If you’ve heard of Bitcoin, chances are you’ve also heard of Litecoin. Created in 2011 by former Google employee Charlie Lee (former Coinbase engineer), Litecoin is a fork (or copy) of Bitcoin with a few tweaks to make it more suited for being a medium of exchange. The similarities between the two has been further enforced ever since Bitcoin rebranded itself to ‘Digital Gold’, whereby investors began calling Litecoin the silver counterpart.
To begin, here is a side by side comparison of Bitcoin and Litecoin:
So, why does Litecoin exist if it is essentially just a ‘knock-off’ of Bitcoin?
Bitcoin was designed to be a medium of exchange for peer to peer payments. It was envisioned that it would become the first world currency and be used for day to day payments. However, the poor scaling and slow transactions speeds associated with the currency make it unfit for its designed purpose.
Reasons why Bitcoin is NOT a good medium of exchange:
- Poor Scaling (3-7 Transactions per Second)
- Slow Transaction Speeds (In December of 2017 it took Hours to process Bitcoin transactions)
- Expensive Transaction Fees (In December of 2017 it cost upwards of $50 just to move Bitcoin)
So, if Bitcoin isn’t suited to being a good currency, what can it be used for?
Bitcoin can be used as a store of value. The history and distribution of Bitcoin, in addition to its rarity make it a very decent substitute to gold. It’s certainly easier to transport in comparison to gold, and its mining (or generation) process caps the total supply at 21,000,000 (twenty-one million) and therefore is deflationary over time. In essence, it’s everything that gold is, but just more convenient; although this is a hard concept to accept due to Bitcoin not being a physical object, the fundamentals are there and its only a matter of time before society embraces it.
Litecoin was created due to the concerns surrounding Bitcoin’s scalability, and in its design maintains the same concept as Bitcoin but with a few tweaks to enable greater adoption. It has better scaling, faster transaction speeds and cheaper transaction fees.
Reasons why Litecoin is a BETTER medium of exchange:
- Better Scaling
- Faster Transaction Speeds (In December of 2017 it took a few minutes to process Litecoin Transactions)
- Cheaper Transactions Fees (In December of 2017 it cost less than $1 to move Litecoin)
Despite the clear contrast in viability of Litecoin and Bitcoin, this does not mean that Litecoin will overtake Bitcoin. Ultimately, the former will act as a medium of exchange while the latter will remain as a store of value. It is important to acknowledge that until there is greater adoption, these are all speculative assets and are very volatile. In the short-term, Bitcoin will most likely remain dominant when it comes to dictating the price movements of other cryptocurrencies including Litecoin, but this may change in the foreseeable future depending on real world use. We should also acknowledge that adoption is a lot closer than most of us expect, with the recent rollout of Litepay, a Litecoin payment system which is due to be launched in 41 countries.
Bitcoin moved up too fast on its initial run to $20,000 (USD), and peak buyers were punished heavily as the imminent pullback saw $6,000 (USD) as a floor. However, a parabolic rise followed by a sharp decline is not unusual, and investors should be cautious entering the market when the charts exhibit a vertical gradient (this applies for both directions).