Litecoin may be the best chance for cryptocurrency

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Steve Sokolowski
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Litecoin may be the best chance for cryptocurrency

Postby Steve Sokolowski » Wed Dec 16, 2015 11:20 pm

In the bitcoin community, many users like to portray altcoins as a sideshow to the "true" bitcoin network. Recenly, however, litecoin has been seeing significantly increased usage on a number of fronts, probably due to the unreliability and cost of bitcoin (it now hovers around 20% of all payouts, 3/4 of which resulted from people switching from bitcoin payouts to litecoin payouts instead). Last week, I pointed out how there has been a surge in how many of our customers are requesting payouts in litecoin. Today, I'm going to show some statistics about litecoin blocks that we've mined recently. My hope is that they will convince some people why upgrading litecoin is not only possible, but also may become necessary sooner than everyone thinks.

First, let's review a chart of the number of bitcoin transactions processed over the past few months. Here's a link to blockchain.info to this chart. The CSV or JSON data provides the exact numbers for each day: https://blockchain.info/charts/n-transactions. As you can see, the number of transactions has exceeded 200,000 per day recently, a count that is unsustainable when difficulty rises and block times reduce in just a few days. Of note is that on December 12, there were 211,456 transactions.

Next, let's look at some of the litecoin blocks we mined that day:

Date, Block number, Reward, Transaction fees, USD value
12/12/15 2:20 902631 25 0.35466355 91.46197671
12/12/15 0:55 902594 25 2.045 95.2050693
12/11/15 15:57 902360 25 0.28805245 97.94167721
12/11/15 11:32 902234 25 0.18052203 95.13740086

As you can tell from this query, the idea that the litecoin network is a place where pennies are traded isn't true. At the same time that bitcoin transactions were requiring 12 or more hours to confirm, litecoin blocks were being created that contain a lot of transactions. Consider block 902,594, which we mined on the morning of December 12: http://explorer.litecoin.net/block/7dff ... 8344ae409e

First, if the litecoin network was rarely used, then it seems difficult to believe that people would be paying close to 8% of the block reward for some blocks, as the 2.045 in transaction fees for this block indicates. Indeed, all of these blocks include significant fees. Second, there are 66 transactions in this block. While the number of transactions pales compared to the bitcoin network, this is up significantly from just a month ago and far exceeds the 1-3 transactions seen in many altcoin blocks. Finally, this block moves around hundreds of thousands of dollars. Litecoin isn't being used to send around pennies; it's becoming a full-fledged competitor to bitcoin in which people are investing significant money. "Just another altcoins" don't transact close to a quarter million dollars in a block.

This is happening quickly. As fees on the bitcoin network continue to rise, and with bitcoin now useless for timely transactions, some users are turning to litecoin to send their money. With the bitcoin network out of capacity, and Coinbase having reneged on its promise to adopt BIP101 in early December, it's reasonable to expect that almost all growth will occur in litecoin for at least the next few months.

The first people to turn to litecoin will probably be online casinos, because they have no need to interact with the traditional banking system. Dice games can easily be held on litecoin, because fees are a fraction of a cent. The "spam transactions" that small block supporters of bitcoin criticize will drive litecoin adoption. Other uses of litecoin are (for good or bad) darknet markets, since the high fees will soon price small-time drug users out of the bitcoin network. Litecoin does not have time to wait for the Lightning Network to be ready and it can position itself as available for widespread adoption by increasing its blocksize now.

Finally, I tasked Chris with running queries to try to determine a correlation between the number of transactions in a block and orphan rate. Unfortunately, we don't have anything to report, because Chris was not able to find any relationship between the two. Our orphan rate is steady around 6%, and we run 80 other coins on the server. By using the nice command and iptables to throttle other daemons' CPU and bandwidth usage, there is more than enough computing power available to transmit blocks to the 80 peers to which we are connected - CPU usage never exceeds 2% of one core. It's difficult to imagine how the network would fail if blocksize were increased from 1MB to 2MB with BIP101/4 - perhaps a present-day CPU would use 16% of one of its 8 cores for a few seconds in 2020, and need to transmit 8MB of data at a time in the next decade? Who are these miners who are actually concerned about this? We certainly aren't.

We have contacted exchanges and mining pools about the BIP101/4 idea, and are compiling a list of their positions on that and any other solutions they suggest about blocksize issue. I should have more to report on that when the weekend arrives. In the meantime, I am still astonished at why people are continuing to buy bitcoins - the broken bitcoin network is not worth anywhere close to the $450 it is valued at today. Bitcoin is deadlocked, perhaps fatally, and our best choice is to get out ahead of the issue on litecoin so that we can have a network that does provide good service quality to every single user who wants to use it

Litecoin usage is poised to explode in as little as one or two months. It's not going to be a smooth transition - one day the bitcoin network will just be overloaded, its price will crash, and a good portion of volume will suddenly move over to other networks. We should be ready with a more capable system when that happens.
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coinaday
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Re: Litecoin may be the best chance for cryptocurrency

Postby coinaday » Thu Dec 17, 2015 1:24 am

It's only the first-order effect. LTC has no plans to increase in capacity to meet demand.

I wrote a piece in /r/cryptocurrency about zero fee transactions, and I went to see whether there was any clonecoin in the top 25 listings by marketcap on coinmarketcap, and as far as I could tell, while there are some which support cheaper transactions, none support free transactions. That may seem like a tangential aside, but I think it's relevant in that I don't see a clear and strong emphasis on supporting microtransactions in the case of growing demand reaching them limit from any major coin at this point.

In the long-term, I expect that lower transaction fee clonecoins will gain volume, approximately in proportion to market cap. But if they do nothing when the fees start rising and capacity starts being reached, then the cycle will continue. The coin that keeps those users will be the one that grows to meet demand.

There are coins which are better about this in the top 25 which aren't direct clonecoins. My "analysis" was first-order itself, just based on looking at clonecoins because they're the simplest technically to work with and understand, just a couple parameters changed.

LTC will pick up some slack in the next few months, absolutely. But unless those at the top there change their stance, that effect will be limited to filling its current capacity. I don't see either LTC or BTC raising the cap soon, but BTC seems more likely.
TuringHimself
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Re: Litecoin may be the best chance for cryptocurrency

Postby TuringHimself » Wed Dec 30, 2015 1:46 am

So is this happening? I don't see much change in LTC price to reflect this switchover. Can you give a rough timetable on how this might play out in 2016?
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Chris Sokolowski
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Re: Litecoin may be the best chance for cryptocurrency

Postby Chris Sokolowski » Wed Dec 30, 2015 4:29 pm

TuringHimself wrote:So is this happening? I don't see much change in LTC price to reflect this switchover. Can you give a rough timetable on how this might play out in 2016?

I don't think anyone can give such a timetable because there's no guarantee that there will ever be an increase in the Litecoin block size. As Steve noted in the post where we surveyed pools and exchanges, the situation is almost entirely dependent on Charlie Lee supporting larger blocks. If he just remains on the sidelines, then I wouldn't expect to see any switchover in the near future.
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Re: Litecoin may be the best chance for cryptocurrency

Postby TuringHimself » Thu Dec 31, 2015 1:07 am

From the post above:

This is happening quickly. As fees on the bitcoin network continue to rise, and with bitcoin now useless for timely transactions, some users are turning to litecoin to send their money. With the bitcoin network out of capacity, and Coinbase having reneged on its promise to adopt BIP101 in early December, it's reasonable to expect that almost all growth will occur in litecoin for at least the next few months.


and

Litecoin usage is poised to explode in as little as one or two months.


Now there is no switchover? So what is this post about? According to the post above, there IS a switchover taking place right now, whether LTC increases block size or not. My question is WHEN do we see this reflected in LTC price?
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Steve Sokolowski
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Re: Litecoin may be the best chance for cryptocurrency

Postby Steve Sokolowski » Thu Dec 31, 2015 12:52 pm

TuringHimself wrote:From the post above:

This is happening quickly. As fees on the bitcoin network continue to rise, and with bitcoin now useless for timely transactions, some users are turning to litecoin to send their money. With the bitcoin network out of capacity, and Coinbase having reneged on its promise to adopt BIP101 in early December, it's reasonable to expect that almost all growth will occur in litecoin for at least the next few months.


and

Litecoin usage is poised to explode in as little as one or two months.


Now there is no switchover? So what is this post about? According to the post above, there IS a switchover taking place right now, whether LTC increases block size or not. My question is WHEN do we see this reflected in LTC price?


Chris can explain his position more fully if he wishes, but I think we disagree in that I see litecoin as starting to take over already, while he sees it as dependent on an upgrade. My opinion is that transactions will continue to spill over to LTC, and if block size is increased, then LTC becomes poised to become the primary coin. If LTC doesn't increase its blocksize, then we will see a messy world of multiple altcoins where the volume spills down into dogecoin and then to feathercoin or auroracoin or whatever other coin has capacity. Solutions would be developed to try to hide the usage of multiple coins from the user.

This is why it's critical that LTC blocksize be increased immediately. BTC is deadlocked and will probably remain so indefinitely. LTC has the potential to stop this "spillover" down to other coins and start to take over for BTC. The price increase would occur if LTC commits to a higher blocksize.
TuringHimself
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Re: Litecoin may be the best chance for cryptocurrency

Postby TuringHimself » Sun Jan 03, 2016 5:37 am

Thanks for your reply Steve. When do you see this switchover actually reflected in LTC price then? I'm seeing a lot of stagnation right now in both BTC and LTC.
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Re: Litecoin may be the best chance for cryptocurrency

Postby Steve Sokolowski » Sun Jan 03, 2016 11:41 am

TuringHimself wrote:Thanks for your reply Steve. When do you see this switchover actually reflected in LTC price then? I'm seeing a lot of stagnation right now in both BTC and LTC.


LTC doesn't have enough transaction volume yet to significantly increase price. I'm going to write another post today that talks about the idea of OpenBazaar needing to use an altcoin and that might result in an increase in price.

Also, keep in mind that there are four times as many LTCs as BTCs. When LTC was worth 0.05, that actually meant that it was 20% as valuable as BTC. Now, it's 3.2% as valuable as BTC. "Parity" for BTC and LTC is 0.25, which I think a lot of people get confused about.

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