Gm.
The last few weeks, I have spent a considerable amount of time reading and researching a topic that I found interesting: why Litecoin went from a dominant market leader in cryptocurrency (outside of Bitcoin) to what it seems to be today: an afterthought. For those of us that entered the space prior to 2017, Litecoin was always at the front of our attention as a cheaper, more efficient, alternative to Bitcoin, so what happened?
A Brief Background on Litecoin
Litecoin was released on October 13th, 2011, just two and a half years after Bitcoins first block was mined. It was originally released with the intended purpose as a faster, more fair, cryptocurrency. Litecoin continued to use Proof-of-Work, but opted for Scrypt based hashing, and was designed to process blocks every 2.5 minutes rather than Bitcoins 10.
Litecoin trailed Bitcoin as the 2nd largest cryptocurrency by market cap until September of 2013, where it was briefly surpassed by Ripple before regaining its status as the premier altcoin. It was a top 3 cryptocurrency until January of 2016, when it was passed up by Ripple, The DAO, and Ethereum, and didn’t drop out of the top 5 for more than a few days until November of 2017.
From there, Litecoin danced between top 3 and top 7 all the way to July of 2020, where it dropped below Cardano, and finally dropped out of the top 10 by market cap in late September of 2020. (For those interested, I found this video which provides a graphical representation of the top 10 by market cap from 2013–2019).
Today, Litecoin doesn’t even stand in the top 20, currently sitting at 22nd right behind CRO. This presents the main question I sought to answer: Why?
There are practically an infinite number of reasons and speculation to as what might have caused Litecoin's collapse, and it is important to note that this is a collapse relative to the other players in the space, not necessarily to Litecoin itself, though that may end up being true as well (tasteful foreshadowing intensifies). Below, I provide what I have found to be the primary reasons Litecoin is not a major player in the market.
The New Tech becomes the Old
Whereas Bitcoin likely will always remain near the top of the market, despite objectively inferior technology to more modern blockchains, it is because it has a significant ‘first mover advantage’. Unfortunately for Litecoin, there isn’t much of a ‘second mover advantage’ to rely on (also, it was not technically the 2nd blockchain).
Originally, Litecoin had an advantage relative to the market when it came to processing transactions — having a shorter confirmation time and cheaper transaction fee than that of Bitcoin and other competitors. Even up until the end of of 2017, it’s median transaction fee was only $0.08, with ETH and Bitcoin Cash costing more than 3 times as much, and Bitcoin almost 200x more. The only mainstream cryptocurrency that was comparable at that time was Dash, which wasn’t rebranded from Dark Coin and re-introduced into the market until 2015. Also, in 2017 the transactions fees while using Dash were much more volatile than Litecoin. In 2018 and before, Litecoin took less than half the time to process transactions than Bitcoin and other competitors such as Bitcoin Cash.
Litecoin succeeded in it’s niche for a long time, but it’s eventual relative downfall can be traced back to begin in 2017, ultimately due to the creation of competitors that could do what made Litecoin unique, but better.
In the second half to 2017, we saw the launch of Cardano and Polygon, and in 2019 the launch of Avalanche and Terra (LUNA), to be followed by an even more crowded market in the years to come. Litecoin was the cheap, fast, altcoin, but when we compare these newer blockchains with that of Litecoin, we can start to see why Litecoin has lost a large amount of it’s competitive advantage.
I spent a considerable amount of time attempting to gather the Average Transaction Cost, Average Confirmation Time, and Transaction Per Second that each of these networks have, but it is important to note that these are estimates, largely gathered by individuals who have performed and published their own testing on the various networks within the last 2 months. In reality, the capabilities that are promoted by the founders of these altcoins and their marketing teams do not correspond with the actual stats that come from using the blockchain. Below, I have collected the the estimates from various users testing each network.
Of the above blockchains networks, Litecoin remains near the top when it comes to average transaction cost, but falls drastically behind the competition with regards to confirmation time and the amount of transactions per second the networks can handle. As these competitors grow, their cost per transaction will only decrease further. With so many new players in the space that are cheaper and faster than Litecoin’s network, why would anyone continue to use it or consider it a worthwhile investment?
The Old Tech remains Old
Litecoin is a member of the 1st Generation of cryptocurrencies — simple ledgers that record transactions. These blockchains use Proof-of-Work, which makes them more costly and energy inefficient than other consensus methods.
2nd Generation blockchains took the capabilities further, allowing for Smart Contracts, and creating a platform for applications to be built on top of. 2nd-Gen blockchains such as Ethereum made it possible to build new cryptocurrencies off of them more easily, in Ethereum's case through the use of ERC-20 tokens.
We are now at the phase of blockchain development where many 3rd Generation blockchains are being and have been created. These blockchains look to address the common issues with 2nd-Gen cryptos of scalability, interoperability, and sustainability. Projects such as Cardano, IOTA, Solana and more have been created with more efficient technology used for Consensus, application development, and much more. Whereas Bitcoin has the ‘first mover advantage’ for 1st-Gen blockchain, and Ethereum has it for 2nd-Gen, Litecoin just remains in the marketplace as a dated piece of technology with no real incentives for it’s future use.
The most alarming piece of information I came across for Litecoin’s future is that the technology isn’t just currently outdated, but there is little to no attempt to modernize the blockchain: Litecoin currently sits at rank 267 of all blockchains for GitHub commits in the last year. If that doesn’t alarm you, I don’t know what will.
Cryptocurrencies are only as successful as the community that uses them
The final reason that I have found for Litecoin’s demise relates to the above stat on GitHub commits, and it is that cryptocurrencies can and only will be successful if they have a large community of users that are promoting, building on, and improving them.
Ethereum remains a dominant player in the space in large part thanks to the fact that there are over 4000 Decentralized Applications built of top of it. 3rd-Gen blockchains such as Cardano, EOS, Avalanche, and Polygon have hundreds of dApps. These same blockchains have hundreds to thousands of NFT Projects on their blockchain, and are largely promoted by the communities that are building on them. There isn’t much of a community promoting Litecoin, which hit it’s all time high in Tweet volume back in June of 2019.
In Closing
I’m a huge supporter and advocate for blockchain technology and cryptocurrencies, but even I cannot find much of a reason for Litecoin to recover from it’s current collapse. All cryptocurrencies will have highs and lows, but in the most recent spike of 2021, Litecoin just barely beat it’s previous ATH in 2017 by about 10%, whereas other large coins such as Bitcoin and Ethereum reached ATHs more than triple their previous, and many other alt coins exceeded their 2017 peak by thousands of percentages.
What started as a personal investigation into why Litecoin has been outperformed in the market turned into an argument for why I believe it will continue to do so. With inferior technology to it’s peers, a lack of community, and a lack of developers improving the blockchain, the future for Litecoin seems bleak. If you’re someone currently looking to ‘buy the dip’, my only recommendation would be to avoid Litecoin at all cost.
Gn.
-Matt
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Sources for transaction stats:
https://moneymade.io/learn/article/blockchain-trilemma
https://www.pymnts.com/blockchain/2022/pymnts-blockchain-series-litecoin-is-silver-bitcoin-gold/
https://www.stilt.com/blog/2021/06/litecoin-vs-bitcoin/
https://www.analyticsinsight.net/top-10-cryptocurrencies-with-a-high-transaction-speed-in-2022/
