Is Litecoin's halving in August worth looking forward to? A comprehensive guide to Litecoin

On June 22, Bitcoin broke through the $10,000 mark, more than three times the price at the beginning of this year. For a time, the topic of "whether the bull market has started" became a hot topic again.

Looking back now, it was Litecoin (LTC) that first broke the "continuous decline" since last year's bear market and fired the first shot of the mainstream currency's rise this year . On February 8, Litecoin rose rapidly by nearly 23%. The next day, its market value surpassed EOS and jumped to fourth place in the market value ranking (currently fifth). In the past six months, the price of Litecoin has been rising overall, breaking through $141, which is 470% higher than the price of about $30 at the beginning of the year.

▲2019 Litecoin price trend chart Source: CoinMarketCap

Many senior people in the industry attribute the rise of Litecoin to the expectation of halving the block reward in August this year; many people who have just come into contact with blockchain may only have the impression of Litecoin based on the slogan "Bitcoin is gold, Litecoin is silver".

How did Litecoin, which doesn't even have a white paper, survive the bull and bear markets and become one of the top ten cryptocurrencies in the world by market value?

01The Origin of Litecoin

In 2011, because the extensive use of Bitcoin in the dark web was publicly reported by some media, the word Bitcoin began to move from the world of computer geeks to the public eye.

A small number of people who were curious about new things learned about Bitcoin during this period, including the well-known founder of Ethereum (ETH), Vitalik Buterin, the founder of Bitmain, Jihan Wu, the founder of 8btc, Chang Qian, and the founder of Litecoin, Charlie Lee, who we will introduce today.

▲Charlie Lee, founder of Litecoin

Charlie Lee is a Chinese-American programmer who worked at Google in 2011. After learning about Bitcoin from media reports, he bought some Bitcoin and used his computer to mine Bitcoin.

At that time, many computer geeks launched various cryptocurrencies (altcoins) for fun (it looked cool) or to improve the defects of Bitcoin. As a programmer, Charlie Lee also cloned the source code of the altcoin Tenebrix and created a new altcoin Fairbix. However, due to the immaturity of technology and other reasons, this altcoin project died early.

After summarizing the reasons for the failure, Li Qiwei led his team to clone the core source code of Bitcoin. After making some adjustments, he launched a new cryptocurrency - Litecoin.

02What is Litecoin

Litecoin, whose English name is Litecoin, abbreviated as LTC, also has a Chinese nickname "Latiao".

Litecoin has no white paper, and for a long time, it was called a "Bitcoin altcoin." Because it is a clone of Bitcoin's core source code, Litecoin is similar to Bitcoin in many ways, including the use of the PoW consensus mechanism, and the block reward is 50 at the beginning, and the block reward is halved every four years until all Litecoins are mined.

"Bitcoin is gold, Litecoin is silver", the original intention of Litecoin is to create a lightweight Bitcoin (A Lite Version of Bitcoin), focusing on daily small payments. To this end, Litecoin has made adjustments in the following three aspects:

First, in order to confirm transactions faster, Litecoin has adjusted the average block time to 2.5 minutes, which is 4 times faster than Bitcoin, which produces one block every 10 minutes.

Second, the expected total supply of Litecoin is 84 million, which is four times higher than Bitcoin’s 21 million.

Third, Litecoin uses the Scrypt algorithm, which requires a large amount of memory, as its proof of work for mining, and the threshold for mining is lower than that for mining Bitcoin.

Simply put, compared to Bitcoin, Litecoin has a larger total amount, faster transfer speed and lower transaction fees.

03The Development of Litecoin

On October 8, 2011, the first block of Litecoin was born; on October 13, Litecoin was officially launched.

In 2013, the cryptocurrency market was in a bull market. Litecoin was widely spread by the community, and its price increased by more than 80 times that of Bitcoin, reaching its highest point of the year - more than 380 yuan. Subsequently, the entire cryptocurrency market encountered the first major bear market in history, and the price of Litecoin was directly cut in half.

The sharp rise and fall made the trading platforms realize the market popularity of Litecoin. More and more trading platforms began to list Litecoin, and Litecoin successfully became the second largest cryptocurrency by market value at the time, second only to Bitcoin.

For blockchains that use the PoW consensus mechanism, computing power is the guarantee of their security. Unlike Bitcoin's SHA256 mining algorithm, Litecoin is the first cryptocurrency to use the Scrypt algorithm, and its computing power has encountered severe challenges in history.

Dogecoin, which was born on December 12, 2013, also uses the same Scrypt algorithm as Litecoin. In 2014, Dogecoin suddenly became popular in the market. Due to the same mining algorithm, Litecoin and Dogecoin had a mining competition. Later, Dogecoin hard forked and enabled Litecoin-compatible joint mining, which means that Dogecoin can be obtained while mining Litecoin, and the battle of computing power came to an end.

▲Dogecoin

On July 3, 2016, the Litecoin development team and the Litecoin Foundation jointly released the "Litecoin Official 2016 Development Roadmap", announcing that a new version with features such as "Segregated Witness", "Lightning Network", and "Smart Contracts" would be released. On May 11, 2017, Segregated Witness was officially activated on Litecoin, and users can use this new transaction method on Litecoin; on June 21, 2017, Charlie Lee officially announced the launch of Litecoin Lightning Network, with the goal of achieving secure off-chain transactions.

Litecoin was the first to experiment with these new technologies that were originally expected to be applied to Bitcoin, so Litecoin was called "a test product of Bitcoin's new technology." On January 7, 2017, Charlie Lee published an article expressing the role of Litecoin in testing new functions for Bitcoin, saying that the two will work together to solve the problem of future cryptocurrency payments.

2017 was a bull market for cryptocurrencies, with the price of Litecoin rising more than 90 times from the beginning of the year. In December, Charlie Lee tweeted a risk warning, suggesting that Litecoin could plummet to $20 in the ensuing bear market.

On December 12, Litecoin hit a record high of $420, and soon afterward, Charlie Lee announced that he had sold all his Litecoins. In 2018, with the advent of the bear market, Litecoin prices plummeted, falling to as low as $22, just $2 short of the price Charlie Lee predicted.

Li Qiwei's "escape from the top" caused an uproar in the community, and there were constant doubts about "Li Qiwei cashing out at a high position". Li Qiwei later issued a statement to clarify that " I liquidated Litecoin because I don't want my voice to be tied to the interests of Litecoin. " He hopes to be able to concentrate on his investment in the future and make every effort to promote the continued growth of Litecoin.

04What is Litecoin doing now?

On January 3rd of this year, Charlie Lee posted that “ the next battlefield will be interchangeability and privacy .”

Fungibility means that every currency, no matter who has owned it or what its transaction history is, is theoretically worth the same and can be interchanged. For example, 1 LTC in Zhang San's wallet and 1 LTC in Li Si's wallet should theoretically be completely equal and interchangeable.

Blockchain technology makes transactions open, transparent and traceable, which to some extent undermines the fungibility of cryptocurrencies . For example, some digital currency service providers will detect the transaction history of cryptocurrencies and impose restrictions on cryptocurrencies that have a bad record. Take Litecoin as an example. Suppose a miner mines a block and is rewarded with 25 LTC. The miner spends the 25 LTC. These Litecoins enter the dark web and black market during circulation, and then circulate again. Among them, 1 LTC enters Zhang San's account. Although Zhang San bought this 1 LTC from others with his own pocket money, it is a "contaminated" Litecoin and may be restricted from trading by digital currency service providers. It is not equal to the 1 LTC in Li Si's wallet and cannot be replaced with each other. This is why new coins (coins just mined by miners) often have a certain premium.

So how do we solve the problem of Litecoin’s fungibility?

Charlie Lee and the Litecoin development team set their sights on the MimbleWimble protocol, the underlying protocol of the anonymous coin Grin. They used this technology to expand the block chain, using MimbleWimble as a side chain, and finally realized that Litecoin can be sent to the MimbleWimble extension module or sent back to the main chain, enhancing the anonymity and interchangeability of Litecoin.

In addition to increasing anonymity and making Litecoin more fungible, other ongoing technical developments include the Lightning Network and a decentralized trading platform based on atomic swaps.

Lightning Network can be simply understood as adding a layer of blockchain (Layer 2) to process transactions. This makes Litecoin's transaction speed faster, with lower fees and greater scalability, making it more suitable for its original positioning - focusing on daily small payments.

At present, most of the development work of Litecoin's Lightning Network has been completed, and the user experience needs to be further improved. According to statistics from the 1ML website, as of June 25, Litecoin's Lightning Network nodes reached 204, the number of channels reached 1,203, and the number of locked Litecoins was 288.29.

Sparkswap is a well-known decentralized trading platform based on atomic swaps. Sparkswap is the first decentralized trading platform for Bitcoin that uses lightning network atomic swaps. It currently only provides BTC/LTC trading pairs.

05Litecoin halving

For Litecoin, the thing that investors in the industry are most concerned about is undoubtedly the block reward halving event that is expected to occur on August 5 (block height 1680000). At that time, the block reward of Litecoin will change from the current 25LTC to 12.5LTC.

The biggest impact of the block reward halving is on miners. After the Litecoin block reward is halved, if the computing power and mining difficulty remain unchanged, the cost of mining for miners will double.

In addition, the halving of mining rewards will reduce the inflation rate of Litecoin. Currently, the inflation rate of Litecoin is about 8.3%. After the mining reward is halved in August, the inflation rate will drop to about 4.2%.

The halving of Litecoin mining rewards will also affect the supply and demand relationship in the market. In economics, it is generally believed that prices are determined by supply and demand. If demand remains unchanged and supply decreases, prices will rise. Many investors have concluded that "the price of Litecoin will rise after the halving of mining rewards." Is this really tenable?

Historically, Bitcoin has experienced two block reward halvings. In November 2012, Bitcoin block rewards experienced the first halving. One year later, the price of Bitcoin exceeded $1,000, setting a new record. In July 2016, Bitcoin block rewards were halved for the second time. In the following year (2017), the price of Bitcoin continued to rise and eventually exceeded $20,000. The next Bitcoin halving will occur in May next year (2020).

Litecoin has only experienced one block reward halving in history, which occurred in August 2015. In January 2015, the price of Litecoin hit bottom, and the expectation of block reward halving caused Litecoin to start rising three months in advance. After the block reward halving occurred, the price had actually already started to fall.

▲ Litecoin price trend chart in 2015 Source: CoinMarketCap

Any investment market has cyclical characteristics, and the real trend often needs to be revealed after multiple cycles (at least 2). Bitcoin has only experienced two block reward halvings, and Litecoin has only experienced one block reward halving. From a statistical point of view, the data sample is too small to support the conclusion that "the halving of mining rewards will lead to price increases."

Moreover, the cryptocurrency market is very immature and full of uncertainties, and "black swan" events may occur at any time. Even if we take a step back and the so-called "halving market" really exists, the price of Litecoin has risen more than 4 times compared to the beginning of the year, and the risks are constantly expanding.

05 Summary

Although Litecoin has no white paper and no long-term roadmap, its positioning is clear - to be a "lightweight Bitcoin" and become a cryptocurrency focused on daily small payments through faster transaction speeds and lower transaction fees, just as its slogan "Bitcoin is gold, Litecoin is silver" suggests.

In the decade since the birth of Bitcoin, many cryptocurrencies have appeared on the market, a large number of which have now disappeared. However, Litecoin has withstood the baptism of the bear market and still ranks among the top ten in the world in terms of market value. It is one of the few mainstream "old coins".

However, with the development and advancement of Bitcoin Lightning Network, Bitcoin's micropayment function has become increasingly powerful, and many people have begun to question the necessity of Litecoin. Even as a "test product of Bitcoin's new technology", is a test product really worth more than $8 billion in market value? Everything will take time to give us the answer.

Issue 263: Do you think Litecoin is necessary? Why? Feel free to share your views in the comment section.

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Original: JackyLHH

Source: Vernacular Blockchain