates, the future seems bright for decentralized, capped, limited supply coins such as Litecoin that are deflationary in nature. Thankfully, we now have the ability to choose the type of money we deserve.