As Bitcoin Scales With Lightning Network, What Role Does Litecoin Have to Play?

• The market has seen a wave of capitulation among many of the coins that were put forward as faster, lower cost, or higher throughput alternatives to Bitcoin.
• “Bitcoin still has market share, but Litecoin is the second most transacted digital currency for payments.”
• Litecoin still operates as a kind of useful testnet for Bitcoin.

At the time of writing, Litecoin (LTC) is the 20th biggest cryptoasset by market capitalization. Back in 2013, it used to be the second-biggest, but the following nine years have seen thousands of new altcoins appear on the scene, with many of these making its modest update on Bitcoin (BTC) seem less-than interesting by comparison.

Still, even with the birth of thousands of new coins, Litecoin remains a significant altcoin, with a market capitalization of around USD 3.3 bn. But as the ongoing ‘crypto winter’ appears to herald a new phase in the history of cryptocurrency, at least some commentators are starting to question whether the ecosystem really ‘needs’ Litecoin.

Opinions on this question are unsurprisingly mixed, with Bitcoin developers and supporters arguing that Litecoin is more or less obsolete now that the original cryptocurrency has learned how to scale (i.e. via the Lightning Network). On the other hand, the Litecoin community maintains that the altcoin serves as a useful testbed for scaling technologies, and that its growing adoption by payment and investment platforms should guarantee its survival for years to come.

Is Litecoin redundant?

When it was first launched as a source code fork of Bitcoin in 2011, Litecoin distinguished itself by virtue of its faster block time (in addition to a higher supply cap and the use of a different hashing algorithm). While Bitcoin processed a block every ten minutes on average, Litecoin managed the same feat within 2.5 minutes.

In other words, one of its primary boasts was that it was more scalable than Bitcoin. However, many people within the Bitcoin community argue this boast no longer really applies, given the advances the original cryptocurrency has made in recent years.

“Litecoin and others billed themselves as scaling alternatives or complements to Bitcoin, at a time that Bitcoin’s block space was seen as the limiting factor on its growth. While others were spinning up new chains, Bitcoiners pursued the Lightning Network and other scaling solutions such as the Liquid sidechain and Statechains,” said Ben “Empact” Woosley, a Bitcoin Core developer. 

He argues that, with the sustained success of the Lightning Network, the market has seen a wave of capitulation among many of the coins that were put forward as faster, lower cost, or higher throughput alternatives to Bitcoin. For instance, Litecoin is 88% down from the all-time high of USD 410 it set in May 2021, while bitcoin is ‘only’ 69% down from its November all-time high of around USD 69,000. 

In fact, Woosley says he expects this capitulation of altcoins to continue in the coming years, with layer-one (the base protocol) and layer-two (the Lightning Network) Bitcoin development steadily undermining the case for various altcoins.

“The future of Bitcoin is to follow this same process with other competing chains, by obviating their existence by enabling the features that draw people to them, through the technologies such as Lightning Labs’ Taro, Federated Chaumian mints, and TBD’s Web5,” he told Cryptonews.com.

Another selling point for Litecoin, at least in its earlier years, was that it was ‘silver to Bitcoin’s gold.’ What this meant was that, with a larger supply cap of 84 million (as opposed to 21 million), it would be a scarce commodity, but not quite as scarce as bitcoin.

Even this line of reasoning holds little water for many observers, with cryptocurrency author Stephen Chow tweeting in May of this year that it was “dead to me in 2017.” The reason is that, with Bitcoin already being a scarce and easily transferable source of value, there was little need for Litecoin.

However, many within the Litecoin camp would argue that its lower fees and greater scalability have enabled it to carve a place for itself as a medium of exchange.

“[The silver and gold analogy] makes a lot of sense when you look at the most used coins for payments. Bitcoin still has market share, but Litecoin is the second most transacted digital currency for payments,” said Litecoin Foundation Director Jay Milla.

Looking at Litecoin’s transactions per day, average numbers are noticeably lower compared with Bitcoin’s. 

7-day moving average. Source: Bitinfocharts.com

Litecoin witnessed just over 100,000 transactions on June 15, while Bitcoin processed 296,000. More generally, it has generally…