Introduction to the pros and cons of Litecoin
If it seems to you that Litecoin has been around forever, well, basically it has. Litecoin was launched in 2011, a mere two years after the launch of Bitcoin.
Litecoin was launched for the purpose of being a 'lighter' version of Bitcoin. It has become one of the most popular altcoins (in market value terms) and is one of the premier forks of the Bitcoin blockchain. As such, Litecoin is often referred to by many as the silver to the gold of Bitcoin.
In this subsection of the Leo Finance Litecoin Coin Guide, let's take a point by point investigation into the pros and cons associated with the Litecoin ecosystem.
What are the pros associated with Litecoin?
Let's look at the pros associated with Litecoin.
- Open-Source: Being an open-source ecosystem is one of the major advantages associated with Litecoin. Network transparency is present as everyone is able to view how the system functions and all have the availability to affect changes to the platform. Being open-source is a key characteristic as it allows flexibility in affecting technical improvements to the system improving speed and convenience (in the case of Litecoin it is worthy to mention Lightning Network and SegWit). Usually the changes are made in response to the needs of the cryprocurrency market.
- Decentralization: The Litecoin protocol is a peer-to-peer decentralized network. The system's nodes are spread worldwide removing reliance on third parties (thereby removing intermediary fees) and a resultant reduction of price manipulation risks.
- Speed of network transactions: Litecoin proves to be four times faster than Bitcoin. Litecoin transactions have completely processed in a maximum of 2.5 minutes whereas Bitcoin takes around 10 minutes to process.
- Scalability: Comparatively, the Litecoin protocol is scalable. Litecoin is capable of processing 56 transactions per second (tps) whereas Bitcoin processes 7 tps and Ethereum 15 tps.
- Transaction fees: Relative to other cryptocurrencies and traditional payment systems, Litecoin charges much lower transaction fees. These low fees are an important factor for Litecoin as they encourage wider and speedier adoption of the platform to the mainstream.
- Continuing improvements: As noted above, being open-source aids in network flexibility which permits the platform to quickly add improvements to benefit the platform. Charlie Lee, Litecoin's creator stated:
Think of it being two highways: Today, Bitcoin is packed full of cars and Litecoin is empty. Even with Bitcoin packed, the cars are not coming to use the Litecoin highway today because it’s not connected and it’s inconvenient (centralized exchanges and slow on-chain transfers) to go across. LN will build bridges over the highways. But a side benefit is that these bridges will connect both highways together. Maybe the bridges on Bitcoin are enough such that cars will still stay on the Bitcoin highway. My bet is that the convenience and the cheaper tolls on Litecoin highway will convince cars to cross over and use Litecoin. But we won’t know until both are built.
[Hatzis, I. SegWit paves the way for the Lightning Network. (Accessed December 27, 2021).
- High limit on total coins: As per CoinMarketCap, there is a maximum total supply of 84,000,000 Litecoin. This upper limit of Litecoin is four times larger than the maximum total supply of Bitcoin (21,000,000 Bitcoin). Accordingly, the risk of inflation is absent and investors have plenty of supply available.
- Better Mining Process: While both Bitcoin and Litecoin use the proof-of-work consensus model, Bitcoin employs the SHA-256 hashing algorithm and Litecoin employs the Scrypt algorithm. Scrypt is more efficient to use and as well is more energy efficient. Litecoin's utilization of Scrypt make the process of mining more assessible to miners.
- Trading Litecoin: As many Exchanges support Litecoin, it is very easy to trade. Additionally, all hardware wallets and most software wallets support the coin and various atomic swaps are available.
- Beginner friendly: Beginners searching for their first investment target in cryptocurrencies will find Litecoin attractive. This attraction results from Litecoin's near zero transaction fees, lower volatility, and a lower cost compared to other top tier alternatives.
What are the cons associated with Litecoin?
Despite all the pros associated with Litecoin as discussed above, the protocol does exhibit some significant cons. So, let's now look at the cons associated with Litecoin.
- Branding issues: In that Litecoin is a fork of Bitcoin's blockchain, many people think of the two as being synonymous. It is bad enough that the naming similarities are an issue (even Google attempts to correct 'Litecoin' to be 'Bitcoin').
- Loss of Credibity: While Litecoin still displays a reliable development team, Litecoin's credibility has waned. In this regard:
- In 2017, Charlie Lee, creator of Litecoin, sold all his Litecoin holdings near the coins all-time high. This action made many question his faith in the future of Litecoin.
- Withdrawal of the defunct LitePay feature stirred controversy in the cryptoverse. Even though Litecoin took full responsibility for the LitePay fiasco, many were not quick to forgive.
- Dark web usage: Litecoin is used highly on the dark web. A 2018 study found Litecoin to be the number two crypto used on the dark web with 30% of dark web vendors accepting it.
Interest in Litecoin is on the decline: More and more, cryptocurrency investors are being drawn to the bells and whistles of DeFi currencies utilizing smart applications, moving investors away from the mundane transactional currencies like Litecoin. A look at two charts amply demonstrates this decline in interest:
- First, it took Litecoin from 2017 until the bull-run of 2021 to finally beat its 2017 all time high. While Litecoin was languishing to beat an all time high, many other currencies doubled or even tripled their previous all-time highs. This may be seen on the CoinMarketCap price chart for Litecoin:
- Second, the number of Litecoin wallet addresses is stagnant. Although the following chart does show an increase in the gross number of Litecoin wallets, the Litecoin exhibited growth is insignificant in comparison to the exhibited growth of Bitcoin wallets:
- Mining profits have decreased: Miners have quickly lost interest in pursuing Litecoin. The mining of Litecoin is much less profitable now for the miners as compared to years past. The mining difficulty has steadily increased while the profits therefrom have steadily decreased meaning the miners must work harder to reap less profit. Furthermore, there is a system-wide lack of demand for Litecoin making the creation of new Litecoin's less profitable. It must be noted that this situation of the miner's losing interest in the Litecoin system is exacerbated as there are less available people to secure the network thereby leaving the platform vulnerable to attack. This trend is clearly demonstrated on the following chart:
- Proof of Work systems are losing their luster: Just as Tesla dropped Bitcoin as a payment option, other businesses with the desire to appear environmentally friendly may drop Litecoin as a payment option (or not consider it for a payment option in the first place).
- Controlled by the few: The top 100 on the Litecoin richlist wallets list hold 41.29% of the total Litecoin (for the numbers people out there, 41.29% translates into 28,604,732 LTC with a value of $4,512,127,648). This is rather intimidating if one considers these 100 wallets divesting Litecoin at once and the resulting price crash associated therewith.
- System upgrades are more akin to being add-ons: When new features are added to Litecoin, most of the time the feature is not built into the system but is added by an outside entity in the form of an add-on to the system. Several companies are attempting to build smart contract formats for Litecoin, but the same is being done absent the Litecoin core team. When the Lightning Network and MimbleWimble were added, these too came from outside the platform. The present condition of system upgrades to Litecoin calls into serious question the ability of the Litecoin system to keep up with market developments.
- Still High Risk: Even though cryptocurrencies may be seen by many as risky, with respect to Litecoin that risk may prove too high relative to too little reward. In fact, San Francisco based fintech company Microaxis, believes Litecoin is overvalued, over-hyped, and unusually volatile, recommending a 'strong sell' [See, Microaxis. Litecoin Buy Hold or Sell Recommendation. (Accessed December 27, 2021)].
Some final thoughts on the pros and cons of Litecoin
As shown above Litecoin exhibits both significant pros as well as cons. As such, each individual will be required to do a personal risk reward analysis on Litecoin prior to adding/holding it in one's portfolio. While the pros and cons discussed herein assist in the performance of the aforementioned risk reward analysis, this article should not exhaust one's efforts research wise. This should serve as a starting point for your diligent research into this topic.
Keep in mind that every individual investor possesses a different present financial circumstance, tolerance for risk, and investment strategy. These must be weighed in light of the factors and information above provided added with your further diligent research to finalize any investment decision. Accordingly you as the potential investor must make the final investment decision that is appropriate for your individual circumstances and in your best interests.
And please remember the most important rule of investing: never invest more than you can afford to lose.
Good luck!