Friday, April 12, 2013

Why Litecoin is Set to Skyrocket

Have you seen the news?  Bitcoin’s price “crashed” this past week, and I couldn’t have asked for a better gift.  I have no doubt that the price will continue to be volatile as the market feels out the bottom, but I feel fully confident of its overall long term success.  In short, I think there has been no better time to buy bitcoin.  But I think in the distraction of all the news this week there is a bigger story about another player that will out perform bitcoin, and that is it’s sister currency litecoin.


Like bitcoin, litecoin also experienced a crash in price, but litecoin’s fundamentals are as strong as ever, its future is bright, and now is the time to take advantage of its low price.  Litecoin has grown up in the past few years and now its value is increasingly obvious.  I can’t see a way that it’s price will not experience a large increase in the coming months. I am so confident I spent a few bucks buying more.  Let me walk through some of my thinking.  


Litecoin Mining Difficulty


A while back, my ears perked up at the prospects of litecoin because of a new technology is set to give the market a good shaking.  


As anticipated, the increase of difficulty of Bitcoin is causing traditional miners to look for more profitable outlets for their existing infrastructure.  Hundreds of ASIC miners are now active, which has forced up the difficulty dramatically to an all time high of 7,673,000 with the next difficulty estimated to be near 9,000,000.  News of the impending deployment of thousands more is forcing miners to rethink their allocation of existing infrastructure.  


Faced with bitcoin’s increasing mining difficulty, GPU Bitcoin miners have three options:

  1. Keep mining bitcoin at a potential loss as electricity costs become much greater than the return on mining.
  2. Turn off their miners and sell or retire their hardware.  
  3. Look for more profitable applications for their existing infrastructure, such as litecoin.  

This is where the power of litecoin is very apparent.  Due to it’s use of the memory intense scrypt algorithm, dedicated litecoin hardware like ASIC miners are not anticipated in the near future, giving GPU miners a window of opportunity for profit.  Switching their GPU hardware from bitcoin to litecoin is only a matter of installing a new mining application and can be done with little configuration.  The logical choice for most bitcoin miners will be to move their power to the litecoin network.  


In the short time I have been litecoin mining, I have seen the difficulty rise over 600%, meaning that there is six times more computing power dedicated to litecoin in only the past few months.   This indicates that many miners have already made the realization that bitcoin offers them a bleak future and made the switch to litecoin.  As these miners transition their hardware, litecoin’s mind share will increase, and it shouldn’t be a quickly passing event.  Miners can take confidence in litecoin knowing that their infrastructure will be valuable for the foreseeable future, and this confidence is bound to poor over into the market price of litecoin.  


As an early bitcoin miner, I remember the supply of ATI 5870’s graphic cards quickly becoming unavailable as individuals bought up supply for use in bitcoin mining.  This infrastructure still exists and it will not go to waste.  


Litecoin:  Bitcoin’s Little Brother


One of the things that add the most value to litecoin is the fact that it is so similar to bitcoin.  Instead of making a wildly different currency and voyage into the unknown, litecoin has opted to keep with the great design of bitcoin, but just add a few minor adjustments to make it more marketable.  For everyone kicking themselves for not embracing bitcoin in its infancy, litecoin offers a chance of redemption.  Bitcoin proved that the concept works, and litecoin improves upon it’s basics.


Newcomers to litecoin will see its obvious advantages as a cryptocurrency over bitcoin.  Litecoin:

  • Has 4 times faster block generation.
  • Is younger, with latecomers likely to grab more of the initial wealth than bitcoin.  This might lead to a more even distribution of litecoin wealth.
  • Is designed to keep specialist hardware at bay longer and make more use of general computer hardware.  Crypto Currencies’ strength lies in it diversity, and litecoin emphasises this.  

These small tweaks allows litecoin to piggyback on the experiences and the knowledge gained by the bitcoin project, while providing enough advancements to differentiate it from its brother.  Users can be more confident that litecoin can succeed since bitcoin has already.  

Market Cap

With 333201 blocks mined, and 50 litecoins per block, there is currently 16,660,050 litecoins in circulation.  The current market price of $2 USD gives Litecoin a market cap of over $33 million.

This may sound like a lot, but consider that after the “crash” of the past couple of days Bitcoin’s market cap is about $1,157 million USD with the current market price of $98 USD.  If litecoin had the market cap of bitcoin, each litecoin would be worth over $69.  

Granted, this may not be a fair comparison, since in litecoin’s youth it has not experienced the same proportion of inflation as it’s older brother.  While bitcoin is already over its halfway mark to generating its limit of 21 million bitcoins, litecoin is much younger and has not reached the halfway point to its limit of 84 million litcoin.  If we factor in that there will be four times as many litecoins as bitcoins, each one of the 84 million litecoins would still be worth over $13 if litecoin had the bitcoin’s market cap.  

Mt. Gox and Litecoin

What is the biggest reason why Litecoin is set to skyrocket?  A member of Mt. Gox, the largest Bitcoin exchange, recently stated that they will begin to support trade of alternative cryptocurrencies like litecoin.  

The increased exposure and and access to funds that Mt. Gox will bring will almost guarantee a price gain for litecoin, but I think there is a more important reason why Mt. Gox’s support will increase litecoin’s price in the long term.  Mt. Gox’s API’s will make litecoin more accessible than ever.  

I often hear from die hard bitcoinites that litecoins are worthless because “you can’t buy anything with litecoin.”  What these fan boys may not realize is that merchants who accept Bitcoin often convert these coins to USD at the time of transaction, ensuring that the merchant will not suffer loss in a volatile bitcoin market.  For merchants that already use Mt. Gox’s bitcoin to USD features, adding litecoin support may be as simple as flipping a switch.  

Any new merchant that wants to support bitcoin will put little effort, if not none, to support litecoin as well if it means increased market exposure.  

This goes without saying that Mt. Gox users are bound to buy a few litecoins if only to diversify.   

Crypto Money:  King of Liquidity

While trying to buy litecoin, I recently made a startling realization:  cryptocurrency, like litcoin, is the most liquid form of money in existence, and is even more liquid than traditional forms of cash.  This groundbreaking advancement over the government control finance sector cannot be overstated.  

I first bought some litecoin using bitcoin, which was remarkably easy and fast. But when I tried to buy using USD I had to wait weeks for my funds to be transferred.
While I submit that cash may still be the most liquid form of payment when two parties are in close proximity, this is not the case when two parties are not in the same physical location.  If I want to give money to family in another state, they could be waiting days for money to come through the mail or through dinosaur banking institutions.  With litecoin, distance is not an issue.

If I want a good, I have to drive 15 minutes to a store, pick it up, and then wait in line for checkout and payment.  Even then, if I use large bills, the cashier is usually require to check the genuineness of the bill and issue me change, all of which takes time.  If I use a credit card or cheque, the receiving party may not actually receive their funds for days.  Online retailers are faced with the same problem as their funds sit in banking limbo.  For some products, like medical marijuana in states like California or Colorado, credit card use is prohibited.  This ignores credit card fees, charge backs, and government pressure to suppress funds, like in the case of Wikileaks, or outright freezing of funds.  Fees, waiting, and restrictions all make US dollars less liquid.  

Cryptocurrencies resolve all these problems.  I can transfer litecoin across the globe in the matter of minutes (or even faster) for fees absurdly low by today’s standards.  Unlike the United State’s Federal Reserve, which limits my wire transfers to their business hours (they apparently close at 3 PM in my timezone), litecoin knows no business hours and operated around the clock.  

Litecoin’s values lies in its utility, and the power of its utility is expressed in its liquidity.  Liquidity is the defining strength of money causing the case for litecoin to be all the more strong.

Conclusion

With all these reason, I am confident that litecoin’s value will continue to be recognized and its price will continue to increase.  Cryptocurrency is in its infancy and there are many issues to still overcome, but overall litecoin is solid and I am looking forward to a good year.  

TL;DR
Miner migration to litecoin, litecoin's similarity to proven bitcoin, relatively low market cap, Mt. Gox's API's will soon support litecoin, and litecoin's utility as a very liquid form of money is set to cause litecoin's price to skyrocket.  

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