Bitcoin’s surge over the past several weeks hasn’t been without cause. More startups are being formed around the currency with record funding, ATMs are on the way, and professional investors have done more than just take notice. While the closure of silk road could have been detrimental to Bitcoin during its early days, the same is obviously not true of Bitcoin today. The same cannot be said of Litecoin, the largest cryptocurrency after Bitcoin. While Bitcoin weathered the passing of silk road well, Litecoin has fared poorly in the wake of the disappearance of Atlantis. With that said, I wouldn’t count Litecoin out just yet. There are a few indicators that Litecoin may still follow Bitcoin’s growth in the coming months and years, albeit at a slower pace.
The last article I wrote on Litecoin was near the height of the surge in interest over Bitcoin back in April. Litecoin was trading at just under $5 USD/LTC on btc-e.com on the heels of positive news. A new Silk Road like marketplace called Atlantis had come online, exchange MtGox had expressed interest in listing the currency, and a growing number of merchants had announced acceptance of Litecoin. Today things look much different as Litecoin is trading at around $2.48 USD/LTC and has suffered a big hit in its value relative to Bitcoin, currently at around 0.012 LTC/BTC. The marketplace Atlantis is gone, and the surge in new merchants accepting Litecoin has seemed to subside.
However, there are some positive indicators with Litecoin that could lead to a Litecoin resurgence. For one, Litecoin seems to be trending alongside Bitcoin this week, as can be seen on Google trends. The 90 day window shown below doesn’t include Litecoin’s highs from earlier this year but does indicate an increase in Litecoin interest this week. I’ve also noticed a lot of traffic to my Litecoin articles, specifically Getting Started With Litecoin and the Beginner’s Guide To Litecoin Mining.
With Litecoin experiencing what seems to be a huge hit with Atlantis, why is the search index increasing? The easy answer is that it is following Bitcoin, which is at least partially true. However, it seems that interest in Litecoin is less focused on using it as a currency, but rather experimenting with it as a technology, still similar to Bitcoin in its earlier states. I think the answer lies at least partially in mining.
Most cryptocurrencies use one of two algorithms when it comes to mining, SHA 256 or Scrypt. The main difference is that there is specialized hardware, ASICs, readily available for SHA 256 coins while Scrypt coins are still reliant on graphics card mining through desktop computers. If you want to get into Bitcoin mining today you are going to have to pay to do so. And I don’t mean you just have to invest in hardware to do so, but you have to lose money. By most all accounts, investing in Bitcoin ASICs today will lose you money. What’s more is that the hardware you invest in has no other purpose, so once it is outdated you’ve lost whatever money you spent on it.
The same is not true with Litecoin, where gamers and computer enthusiasts still have use for high end graphics cards even after they’ve spent time mining Litecoin. This rationale seems to be leading interest in Litecoin mining. Tech enthusiasts looking to get into the mining game would rather invest in hardware that at least has a chance of breaking even, and can be used for other purposes as well. Conversely Bitcoin mining is increasingly becoming the sole territory of professional miners or big investors.
So why does this disparity between Bitcoin mining and Litecoin mining matter? Network growth. What really gives a modern currency, not backed by a physical asset (i.e. gold), value? The network size. This is true of modern fiat currencies, this is true of Bitcoin, and this is true of Litecoin. As the size of the Bitcoin network grows, its value to the users in and outside of that network increases. News of large merchants joining the network will certainly be reflected in the price, but the little guys matter too.
For example, as the number of my friends, coworkers, and family using Bitcoin increases, so does its value to me. If I can send money to anyone in my family instantly, that is of value. If I can send money to a stranded friend, that is of value. And this is the big positive that I see in Litecoin. As more tech enthusiasts enter the mining market through Litecoin, the size of the Litecoin network increases. While Litecoin isn’t currently attracting many new merchants or vendors, it is still attracting gamers and tech enthusiasts. As long as Litecoin continues to expand its network size by accumulating more miners and further disburses its block reward, it has long term potential and value.
Conversely Bitcoin seems to be exiting the stage where initial distribution of the currency to as many people as possible was vital. Rather, Bitcoin is to the point where the various startups, businesses and new technologies built around it are expanding the size of the network far faster than any mining operation could hope for.
I don’t like to speculate on future price, but I would say that Litecoin’s current price seems about right. Its short term potential doesn’t seem like anything special, as there hasn’t been much recent news on large players entering the Litecoin network. However, it still seems to have long term potential. If new crypto enthusiasts continue to enter the cryptocurrency mining market through Litecoin mining, Litecoin could see its network grow significantly in the long term.
At the same time it would seem that Bitcoin is still growing at a rate much faster than Litecoin. I should note that if this continues Bitcoin is likely to outperform Litecoin both in the short and long term as a currency.