Litecoin: A Deafening Silence

Litecoin: A Deafening Silence

Litecoin at large

Many articles have been written about what Litecoin (LTC-USD) is and there are no shortage of regurgitated news, or price speculation on the topic. I’d to take a different angle. If you’re completely new to Litecoin, watch this short video to get a handle on the basics.

Litecoin is a fork of the Bitcoin software, and as such it retains many of the same properties at Bitcoin. Charlie Lee, Litecoin’s founder has used Litecoin on several occasions to front-run new technology before they are implemented on Bitcoin. This was the case with Segregated Witness, which was activated on Litecoin four months before it was activated on Bitcoin. This gave the community time to see, use and understand the implications of the technology before it went live on the Bitcoin network.

Litecoin was never intended to be a replacement for Bitcoin, rather it was meant to be a complement to Bitcoin, which would enable even cheaper fees and faster confirmations, the so-called “silver to Bitcoin’s gold.”

Litecoin’s benefits

One of the positive things about owning Litecoin, is that if we see another surge in Bitcoin interest before scaling solutions are fully implemented, then the spillover will be a boon to Litecoin. We saw this in 2017, where Litecoin became a desirable alternative to the high fees and slow confirmation of the Bitcoin network.

This leads into an observation of the cryptocurrency market at large. When the market is booming, the rising tide lifts all ships. It seems that as price action drives speculation, smaller cryptocurrencies benefit more than larger ones, and the opposite seems to be true in general for bear markets.

Potential problems for Litecoin

As many have noted already, Charlie Lee sold all his Litecoin. This could be seen as a move to make Litecoin more like Bitcoin without a central figure in the lead. However, it could also be seen as part of a worrying trend, a movement away from effort in the project.

Image Source: Github.com

As you can see from the image above, development in Litecoin has flat-lined. Unless someone can point me to a different code repository where the development is taking place now, this is a very bearish indicator.

As a former software engineer, I see these cryptocurrency projects through a certain lens. Activity of any kind does not guarantee success, but a lack of activity is always a bad sign, meaning that the code will fall behind competitors and ultimately have its security compromised.

If we compare the activity graph of Litecoin with other cryptocurrency projects, we can see a clear difference.

bitcoin dev activityImage Source: Github

ethereum dev activityImage Source: Github

The charts of Ethereum’s and Bitcoin’s development activity are examples of what we would like to see, as compared to the chart of Litecoin’s development work which resembles that of a human assuming room temperature.

Some good news for Litecoin

Recently, a new website called crypto51 has been making the rounds that shows how much it would cost to 51% attack a given cryptocurrency network. The way the site works, is by figuring out how much hash power is needed to perform the attack, and then comparing that to the rental rates of that hash power.

pow 51 attack pricesImage Source: Crypto51

Sites like nicehash.com allow anyone to rent hash power in the algorithm of their choice for an hour, or as long as you want. The rates are determined by the market, in which miners sell hash power and people use that hash power to mine coins that they think will return more than they paid.

nice hash ratesImage Source: Nicehash

One interesting thing that this site made clear, is that the largest cryptocurrencies from each algorithm are the most difficult to attack. Since Litecoin is the largest cryptocurrency using the Scrypt algorithm, it is the most difficult coin to attack using the Scrypt algorithm. Also, some of you may know that DogeCoin (DOGE-USD) is actually merge-mined with Litecoin, which acts as an anchor for DogeCoin, making it as difficult to attack as Litecoin itself.

As a counter-example, you may have noticed that Bitcoin Cash (BCH-USD) is actually ten times less costly to attack than Bitcoin (BTC-USD) because they share the SHA-256 algorithm, and Bitcoin is more profitable to mine (so it has more miners and is harder to attack).

The same holds true for Ethereum Classic (ETC-USD), which is 31x cheaper to attack than Ethereum (ETH-USD) due to the fact that they share an algorithm and have a huge gap between their scale.

Litecoin mining outlook

Mining Litecoin is distinct from other cryptocurrencies because of the low cost to operate the ASIC machines. See table below.

ASIC Name Antminer L3++ Antminer S9
Algorithm Scrypt SHA-256
Coin Mined Litecoin Bitcoin
Power Usage 876W 1400W

As the current bear market continues, the benefits of mining a coin with a low power cost becomes more and more obvious. However, a new wave of machines has hit the market from rival company Innosilicon, the A4+.

These machines are more power efficient than Bitmain’s Antminer L3++ models. See table below.

ASIC Name Antminer L3++ Innosilicon A4+
Hash Rate 580 MH/s 620 MH/s
Power Consumption 876W 750W
MH/Watt 0.6621 0.8267

Prices of Litecoin miners have been spiraling downward, especially on eBay (EBAY), where I found an Antminer L3+ listed for only $250. These machines were selling for over $2,000 each back in January.

In the short term, I see the situation getting worse before it gets better. Manufacturers of ASIC hardware have to move their inventory to make room for the new models and keep their cash flowing. So, I wouldn’t put it past them to just dump these machines on the market. In the long term, I think we will see things stabilize and start to turn north again.

Conclusion

Litecoin is one of the most popular cryptocurrencies, and remains useful today. However, with reduced development activity, my confidence is Litecoin is diminished. I do hold Litecoin, and plan to buy more, but if the project is no longer actively maintained, then it could be the beginning of the end for Litecoin.

Disclosure: I am/we are long LTC-USD, ETH-USD, BTC-USD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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