Since the creation of Bitcoin in 2008, thousands of altcoins, like Litecoin, have emerged. Some have their own blockchain, others are built on smart-contract platforms such as Ethereum.
When we look back at the very first altcoins – for alternative coins – , we start appreciating even more the Bitcoin design choices of Satoshi Nakamoto. Indeed, many of the first coins tried to modify parameters to get an improved Bitcoin, but in most cases it proved lethal for their success. This shows how Satoshi’s design was remarkable because it just worked.
Among the first wave of altcoins, stands Charlie Lee’s Litecoin, created in october 2011. Even though Litecoin is very similar to Bitcoin, Lee modified a few of Bitcoin’s parameters.
Litecoin’s strenght is to have followed the Bitcoin’s path, it is steadily functional since 2011 and there is no sign for it to go away anytime soon. For that very reason, Coinhouse will be adding Litecoin support to its online platform within the next weeks!
Here is a little dive into Litecoin’s history, value proposition, and current state.
The origins of Litecoin, a look back on the very first altcoins
At the time when Litecoin launched there were 8 altcoins that had been created: Namecoin, Ixcoin, I0coin, Solidcoin V1 & V2, GeistGeld , Tenebrix and Fairbrix. All of them were forks of Bitcoin with a little twist to them. Some of them were plain copies of Bitcoin like Ixcoin with post-mined coins, others experimented with different blocktime and transactions fee structure like Solidcoin, and Namecoin was a bit more evolved and proposed a decentralized domain name service, but suffered from competition with Bitcoin miners as they kept switching from mining Bitcoin to mining Namecoin when it was more profitable. Indeed, Namecoin was much smaller and had trouble readjusting the difficulty of its consensus mechanism. It had to implement merged-mining in order to survive.
One of the main issues at the time was the advent of mining using GPUs and ASICs. GPUs were much more efficient than CPUs at mining, and ASICs much more efficient than GPUs, which allowed them to quite rapidly becoming the only way to mine on the Bitcoin network. Many worried about this, as it increased centralization of the mining process and led to the rapid creation of the first large-scale ASIC mining farms
The scrypt algorithm was touted as an alternative to the SHA256 algorithm, by being supposedly resistant to GPUs because the hashing function is more memory-intensive. Today, there are ASICs for scrypt proof-of-work too, but in 2011 the alternative worked and helped to avoid Namecoin’s type of problems.
Tenebrix was the first coin to introduce scrypt proof of work, but they pre-mined 7.7 million coins, a huge portion of the total supply. Charlie Lee realised with Ixcoin, GeistGeld and Tenebrix that pre-mined blockchains were less successful as people found them unfair, which led him to fork Tenebrix and create Fairbrix, a fork of Tenebrix with no pre-mine. It didn’t survive long due to various bugs.
Learning from the experiences of these various coins and his own, Charlie Lee came up with the current design of Litecoin.
Litecoin’s design choices and characteristics
It differs from Bitcoin in the following design choices:
- A proof-of-work mechanism that uses scrypt hashing function instead of SHA-256.
- A blocktime that is 4 time quicker with 2.5 minutes intervals instead of 10 minutes.
- A total supply of units that is four times bigger with 84 millions coins instead of 21 millions.
- Difficulty changes every 3.5 days compared to every 2 weeks in Bitcoin.
Following the steps of Tenebrix and Fairbrix, Litecoin used scrypt PoW for the two reasons covered above.
As for the blocktime, 2.5 minutes leads to a faster confirmation rate and a higher capacity in terms of transactions volume: the block size limit is 1MB, which makes room for four times more transactions per second than Bitcoin. The 2.5 minutes blocktime was an in-between design choice that allowed faster confirmation rate without being too fast.
It has often been said that faster blocktimes decreases security proportionally, compared to Bitcoin. Meaning Litecoin blocks would be 4 times less secure than Bitcoin blocks. That is not entirely true, a complete analysis has been made by Vitalik Buterin which proves this to be wrong through a comparison between Bitcoin blocktime (600 seconds) and Ethereum blocktime (17 seconds).
Faster blocktimes have their own compromises which is that they have a higher stale rate. This happens because it is more likely to have two valid blocks that have a same height mined by two different miners, and have two competing chains. This is known as a fork, and causes a small decrease in the security of transactions with a low amount of confirmations. While on the Bitcoin network six confirmations are considered to be enough for a transaction to be confirmed with complete certainty, more will be needed on Litecoin.
Blocks take an average of four seconds to propagate to 50% of the nodes and twelve seconds to propagate to 95% of the nodes, which means that if you choose a blocktime that is getting close to that number, the miner that mined the last block has an advantage for generating the next block because he doesn’t have to wait the last version of the blockchain to start mining the next block: he updated the blockchain himself and propagated it.
This leads to centralization on very fast blocktime blockchains (close or under 12 seconds) because it gives the last miner an unfair advantage and it increases the efficiency of large structures. In the end, the biggest your share of the hashrate and the fastest the blocktime, the more blocks you are going to mine, leading to an unfair amount of rewards. Ethereum had to give a reward for mining stale blocks for that very reason.
In Litecoin, a direct outcome of the 2.5 minutes block is that there are four times more coins in total. Indeed, rewards are the same than in Bitcoin per block, and halving every four years too. The other outcome is that the mining difficulty is readjusted approximately every 3.5 days, which equals 2016 blocks, just like with Bitcoin.
The security on the Litecoin network, measurable by the hashrate, is pretty good. On August 8th 2018 it was 265 TH/s, equivalent to 265 PH/S in Bitcoin since scrypt is memory intensive and known to be approximately 1000 times slower hardware wise in comparison to SHA256. Of course it is far from Bitcoin’s but much better than most PoW altcoins.
Last but not least, being a twin brother of Bitcoin gave Litecoin a very real utility, which is to serve as a live mainnet blockchain to test Bitcoin’s upgrades in a “real world environment” before they get implemented on Bitcoin.
For example, Litecoin integrated Segregated Witness on May 10th 2017, 3 months before Bitcoin did, a foundation for Lightning Network, Atomic Swaps, Schnorr signatures and other scaling features. This also highlights the fact that Litecoin’s community is smaller and hence quicker to make decisions.
Where is Litecoin headed ?
Litecoin started getting some good press in 2013, with an article written by Alex Washburn, that depicted it as a “better Bitcoin”. This is a bold statement, but Charlie Lee sold it “Silver to Bitcoin’s gold”, a slogan that worked and helped him gain traction over the years.
Before dedicating his life to Litecoin and cryptoassets, Charlie Lee was a software engineer at Google. A few years in, in july 2013, he got recruited by Coinbase, a move that was probably benefic to Litecoin even if it wasn’t the purpose of his hiring.
When Litecoin did get listed on Coinbase on May 3rd 2017, it got a serious boost price-wise, as the following chart shows:
Recently, Litecoin’s Foundation made some interesting move. They purchased in July a 9.9% stake in WEG Bank AG that passed on by TokenPay, a platform that works on providing easy crypto-to-fiat solutions. WEG Bank AG is seeking the foundation assistance to build cryptoassets solutions for its customers. A win-win move for Litecoin and the german bank if things turns out to work well.
In the end, Litecoin’s biggest strenght might very well reside in the fact that it is a very close twin to Bitcoin. Charlie Lee found a way to make use of the similarities, and more specifically with the interoperability potential of both chains. An example that he gave on twitter was to serve as a on-ramp platform to join the Bitcoin lightning network: if fees are too high on Bitcoin, one could open a channel on Litecoin’s lightning network, and exchange them for Bitcoin via a special kind of swap that is being developed.
The development of Atomic Swaps are remarquable too. Atomic Swaps allow you to exchange your coin for another blockchain’s coin seamlessly without having to rely on a third party. The first atomic swap happened between Litecoin and Decred on September 2017, followed by an off-chain swap between Litecoin and Bitcoin on the Lightning Network two months after that.
Litecoin also attracted a sizeable community. If we look at reddit subscribers, an “okay” metric to compare sizes for crypto projects, Litecoin’s channel has 199k subscribers compared to 909k subscribers on Bitcoin.
Litecoin nowadays is a well-recognized cryptocurrency that remains in the top-10 of market caps, above 2.8 billion Euros.
It is most likely here to stay, and you will soon be able to buy and sell it on our Coinhouse platform.