Could Litecoin Be a Better Investment Than Bitcoin?
Litecoin price has recently broken out giving investors and speculators a reason to re-evaluate their preconceived notions about Bitcoin and its competition. Bitcoin dominance has just rejected off of its local highs and looks to be headed to the bottom side of the channel posted below:
This chart shows that Bitcoin will likely underperform the broader crypto market.
Bitcoin has taken the spotlight in terms of Proof-of-Work cryptocurrencies and overshadowed its competition since it was launched in 2009, but could we be at the cusp of a resurgence in PoW alts? I think the answer to that is yes as I’ll explain below.
For the majority of Bitcoin history there has been little reason to hold alts that attempted to compete with BTC, but that’s no longer true.
Stronger network effects give BTC more utility and since the cost of using BTC has been relatively low for the majority of its history, it’s been hard for other chains to get off the ground. In 2017 we began to see the initial effects of how a second chain would be utilized as fees rose on BTC transactions, which in turn spurred Litecoin adoption. Below shows LTC transactions vs BTC transactions since the beginning of 2017:
Blocks for BTC became full around this time in 2017 which created fee pressure and LTC was where that pressure valve for excess BTC demand was released. Below shows the increased demand for LTC when BTC blocks become full:
As illustrated on the chart above, when BTC blocks become full there is demand for LTC transactions. Every time BTC blocks were full we saw a sudden and rapid increase in on-chain LTC transactions, so this is definitely not a coincidence. Currently LTC is consolidating as BTC blocks have not yet again become full.
The number of transactions as well as median transaction values for LTC have reached over 50% that of BTC’s, so the only metric in which LTC still slacks is in avg. transaction values. Over time this gap will narrow as well as fees as a percentage of the block reward increase. The vast majority of BTC transactions happening around its median value of $600 will move to LTC when this happens.
It’s important to remember that there are far more lower value transactions that take place in our economy than large value transactions. And since LTC has 10x the capacity, the network can take on atleast 10x the value we’re currently moving on-chain and much likely much more than that considering that transaction values on LTC will also move higher, which results in higher $$value/byte. Combine this with the recent MWEB upgrade which adds privacy and scalability and you get a network that can handle more value than BTC, and when price increases so will LTC’s absolute security level because hashrate will be attracted by price increases.
So what’re the real differences between the 2 networks other than the new MWEB upgrade?
Only 2 Differences Between BTC & LTC at Launch
Quicker Block Generation
Litecoin has a block time of 2.5 minutes, compared with 10 minutes for Bitcoin. This means that transactions involving Litecoin will be confirmed four times faster than those for Bitcoin, which may be preferential to users as they do not have to wait as long to start seeing confirmations. This does not however mean that Litecoin is more secure because it receives faster confirmations since the weight of those confirmations is much less.
Litecoin is a more useful medium of exchange for small transactions, as the fees will be substantially lower than those for Bitcoin, while Bitcoin is far superior for larger value transfers because of its higher absolute security level.
Mining: Scrypt vs SHA-256
While Litecoin and Bitcoin share the proof of work concept when it comes to their mining operations, the algorithms that the two blockchain systems use are different.
Scrypt is a more memory intensive mining algorithm compared to SHA-256. The key point here that makes LTC competitive with BTC is that it doesn’t compete in hashrate. No amount of Bitcoin mining hardware can be used to attack the LTC network meaning these two are independent from each other.
LTC continues to be one of the most overlooked alternatives to BTC. Because of its strong and increasing adoption in terms of # of transactions, median tx values, and liquidity/availability aorund the world LTC is positioned to benefit more than any other cryptocurrency should demand for BTC return.
Thanks for reading,