Litecoin Case Study – Understanding What, Who, Why, When, and How - Part 1 (What, Who, Why, When)

For those that follow me, I’ve been embarking on a process of evaluating the various Cryptocurrencies over the last few months. I started off started off on Ripple to understand the various attributes of the Ripple. And my conclusion was that it was not an attractive crypto. The underlying issues are that Ripple isn’t really a decentralized ICO, but rather a ICO that had a lot of other external issues that could limit the growth and potential of Ripple. Specifically, there is a large amount of Ripple that is held by few of the founders of the company. More importantly if Ripple (the company) were to shutter, then Ripple (XRP) would be next to worthless. Next, I looked at Ethereum, and researched the background of the second largest ICO (by market cap). And my conclusion here is that Ethereum is definitely a game changer (Smart Contracts, decentralized databased etc). With Ethereum is the fact that a lot of fortune 500 companies are adopting Ethereum as the blockchain of choice. This is reflected in the establishing of Ethereum Enterprise Alliance (EEA). That is a true game changer, and should be a true distinguishing advantage over other digital assets. Now, I’m going to switch gears and focus on Litecoin.

What do we know about Litecoin? Here is what googling on the internet produced. Note, I’m sure most of you who have been watching CNBC, MSNC, Money, Coindesk, blockgeeks.com and all other media channels already know about Litecoin but to those that have been living under a rock, like myself (and those who are not in the know)….

Question: What is Litecoin?

Summary:
• Litecoin’s creator is Charlie Lee.

• Charlie Lee is an ex-Google employee who had the idea to create a different version of Bitcoin, which he thought was innovative but too expensive for transactions and too slow for processing.
• On October 2011, Litecoin was released via an open-source client on GitHub.
• The Litecoin Network went “live” on October 13, 2011.
• It is basically a fork of the Bitcoin core client.
• Think - If Bitcoin was “GOLD”, then Litecoin was “SILVER.” – Still valuable but a less store of value.
• More importantly, while Gold is scarce, Silver is less scarce/more plentiful. Hence there is more silver in circulation.
• So Bitcoin has a max mining of 24 million coins, while Litecoin has a max of 84 million coins.
• Similar to Bitcoin, Litecoin sees itself as a peer-to-peer mechanism that allows easier transactions. The idea and value proposition is that it is “Cheaper” and “Faster” than a Bitcoin.
• Litecoin is the 5th largest digital currency by market cap

• According to Charlie Lee, “The vision is always I wanted Litecoin to complement bitcoin—not compete….”
• Charlie Lee, who founded Litecoin in 2011, "sold and donated" all of his Litecoin tokens over the past few months. According to someone who knows Charlie well, Charlie had incrementally sold Litecoin over several years/months, so even though Litecoin hit highs, he didn’t monetize everything at the peak.
• According to Charlie, the Litecoin creator said there was a "conflict of interest" with him holding Litecoin, while at the same time promoting it.
• This was important to note as when a founder sells, it creates concerns about the uncertainty of the digital currency.
• Lee said he is sometimes accused of talking about the price of the digital currency on Twitter for "personal benefit."
• "Some people even think I short LTC (litecoin)!" he said. "So in a sense, it is conflict of interest for me to hold LTC and tweet about it because I have so much influence."
• According to a close friend of his, Charlie DOES NOT HOLD a meaningful amount of Litecoin. He still has some smaller positions but not to the amount that would be construed as “front-running” or talking up his book (which I don’t believe is a bad thing, many in the asset management industry do this….e.g. Bill Gross from PIMCO etc).

Is Litecoin similar to Bitcoin? Well, sort of
• Yes. Litecoin is similar to Bitcoin however where they differentiate is in their mining procedure.
• Both Bitcoin and Litecoin use the “proof-of-work” consensus mechanism.
• As a reminder, the miners use their computers to solve extremely hard cryptographic puzzles. The puzzle solving are extremely hard.
• However, while the puzzle solving part is difficult, checking to see if the solution of the puzzle is correct is simple. In essence, that is proof of work.
• Bitcoin uses the SHA-256 hashing algorithm for its mining purposes.
• Using SHA-256, requires large amounts of power/electricity to run all the computers and serves, resulting in creating mining pools that utilize “application-specific integrated circuits boards” aka ASICs.

• Litcoin uses S-crypt algorithm (“Scrypt”) for its mining purposes. It also uses ASICs as well but differently.
• While Bitcoin uses ASICs in PARALLEL (running multiple algorithms at the same time), Litcoin uses ASICs SERIALLY (running program A, then program B, and them program C). This is important because of the fact that you need less energy/power/electricity when doing it serially (not all servers working at the same time, but more like a relay race). The equivalent would be build a massive warehouse of servers and you have them all do the same thing at the same time, sucking all of the power to run them “simultaneously” this is Bitcoin. Vs. a warehouse and multiple servers, but each one is beginning when the previous server is done….its a crude comparison but you get the gist, parallel (bitcoin) vs. serially/relay race (litcoin). This is important because of the fact that you are doing similar work with less electricity, and faster mining of coins.
Bitcoin uses tons of electricity and power while Litcoin needs tons of memory due to the multiple processing of each step.
• Average block mining speed in Litecoin is 2.5 minutes when compared to bitcoin’s 10 minutes.

Key Takeaways:
• Litecoin at the end of the day is a cheaper version of Bitcoin.
• It has attributes that make it attractive in that it’s a different version of Bitcoin but a separate currency.
• In the similar way that Gold remains precious over Silver, it doesn’t discount Silver. It becomes more of a relative value trade.
• So the question is, on a stand-alone-basis, is Litecoin worthy of a investment? I think the answer is yes, but it depends on the price and the available information.
• My current research and discussions suggest that Litecoin is currently very cheap, relative to Bitcoin, and may potentially be a better bet at this point than Bitcoin or Ethereum.
• One area that I need to further research is the new entity Lightning Labs, which is a group of investors that are looking to revolutionize faster and quicker transaction than Litecoin.
• More to follow next week!

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