Cryptocurrency

  • Despite Bitcoin’s popularity, several alternatives — altcoins — have emerged over time. This is the 2nd in our series of explainers for altcoins.
  • Among others, Litecoin is one such altcoin to have gained popularity and is presently among the top 10 crypto tokens. 
  • Faster transaction speed, greater scalability, and reduced costs are some of its improvements over Bitcoin. 

In 2008/9, Satoshi Nakamoto, by launching Bitcoin, introduced the world to cryptocurrencies. Over time, several alternative tokens or “Altcoins” have emerged, such as Namecoin, Litecoin, Ripple, Ethereum, and more. While some of these have gained popularity, many have been lost in the crowd. 

When Litecoin was released on GitHub in 2011, it became the second most notable altcoin after Namecoin. That said, the steady proliferation of altcoins raises a pertinent question: why, at all, do we need alternatives to Bitcoin? There are two different answers. First, to overcome the limitations of BTC. But there are also numerous different use cases for and this puts the onus on altcoins to be substantially disruptive. 

Presently, there are more than 5,000 cryptocurrencies in existence, of which Bitcoin (BTC) and Ethereum (ETH) hold the majority of the market share. Nonetheless, Litecoin follows close behind among the top ten tokens, with a current market cap of $2.85B. 

Creation of Litecoin

Charlie Lee created Litecoin (LTC) as a fork of the Bitcoin Core client, but with features that are essentially different from Bitcoin’s. At the time of creating Litecoin, he was also working as a software engineer for Google. Having bought his first bitcoin for $30 apiece, Lee soon got involved in building a more efficient token with a vision to create the “silver to bitcoin’s gold.” Considering this principle as foundational to Litecoin, he also said, “Silver is cheaper and lighter, so the idea is people will use it more as a currency, whereas gold would not be used for daily spending.” 

As such, in comparison, the timelines of bitcoin and litecoin are quite similar. Yet, while bitcoins continued to become more expensive in terms of transaction fees, Litecoin remained relatively cheaper and more stable in this regard. After Litecoin’s release, Lee joined Coinbase, only to quit in 2017 and dedicate his focus on developing and managing the Litecoin Foundation

bitcoin

Litecoin as an Alternative to Bitcoin 

Among many others, Bitcoin is the primary Litecoin competitor. Although presently, the phrase — “a Bitcoin fork” — has become quite common, it was extremely revolutionary in 2011 when Litecoin was released. Consequently, early adopters witnessed 1 LTC valued at $0.03 in July 2012 reaching $40 in November 2013: a 1,300x or 130,000% increase

Speed 

Litecoin transfers are 4x faster than Bitcoin transfers. While Bitcoin takes an average of 10 minutes for a block confirmation, Litecoin finishes the process in 2.5 minutes. The difference this speed variance creates in its throughput is huge: Bitcoin throughputs 7 transactions per second whereas Litecoin throughputs 56 transactions per second. 

In turn, this also affects the scalability factor of the two coins, making Litecoin more scalable and flexible. However, both Litecoin and Bitcoin have integrated scalability tools like SegWit and Lightning. 

Mining 

Challenging the dominance of ASIC based mining is one of Lee’s primary motives behind Litecoin. This is because ASIC hardware is expensive, and therefore, Litecoin allows mining on much cheaper Graphics Processing Units (GPUs). 

Additionally, Bitcoin uses the SHA-256 hash rate, which demands an increasing rate of computational power to process transactions as the number of transactions increases over time. This demand of increasing computational power served as the incentive for monopolization of mining facilities by big companies who could afford multiple ASIC based computers to run parallel processing. 

On the other hand, Litecoin uses the Scrypt algorithm on GPUs which does not support parallel mining functions, thereby preventing the centralization of ASIC and also decreasing the cost of mining.

Fees 

Litecoin recorded an average transaction fee of $.0327 while the Bitcoin network charges an average fee of $0.631. This can be interpreted as Bitcoin being 20 times more expensive in getting a transaction verified on the blockchain.

Price 

In spite of the previously mentioned advantageous features of Litecoin over Bitcoin, at the time of writing, 1 LTC has a market value of $43.17 while 1 BTC = $9,348. This is because of numerous factors that soil the usability of litecoins. 

One significant factor for it could be its hashrate, or the total mining power dispensed to the network by miners. With a significantly lower hashrate than Bitcoin, Litecoin’s security could be at stake, as it would take equally lower mining and computational power to launch an attack against the Litecoin network. 

However, while the price is 216x lower than that of bitcoin’s, the reason for its continued presence among the top ten cryptocurrency tokens is that there are 4x more coins to be mined than bitcoins. While bitcoins are limited to 21 million, there are 84 million litecoins to be circulated.

Predictions for Litecoin 

If profitability was to be considered, litecoin mining would bring about a profit of $3.12 per day. That would amount to about $1,137 per year in profits based on the current market value. However, trying to establish future predictions via the stock-to-flow model proved inconclusive. Other prediction sites like Long Forecast and Wallet Investor say the average price does not see any significant rise, instead, they indicate a falling line on the graph. Nevertheless, these predictions are based on current standings and don’t always serve as an accurate indicator. 

Time and again, Charlie Lee has stressed the importance of stability the protocol has maintained over the years. That said, he looks forward to a secure future and has currently planned a MimbleWimble upgrade which is aimed at improving Litecoin’s privacy and scalability.

Polkadot is a blockchain protocol with the goal of scaling blockchain networks through a sharded infrastructure. The platform allows for blockchain interoperability, so blockchains can communicate with each other and transfer any data or asset.

The unreleased project is being built to connect all types of blockchains—public chains, private chains, and consortium chains—with each other as well as oracles and any future technologies. The Polkadot relay chain allows each of these independent blockchains to exchange data and transact in a trust-minimized environment easily.

Polkadot is the Web3 Foundation‘s first project. They are a Swiss-based foundation on a mission to foster the development of cryptographically-powered decentralized software protocol. Their core directive is to deliver Web 3.0 to the world—a decentralized and equitable internet in which users control their own data.

The three founders of Polkadot—Robert Habermeier, Peter Czban, and Gavin Wood—are highly-esteemed members of the blockchain community with extensive experience in cutting-edge technologies. 

Habermeier is a Thiel Fellow and has a background doing R&D in blockchains, cryptography, and distributed systems. Czban has a Masters of Engineering from the University of Oxford and has worked on mesh networks, machine learning, quantitative pricing models, and distributed knowledge bases. And Wood was a co-founder and CTO of Ethereum, inventing fundamental pieces of the blockchain landscape such as Solidity, Proof-of-Authority consensus, and the Whisper communication protocol.

Polkadot’s Raison D’être

Although blockchains have proven to hold promise for many different industries such as finance, identity management, governance and IoT, the first generation of blockchain protocols have severe limitations. Particularly, due to a lack of runtime specialization and limited throughput, mainstream adoption of blockchains has lagged as the initial technologies were unable to scale up to real-world usage.

Furthermore, these blockchains all specialize in specific capabilities for different use cases, each one making different tradeoffs for what they want to achieve. But in a blockchain-based future, these blockchains need a way to connect to each other.

Polkadot aims to solve the issues that existing blockchains have by offering heterogeneous sharding, forkless upgradeability, transparent on-chain governance, and cross-chain communication. This design allows several specialized chains, called parachains, to come together in a single network to process transactions in parallel with a pooled security model. Each chain can thus be built to fit its own use case while gaining all the capabilities that Polkadot offers.

The DOT Token

The DOT token will be the native token of the Polkadot platform, used to enact key functionalities provided by the protocol. Specifically, the DOT token will serve three distinct and crucial purposes:

Governance

DOT token holders will have complete control over the Polkadot protocol and have the ability to participate in the decision-making process for all changes. In contrast to other blockchains where the miners control the chain, DOT token holders will be given control of the Polkadot relay chain that connects all the different blockchains together. DOT holders will also be able to manage protocol upgrades and fixes.

The DOT token also affords holders the ability to determine the network fees, auction dynamics, and parachain addition schedule. All these governance functions are built into the code of the protocol, automatically enabling these capabilities for any DOT holder.

DOT holders can also be elected as council members to represent passive stakeholders in two key governance roles. The first is proposing referenda and the second is vetoing potentially dangerous or malicious referenda. These council members work with the technical committee which is made up of teams actively building Polkadot, with the ability to propose emergency referenda for fast-tracking the voting and implementation of urgent updates.

Consensus

The second functionality of holding DOTs is to help facilitate the underlying consensus mechanism (GRANDPA) of the protocol. DOT holders play an active role in helping relay transactions across the parachains by bonding their tokens to perform these actions. This acts as an incentive mechanism that disincentivizes malicious behaviour and incentivizes active and good-faith participation.

Moreover, new parachains will be added through the act of bonding tokens. And outdated parachains can be removed by removing bonded tokens, creating a form of proof of stake.

Holders of DOTs can act as a validator, collator, nominator, or fisherman. Validators secure the relay chain by bonding their DOTs, validating proofs from collators, and participating in consensus with other validators. Nominators select the validators, and collators maintain each shard chain by collecting shard transactions from users and producing proofs for validators. Meanwhile, fishermen monitor the network and report bad behavior to the validators.

Messaging

The third and final function of DOTs is a medium of exchange so that validators can be paid to ferry messages across the parachains. With a market mechanism in place, users will pay fees to have their message be relayed between nodes on the network and included on the relay chain.

Token Distribution

Polkadot anticipates ten million DOTs will be part of the genesis block planned for mid-2020. Five million of these DOTs were sold in Autumn of 2017 and of the remaining five million DOTs, two million will be sold or distributed before genesis. And the last three million DOTs will be given to the Web3 Foundation.

Conclusion

Polkadot is a next-generation sharded blockchain platform connecting unique blockchains with one another with the ability to scale them through decentralized proof-of-stake consensus. They plan on launching later this year with one relay chain and several parachains with the goal of getting to 100 parachains soon after.