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Thesis
Litecoin (LTC-USD) is unlikely to outperform Bitcoin (BTC-USD) in the long run regardless of arguably being the higher cryptocurrency for funds and transactions. It’s because it lags Bitcoin when it comes to safety and developer curiosity, amongst different points.
What Is Litecoin?
Litecoin was created as a fork of Bitcoin in 2011 with the aim of constructing a cryptocurrency extra suited to funds and transactions. It makes use of proof of labor like Bitcoin, however it makes use of a unique proof of labor algorithm that leads to over 3x quicker transaction confirmations and as much as 50x decrease transaction prices.
Apart from utilizing a unique proof of labor algorithm, Litecoin and Bitcoin are very comparable from a technical perspective. Nonetheless, traders to date have most popular Bitcoin, as Bitcoin has a market cap of $387 billion in comparison with Litecoin’s (nonetheless respectable) market cap of $4.4 billion.
Why Did Litecoin Rally?
Curiosity in Litecoin shot up on November 2nd after MoneyGram (MGI) announced a brand new characteristic that may enable customers of its cell app to purchase and commerce Bitcoin, Ethereum (ETH-USD), and Litecoin.
Bitcoin and Ethereum did not actually react to the information, however Litecoin rallied from $55 to $62 shortly after the announcement. Traders had been seemingly excited that Litecoin was the one cryptocurrency chosen apart from the 2 stalwarts Bitcoin and Ethereum. However regardless of the rally, Litecoin remains to be underperforming Bitcoin and Ethereum over the previous yr.
MoneyGram is a peer-to-peer funds firm that was just lately purchased out at a valuation of over $1 billion. It is sensible that MoneyGram could be excited by supporting Litecoin contemplating that Litecoin markets itself as being optimized for funds, MoneyGram’s specialty. Nonetheless, MoneyGram is a small firm even in comparison with Litecoin and Litecoin’s involvement solely pertains to one MoneyGram characteristic, so the response in Litecoin’s worth is sort of excessive relative to this information.
Thus, it is also attainable that different occasions contributed to the rally. For instance, Litecoin’s halving is developing in lower than one yr, whereas Bitcoin’s subsequent halving might be in 2024. Like Bitcoin, Litecoin halves about as soon as each 4 years, however it operates on a unique halving schedule as a result of it was created at a unique time.
General, it is attainable that a number of components contributed to the rally, with the MoneyGram announcement being probably the most well timed one.
May Litecoin Outperform Bitcoin?
The query most traders most likely have is whether or not Litecoin’s current rally might be the beginning of a bigger development wherein Litecoin continues to outperform Bitcoin. I feel that this result’s unlikely for a number of causes, which I will now dive into.
Much less Developer Curiosity
When shares, it is typically accepted that an organization that is able to hiring and motivating gifted employees will seemingly outperform friends that fail to efficiently rent as many good/motivated staff. Nonetheless, in terms of cryptocurrencies, many traders appear prepared to show a blind eye to precise developer curiosity. Maybe that is as a result of builders are sometimes checked out as unpaid volunteers, regardless that many Bitcoin builders are actually employed via members of the crypto neighborhood like Block.
On the subject of developer involvement, there isn’t any query that Bitcoin is superior to Litecoin. The 25 most just lately closed pull requests on Bitcoin Core span solely 10 days. However, the 25 most just lately closed on Litecoin Core go all the best way again to December of final yr. Which means much more work is being finished in Bitcoin’s code base in comparison with Litecoin.
Granted, as a result of Litecoin is a fork of Bitcoin, it will probably copy many updates made to Bitcoin without cost. However the level right here is evident: there’s rather more developer curiosity in Bitcoin than Litecoin.
Scalability Points Aren’t Solved
Litecoin admittedly delivered on its promise to be extra scalable than Bitcoin, because it’s capable of course of about 56 transactions per second in comparison with Bitcoin’s 7. Due partly to this quicker processing, Litecoin expenses about 4 cents per transaction in comparison with $7.60 for a Bitcoin transaction. Thus, it is objectively true that Litecoin is a greater fee community within the one facet that issues most.
Nonetheless, Visa dwarfs each Bitcoin and Litecoin when it comes to scalability, because it manages over 65,000 transactions per second. Between the charges and this enormous distinction in scalability, it is unlikely that both Bitcoin or Litecoin is the fee community of the long run.
Bitcoin’s lively developer neighborhood is fixing this by constructing the Lightning Community, a Layer 2 resolution which primarily bundles a number of transactions into one to cut back charges. Litecoin has additionally adopted its personal model of the Lightning Community, which it was capable of do simply as a result of it is a fork of Bitcoin. Nonetheless, this arguably negates the declare that scalability is a crucial attribute for a Layer 1 resolution.
Bitcoin’s lightning community has base charges of lower than 1/10th of a cent per transaction (in comparison with 4 cents for Litecoin). That must be all the data you should know whether or not Litecoin is the fee community of the long run.
Worse Safety
For proof of labor cryptocurrencies, the safety of the community is basically a operate of hash charge as a result of the next hash charge will increase the problem of validating transactions. This makes it tougher for anyone actor to acquire sufficient compute energy to regulate the community with a 51% assault.
Litecoin’s present hash charge is 543 terahash/second, whereas Bitcoin’s hash charge is 223 exahash/second, or 223,000,000 terahash/second. Clearly, Bitcoin’s hash charge and general community safety is a number of orders of magnitude larger than Litecoin’s.
It will be tough for establishments and even perhaps excessive internet price people to significantly contemplate Litecoin for essential transactions when the hash charge of some particular person Bitcoin miners is greater than the whole hash charge of your entire Litecoin community. In principle, that signifies that giant miners might hack the Litecoin community in the event that they needed, however in follow the {hardware} necessities for mining Bitcoin vs Litecoin are fairly totally different.
Larger Volatility
All the argument for Litecoin facilities round funds and transactions. If that finally ends up being the first use for cryptocurrency, then maybe there’s an argument to be made that Litecoin is the higher resolution from a purely technical perspective, even when a Layer 2 resolution is required to totally scale.
Nonetheless, different makes use of have come up for crypto lately, together with as a scarce retailer of worth. For this use case, Bitcoin is superior as a result of there might be fewer whole Bitcoin than Litecoin and since Bitcoin presently has decrease volatility and extra liquidity than Litecoin.
On the subject of transactions, there’s an argument to be made that unstable cryptocurrencies cannot fully displace extra steady fiat. And even when they may, Bitcoin’s decrease volatility arguably makes it extra helpful for giant transactions than Litecoin regardless of not scaling as effectively.
There are a number of ways in which blockchain-based fee networks might in the end develop. One is that Layer 2 options constructed on prime of Bitcoin’s Lightning Community will enable individuals to ship and obtain funds in USD, a subject that I lined rather more in depth in this article for Tech Investing Edge subscribers. Another choice is that stablecoins will win out as a extra sensible resolution regardless of being extra centralized, a subject that I lined in this article for subscribers.
Both approach, it is tough to think about a world the place an asset that may transfer 10% in a day based mostly on a product announcement by a little-known small-cap firm turns into the popular technique for world transactions, no matter how environment friendly it’s at processing these transactions.
Last Ideas
In principle, I’ve nothing towards Litecoin as an idea. It is a model of Bitcoin that is in some ways higher for transactions and funds. In follow, a cryptocurrency’s worth is basically a operate of its model/fame, community safety, shortage, liquidity, and developer neighborhood. In all of those features, Bitcoin is clearly superior to Litecoin. Even when Litecoin is theoretically the higher cryptocurrency for funds, in follow extra persons are going to proceed to make use of and pay with Bitcoin, particularly if builders proceed to make nice progress on its Lightning Community.
Litecoin might stick round and proceed to commerce in an identical sample to the remainder of the cryptocurrency market, with occasional blips just like the one seen at present. I am bullish on crypto general, and if crypto costs improve in the long run, Litecoin’s worth might improve as effectively. However the best way I see it, there isn’t any actual argument for traders to carry Litecoin as an alternative of Bitcoin.