Litecoin

Bitcoin was the first incarnation of digital currency and remains both the world’s most famous and popular form of it. Litecoin has been around for quite a while as well, being created back in the early days of cryptocurrency, going live in October 2011. Litecoin has risen to become the world’s third largest cryptocurrency by market capitalization, behind only Bitcoin and Ethereum.

Litecoin is very similar to Bitcoin, with only slight modifications, although the differences are still meaningful. Both use blockchain technology to process and verify transactions, although Litecoin processes them faster, and long wait times for verification has thus far been a sticking point for Bitcoin.

LitecoinAs blockchain based currencies grow, this places a greater load upon the system, and part of Litecoin’s faster capabilities are a result of less transactions being handled by the system. However, Litecoin is designed to process them faster as well due to the design of their blocks versus Bitcoin’s. Litecoin also has taken a more aggressive approach to adding technological improvements such as looking to adopt the new features of the Lightning Network as it becomes implemented, which allow for even faster processing.

One of the real problems with blockchain based currency is that transactions are kept on a public ledger which verifies all transactions. While such a decentralized means of verification and tracking is seen as a plus, the drawback is that processing takes much longer when you are dealing with many computers around the world versus a single centralized database that traditional payment processors use.

Even though digital currencies have barely scratched the surface in their foray into the world of digital payments, we have seen a lot of congestion develop as the number of transactions that blockchains have to process have mounted.

Digital Currencies Have a Long Way to Go Yet

Litecoin is looking to provide users with a consistently fast experience, although fast in the world of blockchain payments is certainly a relative term.

Bitcoin is evolving into a segregated market where transactions are concerned, allowing users to access faster speed at the expense of higher fees, while those who choose to pay lower fees become subject to longer and sometimes much longer processing time.

Processing time for Bitcoin transactions has grown over the past while, to the point that some transactions can take as long as an hour or two to be completed. Litecoin is currently quite a bit faster, but even 5 or 10 minute confirmations can be problematic, and at the very least are not seen as desirable by many users.

Litecoin has been a leader among cryptocurrencies in looking to implement improvements that would allow for their transactions to be processed much faster, and this may actually come to pass in the near future.

While the Lightning Network promises near instant confirmations, it does exist outside the chain and for the most part goes against the idea behind blockchain currencies, as it is more like a direct peer to peer payment system. This may have its place for some transactions, involving very small amounts of money where the risk is very low, but getting this to work and be acceptable with normal to larger sized payments, while still delivering on the promise of security, remains a challenge.

There’s also the issue of rising transaction fees with cybercurrencies such as Bitcoin and Litecoin, and Litecoin’s fees have increased along with its growing popularity. Fees do vary quite a bit as well and this is one of the drawbacks of these payment systems, and these fees can vary considerably and change on a day to day basis.

With flat fees being levied instead of the usual percentage of the transaction that traditional payment processors use, this can affect the practicality of smaller transactions. If the amount is very small, the fee may represent a large percentage of the value of it, and this can be a real limiting factor as well.

Ironically, the very idea of fees for blockchain payments was supposed to be a security measure, to discourage fraud by requiring a nominal amount to be paid, but these amounts are not so nominal anymore and instead this is more like a battleground than an afterthought.

Data miners do need to be compensated though, and while this is all completely free market, those who are willing to pay more will get more, and this all is serving to make these digital payments less enticing to many potential users.

Mining Litecoin is also more difficult to do than with Bitcoin and this has tended to drive the resources more towards the potentially more lucrative Bitcoin, which means that there are less people mining Litecoin and in theory this would tend to lead to less competition and higher costs.

The Investment Craze Is Really Skewing Litecoin’s Use

As it turns out, Bitcoin’s transaction fees have risen even more for whatever reason, perhaps due to their recent spike in popularity as far as an investment. Litecoin has experienced this as well although to a lesser degree.

Top cybercurrencies such as Litecoin have quickly evolved into real beasts, and the beast part does not refer to its use as a currency, but it’s popularity as an investment.

All we have to do is to look at the way Litecoin and Bitcoin’s fees spiked for a short time in December 2017 to see the effect of this, when the selling pressure of both really hit. A lot of people were moving these digital coins and this resulted in fees several times higher than normal.

This interest has also caused these fees to be a lot more volatile than we would ever expect a currency to have if it were just used as a currency, which would result in much more stable demand.

Litecoin, like other cryptocurrencies, have experienced a dramatic rise in value in 2017 with a substantial fall in late 2017 and early 2018. Litecoin’s price had been below $5 for over 3 years, then in March 2017 it started to take off. At its high, on December 17, 2017, it had rocketed up to $360, before declining significantly.

It still has a long way to go to get back to $5, but at the time of this writing, the bears have a firm grip on it and the expectations are that it may go a lot lower before it stabilizes. How low it will actually go remains an open question, although if people continue to exit their positions as they have done recently, it very well may go back to $5.

It appears, from recent market performance, that Litecoin may have attracted more transitory speculation, given that Litecoin has declined more off its high, giving back two thirds of its prior value already as opposed to Bitcoin only being down a little more than half what it was at its peak.

One of the really telling signals about these recent declines is just how much turnover per day we’re seeing with cybercurrencies, and when you see 10% or more of something being traded in a day, that’s just phenomenal. When it’s mostly selling, this may be phenomenally disturbing.

Given the current market dynamics of Litecoin and other currencies, the price decline alone is disturbing enough, but when you factor in the amount of volume taking place, we may assume that the selling may continue for a while at least.

What We May Expect with Litecoin

Litecoin may one day be more viable as a digital currency, as a means for at least online payments, but that day isn’t quite here yet. We’re not to the point where any blockchain payment system can be considered to be practical enough to have any sort of meaningful presence in the marketplace.

While the price of these things are completely unstable as they have been lately, especially when this instability is to the downside, this can only serve to greatly restrict the growth of the currency itself, at least as a means of payment, what it was designed to do.

Litecoin, at least presently, is better positioned from a practical standpoint to become the market leader in cyber payments than Bitcoin is, and therefore we may reasonably expect it to increase its market share over time once things settle down, if they ever do settle down enough so volatility doesn’t become such a concern.

When people hold currency, they generally prefer stability, and stability is not a word that could be used to describe any cybercurrency over the past year or so. This is especially the case if a currency is declining in value significantly even over a period of a single day, or even just in a matter of hours.

Whatever intrinsic value cybercurrencies may have, this has to reside in its usefulness and popularity as a means of payment, so we may even say that Litecoin at least has more potential intrinsic value than Bitcoin and many of its competitors, given their faster processing times along with the possibility at least of much better ones for normal transactions on the horizon.

The footprint of Litecoin has certainly been magnified many times by all the wild speculation that has been going on with it lately, and it’s only reasonable that when something rises that much that quickly, merely based upon speculation and not driven by any fundamental increase in value, that we’re going to see some selling happen, and plenty of it, once the momentum shifts.

The momentum with Litecoin has definitely shifted and we’ve had a wild ride in both directions thus far. Litecoin does appear to be an even riskier play these days than even Bitcoin, and anyone who is seeking to acquire it already has needs to exercise a great deal of caution.

Very often, during big pullbacks, people will tend to hold on to assets longer than they should due to mere hope, not wanting to accept what has happened, and when this is the case, often times the situation worsens.

This is not to say that Litecoin will not regain its former glory and rise above $300 again, but given that it could also drop back down to $3, that needs to be taken into account as well. What ends up happening may be somewhere in between, but when the momentum is for the most part concentrated on the down side, this needs to be properly heeded.

Andrew Liu

Editor, MarketReview.com

Andrew is passionate about anything related to finance, and provides readers with his keen insights into how the numbers add up and what they mean.

Contact Andrew: [email protected]

Areas of interest: News & updates from the Consumer Financial Protection Bureau, Trading, Cryptocurrency, Portfolio Management & more.