How Litecoin is Maintaining Relevance vs. Bitcoin

It is no secret that Litecoin has been gaining significant attention in the crypto space as of late. With all of the attention that’s been thrust upon Litecoin, as of late, it is worth evaluating what aspects/facets of the project make it a tenable option in the long-term in terms of a decentralized payment solution.

Since Bitcoin is still #1 in the crypto space in terms of its usage, adoption and popularity and it is a payment coin (despite arguments to the contrary), this report will be primarily focused on assessing the comparative advantages (and disadvantages) of using Litecoin vs. Bitcoin.

But before we get into those differences, let’s first look at the reward halving for Litecoin.

Reward Halving is Coming Up

Source: https://www.litecoinblockhalf.com/

Based on Litecoin’s current block height, we can expect that the ‘halving’ process will occur in roughly 59 days.

This is generally uncharted territory for Litecoin since it has only undergone this process once before.

So we’re not going to spend too much time attempting to leverage a longitudinal price analysis that compares the price action of the last ‘halving’ to the one that we have coming up.

Instead we’ll make sure to mark this date in our minds and take this into consideration when looking at Litecoin’s price analysis chart.

Let’s go ahead and take a look at some of the comparative differences between Litecoin and Bitcoin now.

Litecoin has consistently proven to be way cheaper than Bitcoin

Litecoin, at this very moment in time, is cheaper and faster than Bitcoin — by a long shot.

Litecoin’s fees are nowhere near as expensive as Bitcoin’s fees are currently. In addition, all of the innovations that Bitcoin can allegedly benefit from are also available for Litecoin as well (i.e., Segregated Witness and Lightning Network).

Source: https://bitinfocharts.com/comparison/bitcoin-transactionfees.html

Above is a picture of Bitcion’s average transaction fee on the network as of June 3rd, 2019 (just four days ago).

As one can see above, that fee = $5.78 (steep)

The latest data provided by bitinfocharts indicates that Bitcoin’s fee = $2.60

https://bitinfocharts.com/comparison/litecoin-transactionfees.html

Conversely, here is Litecoin’s average fee per transaction on May 23rd, 2019 (its highest over a 30-day period), which is at $0.69.

Currently, Litecoin’s average fee per transaction is at $0.06/transaction, which is negligible.

Thus, Bitcoin’s current fee at the time of writing ($2.60) = 43x Litecoin’s fee at the time of writing ($0.06).

In addition, Litecoin provides significantly faster confirmation times than what one could or should expect on Bitcoin. This is because Litecoin’s block time is 2.5 minutes rather than 10 minutes, like Bitcoin.

Additional Comparison of Litecoin vs. Bitcoin

Below are more metrics for Litecoin:

Source: https://bitinfocharts.com/litecoin/

Here are those same metrics for Bitcoin:

In a head-to-head comparison, we can observe that the following is true about Bitcoin and Litecoin at the time of writing:

  • Litecoin provides transaction confirmations 4x as fast as Bitcoin.
  • Litecoin was able to produce 6x as many blocks as Bitcoin was in the last 24 hours.
  • Because Litecoin was able to produce 6x as many blocks as Bitcoin in the last 24 hours, simple math tells us that Litecoin’s efficiency is the equivalent of Bitcoin’s with 6 MB blocks being filled over the last 24 hours for Bitcoin.
  • Litecoin has averaged 4x more blocks than Bitcoin, on average, per hour — for the last 24 hours.
  • Bitcoin’s reward per block and also its aggregate reward over the last 24 hours dwarfs that of Litecoin.
  • However, there is significantly more hash power that must be leveraged on the Bitcoin network vs. Litecoin, which must be accounted for when considering the profitability of mining on either protocol. Also, because Litecoin has 2.5 minute block times vs. 10 minute block times, the value per block produced for Bitcoin should be compared and juxtaposed with the value per four blocks for Litecoin. It should be noted, though, that even despite this additional comparison, Bitcoin’s reward per block would significantly outweigh that of Litecoin.

Computing Mining Profitability for Bitcoin and Litecoin

In order to get definitive (or more accurately stated) valuations for the profitability of mining Litecoin vs. Bitcoin, more definitive metrics must be consulted (mathematically as well).

According to Bitinfocharts, when accounting for the current difficulty and hashing rates of both networks (Litecoin and Bitcoin), the profitability for each protocol is as follows:

Bitcoin = $0.239 / 1 THash

Litecoin = $4.8488 / 1 GHash

There are 1,000 GHash per 1 THash, so 1 GHash = .001 THash

Thus, we must divide Litecoin’s total by 1000 to get its price for 1 THash.

This would give us a value of $0.0048488 / 1 THash for Litecoin.

Thus, Bitcoin is 49.29x more profitable, per THash to mine than Litecoin.

While it is tempting to end the comparison at this point and declare Bitcoin to be a definitive winner of Litecoin, there are additional considerations that must be taken into account.

The first consideration to take into account is the fact that Bitcoin and Litecoin mining do not occur in a vacuum.

It does an individual no good to simply obtain 1 THash of hash power on the Bitcoin protocol. However, leveraging this amount of hash power on the Litecoin protocol, while insignificant, would make a tangibly greater difference.

Recalculating the Raw Cost for Litecoin Mining (Hypothetical)

Going back to the graphic from Bitinfocharts posted above that provides the additional Litecoin metrics, we can see that the network hash rate for Litecoin = 379.352 TH/s.

Thus, at 188 TH/s, one should reasonably expect to obtain approximately half of all blocks that are produced on the network. Realistically, one could not buy half of the existing network, so the next best option would be to leverage another 379.352 TH/s worth of hash power on to the network in order to achieve the same (or similar) for their calculation.

This, too, however, is impractical and would drastically change the nature of the network (by decreasing block times significantly under the current difficulty adjustment, impacting other miner behavior, etc.). So, to simplify this equation, we will simply look at what the total costs are for roughly half of the network’s hash power at the current hash rate.

So now we must figure out how much this would cost us (in terms of miners).

Figuring Out Equipment Costs

In order to answer this, we’ll use the latest production from Innosilicon, the A6+, as our baseline example.

The reason why we’re using this model (rather than the S17, for instance) is because the A6+ is specifically designed for the Scrypt mining algorithm (which is what Litecoin uses currently).

According to apanel.com , this model is the most profitable for Scrypt:

Check out the price of the miner itself on Innosilicon’s website:

This is expensive, but that’s precluding the hosting deals that Innosilicon features.

Check out the deal below:

We’ll go with the default miner option. It appears that there is a $60 setup fee per miner that is purchased here but the miners are offered at a 30% discount.

So, that would reduce the cost of the miners to $1400/per, with a setup fee of $60/per.

In this case, we won’t look to gain half of the entire network (that’s not probable). Instead, we’ll look at what it would cost 10% of the network (379 TH/s) if they were leveraging these devices solely.

Quick Math:

  1. It costs $1400/miner with a $60/setup each.
  2. The miners have a KWH burn rate of approx. 1500 W (1.5 KW/H)
  3. The miners are supposed to be able to leverage 1.23 GH/s (+/- 8%)
  4. The electricity cost = $0.06/KWH

In order to obtain the necessary miners to hit 10% of the network, we would need 30,813 miners. We’re not going to factor in costs here of those miners specifically (this is sunk cost, we’re just looking for cost of operation).

Each miner will cost (factoring in the $0.06/KWH rate) $.108/KWH. Thus, our total cost for all of these miners will be $3,327/hour.

Over a day, these miners will cost approximately $80k to run.

Looking at the Litecoin network again (stats slightly adjusted, but relatively exact):

The reward over the last 24 hours = $1.82 million.

Since this setup should obtain 10% of the hashing rate for the entire network (in a perfect world), then 10% of the blocks on a given day (again, in a perfect world — this is probabilistic), would result in a total value of $180k.

Thus, the total profits from this operation would be ($180k-80k) = $100k/day, $4.1k/hour, or $3 million/month.

Now, let’s look at Bitcoin.

Recalculating the Raw Cost for Bitcoin Mining (Hypothetical)

We’re going to plug in the same calculations for Bitcoin that we did for Litecoin.

Let’s go ahead and bring up the Bitcoin stats again from Bitinfocharts:

The hash rate as of right now on the Bitcoin network = 56.389 Ehash/s

For reference, there are 1000 TH in a PHash and 1000 PHash in an EHash. Thus, there are 1 million TH in 1 EHash.

Thus, the network is leveraging 56.389 million TH/s.

10% of this total would leave us with 5.6389M TH/s.

According to apanel.com , the best miner that money can (or will be able to) buy is the S17 by Bitmain (which everyone in the industry has heard of at this point):

Below are the reported specifications of this mining device:

Source: https://www.asicminervalue.com/miners/bitmain/antminer-s17-56th

Quick Calculations:

Each one of these miners leverages an alleged 56 TH/s hash rate on the network.

Thus, 101,589 machines would be needed (in theory) in order to leverage that hash rate on the network. This number has been cross referenced with other long time miners in the crypto space.

Assuming a wattage of 2520W/machine and a price for electricity that = $.06/KWH, the price per miner would be $.1512.

Thus, in total, the miners would cost $15,360/hour, which amounts to $368,640/day.

Going back to the Bitinfocharts statistics that we put up for Bitcoin earlier:

We can see that the aggregate reward over the past 24 hours hadf a value of $16.6 million.

In addition, one must factor in an extra $947,822 in USD value for Bitcoin for the fees aggregated.

Thus, in total, when combining fees and the coinbase reward, there was a total of $17.547 million up for grabs over the last 24 hours.

10% of that total would give us $1.754M worth of profit over the last 24 hours.

This would result in $1.385 million in profits.

Conclusion From Mining Comparison Analysis

Bitcoin, by far, is more profitable to mine on than Litecoin. However, the barriers to entry for Bitcoin are significantly higher than that of Litecoin.

In the hypothetical example that compares the costs and potential profits of mining both Bitcoin and Litecoin, the initial startup costs for an individual looking to mine on Bitcoin is substantially greater than what one would expect for Litecoin.

The residual costs are greater for Bitcoin as well.

Thus, while Bitcoin is more profitable to mine on, Litecoin is more practical to mine in terms of start-up costs.

Additional Metrics to Consider

Blockchain Size

Bitcoin’s blockchain size = 260.67 GB

Litecoin’s blockchain size = 24.24 GB

The difference in the metrics is due primarily to the fact that Bitcoin is much more used than Litecoin. In reality, if Litecoin were used as frequently as Bitcoin, then there’s no reason to suggest that Litecoin would not have as large or even larger of a block size.

However, given the fact that the Litecoin block size is less than 1/10th of Bitcoin’s, setting up a full node or using the Lightning Network (in a meaningful way that involves maintaining custody of private keys) would be significantly easier.

Monetary Control is Significantly More Centralized on Litecoin

Wealth Distribution for Litecoin:

Top 10 = 9.87%

Top 100 = 41.97%

Top 1,000 = 63.82%

Top 10,000 = 77.58%

Wealth Distribution for Bitcoin:

Top 10 = 5.09%

Top 100 = 15.73%

Top 1,000 = 35.55%

Top 10,000 = 58.11%

Bitcoin Top Richest Addresses = 2.79 million Bitcoin total (15.73% of the circulating supply)

Litecoin Top 100 Richest Addresses = 26,087,260 Litecoins total (41.79% of the circulating supply of Litecoins)

Average Transaction Value

This metric is a bit harder to gauge because Litecoin and Bitcoin are both UTXO-based protocols. Therefore, this metric is far from the most accurate means of assessing Bitcoin’s future price.

However, it is reliable in terms of at least giving an idea of the wealth involved in the transactions because the safest interpretation of this metric is that the average transaction value represents the average value of the wallets involved in each transaction.

This report will continue forth under the latter assumption because it won’t have much of a palpable impact on the overall conclusion that is drawn:

Bitcoin = $30,848 USD

Litecoin = $22,774 USD

The values of the average transaction values for Litecoin and Bitcoin reflect that both protocols are still, more than likely, not being used broadly for regular, daily use by “typical” users in the form of ‘payment’.

It is difficult, and perhaps unprovable to suggest that these numbers indicate some sort of ‘proof’ that either protocol is being used as a ‘store of value’. In fact, these metrics may prove the opposite because a ‘store of value’ would involve the value being stored rather than moved continuously.

Also, the volatility of both coins as of late precludes this possibility as well.

Conclusion

Overall, while Litecoin does remain a protocol that is both faster and more efficient than Bitcoin (time-wise), with a lower environmental footprint, Bitcoin’s network size, overall usage & popularity/prevalence has allowed it to reign as the supreme option.

The impact that the halving will have on mining is unknown. Intuitively, the reward itself will halve, which means that profits will as well without there being an adjustment in the total . Without understanding how Litecoin is being stored or aggregated by various mining operations, there is no way to make any definitive conclusions about the impact that halving will have on the price of Litecoin or the general level of mining activity.

If the price doesn’t rise, then the hash rate on the network should decline. This would not lead to a lower supply, however, because of the difficulty adjustment.

Eventually the hash rate would drop to whatever the equilibrium is on them market for mining profits. Without being a miner of some sort (from a large mining pool no less), no one would know what that equilibrium is.

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