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29The Role of Lightning Network as Bitcoin Scales
Crypto Weekly
The Role of Lightning Network as Bitcoin Scales
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There has been a wave of capitulation among many coins that were put forward as faster, cheaper, or higher throughput alternatives to Bitcoin. "While Bitcoin still has the largest market share, Litecoin is the second most transacted digital currency for payment. Litecoin still serves as a sort of testnet for Bitcoin.
By market capitalization, Litecoin (LTC) is the 20th biggest crypto asset. In 2013, it was the second most popular cryptocurrency, but thousands of new cryptocurrencies have emerged since then, making its modest update on Bitcoin (BTC) seem less important, by comparison.
Despite the existence of thousands of new coins, Litecoin remains a significant altcoin with a market capitalization of $3.3 billion. At least some commentators are now starting to question whether Litecoin is really 'necessary' as a result of the ongoing crypto winter.
There are a variety of views on this question, with Bitcoin developers and supporters arguing that Litecoin is less useful now that Bitcoin has figured out how to scale (via the Lightning Network). By contrast, Litecoin supporters maintain that the altcoin is useful as a platform for testing scaling technologies and that its adoption by payment and investment platforms will ensure its long-term survivability.
Continued...
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Is Litecoin superfluous?
When Litecoin was first launched in 2011 as a source code fork of Bitcoin, it had a faster block time due to the higher supply cap and different hashing algorithms. Litecoin managed to process a block every 2.5 minutes, while Bitcoin processed a block every ten minutes on average. Essentially, it boasted of being more scalable than Bitcoin. As Bitcoin has made significant advances in recent years, many people within the Bitcoin community believe this boast is no longer valid.
In an era when Bitcoin's block size was seen as a limiting factor in its growth, Litecoin and others sold themselves as scaling alternatives, or complements to Bitcoin. Blockchain developers like Ben Woosley and others were working on scaling solutions such as the Lightning Network and Statechains.
In response to the sustained success of the Lightning Network, he argues the market has seen a wave of capitulation among many other cryptocurrencies that were put forward as faster, lower cost, or higher throughput alternatives to Bitcoin. In comparison, Bitcoin is only 69% down from its November high of around $69,000, while Litecoin is 88% down from its all-time high of $410 it reached in May 2021.
Woosley predicts that the capitulation of altcoins will continue in the coming years, with the growth of layer-one (the base protocol) and layer-two (Lightning Network) Bitcoin development undermining the case for various altcoins. In the future, Bitcoin will follow the path of competing chains by eliminating their existence, by enabling their most attractive features, using technologies such as Lightning Labs Taro and Federated Chaumian mints, as well as TBD's Web5.
The "silver to Bitcoin's gold" was another selling point for Litecoin in its early years. As a result, Litecoin would be a scarce commodity, but not as scarce as Bitcoin since it has a larger supply cap of 84 million coins, compared to 21 million. Many observers have not bought into this argument, as cryptocurrency author Stephen Chow claimed in May that, "Litecoin is dead." The reason is that, since Bitcoin is already a scarce and easily transferable source of value, Litecoin was not a necessity.
There are many within the Litecoin camp, however, who argue that it has carved a place for itself as an exchange medium due to its lower fees and greater scalability. Looking at the most commonly used coins for payments, the silver and gold analogy makes a lot of sense. According to Litecoin Foundation Director Jay Milla, Bitcoin still dominates the market, but Litecoin is the second most transacted currency.
Bitcoin's average daily transactions are much higher than Litecoin's. Bitcoin processed 296,000 transactions on June 15, while Litecoin processed just over 100,000. Since early 2021, it has averaged over 100,000 transactions per day, with similar altcoins -- such as Dogecoin (DOGE), Bitcoin Cash (BCH), and Dash (DASH) -- seeing around 80,000, 30,000, and 20,000 transactions each day.
Litecoin Still has Uses
Despite Bitcoin developers and holders arguing that Litecoin isn't really needed, it is still performing better than similar cryptocurrencies. Litecoin is considered by many within its community to be a useful testnet for Bitcoin, regardless of its scale of usage. "Developing a truly decentralized currency can be slow. Litecoin's ecosystem is fortunate to still have its creator involved.” Jay Milla, the co-founder of Litecoin, said, "the developers of Litecoin have already implemented a number of improvements that have led to the adoption of Litecoin by Bitcoin."
As an example of Litecoin's importance to the wider cryptocurrency ecosystem, Milla points to the altcoin's implementation of SegWit in 2017. "By doing so, transaction signatures could be recorded outside of blocks, which was crucial for the Lightning Network," he says, noting that Litecoin participated in the Lightning Network early on.
In recent years, Litecoin has continued to serve as a testnet for promising new cryptocurrency technologies and solutions, including MWEB (Mimblewimble Extension Blocks), which for Milla makes Litecoin "the most widely available cryptocurrency" with improved fungibility and confidentiality. It is easiest to obtain cryptocurrency today without broadcasting how much money you're sending. He added that it is optional: exchanges and wallets can decide whether to implement it or not to. Due to these reasons, Milla and the Litecoin Foundation are confident that Litecoin has a bright future. Additionally, Litecoin's prospects are enhanced by the growing integration of the currency into a variety of platforms.
"Litecoin transactions have seen a staggering 352% increase in activity from 2019 to 2021, while Bitcoin has declined," said Milla. Major payment systems such as PayPal and Venmo, as well as trading companies such as Interactive Brokers and Robinhood, have helped make Litecoin more accessible to new users. Nevertheless, according to BitInfoCharts, “BTC had a better year this year.”
Crypto Weekly
The Recent Crypto Downturn is a Good Thing -Regulators Say
Although crypto executives and regulators don't often see eye to eye, they seem to agree that recent crypto market turmoil could prove beneficial, by filtering out unsustainable projects and bad actors.
Those were the prevailing sentiments at last week's inaugural Point Zero Forum, an invitation-only gathering of investors and policymakers in Zurich. Currently, cryptocurrency's total market capitalization is around $1 trillion, down from a high of $2.7 trillion in October. On Wednesday, Monetary Authority of Singapore managing director Ravi Menon said a bloodbath was going on in the financial sector. Millions of dollars - and companies - are leaving the market.
In May, TerraUSD (UST), an algorithmic stablecoin that was once valued at $18 billion, collapsed. Three Arrows Capital, a hedge fund, revealed it had suffered heavy losses since then, while Celsius Network, a multibillion-dollar crypto lender, suspended withdrawals.
Several of the world's top crypto firms, including Coinbase and Gemini in the U.S. and Bitpanda in Europe, have cut their hiring. The departure could be a positive development. "It's not necessarily bad," he said. "It's a great opportunity for a central
Crypto Weekly
bank or regulator to separate the wheat from the chaff." In his view, the market crash is similar to the dot-com bubble of the 1990s, which led to inflated tech stock valuations in the early 2000s. "Regardless of what happens, crypto technology and finance will continue," Conliffe said.
Regulating Fast-tracking
As a result of the recent market meltdown, establishing regulations for this industry has become increasingly urgent. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) have introduced a wideranging bill that would regulate crypto-asset service providers and include disclosure requirements for stablecoin issuers in light of Terra's demise.
The European Union's Markets in Crypto Assets (MiCA) Bill, which defines requirements for stablecoin issuers, is making progress in the legislative process. The United Kingdom announced in April to introduce a regulatory package for crypto and regulate stablecoins, under existing payment laws.
In Zurich, Agustin Carstens, general manager of the Bank for International Settlements, a central bank-owned financial institution, said blockchain firms and regulators needed to do more to ensure sustainability.
Carstens said during a panel discussion on the future of financial services, "The degree of leverage in many of these transactions is totally abnormal." "You cannot defy gravity. You are operating an extremely risky operation. Should anything go wrong, you are likely to crash."
Many attendees welcomed the market crash during a panel on the future of crypto. Crypto.com CEO Kris Marszalek said, "I welcome this downturn." "Now is the time for crypto companies to show how we can be the steady hand, the calming voice during these volatile times, and just deliver real value."
Brad Garlinghouse, CEO of Ripple Labs, predicts that most tokens will disappear over time. “This is a clear example of something that was not designed with utility in mind, the founders have left, and it moves based on Elon Musk's comments." Binance CEO Changpeng Zhao emphasized the need for crypto entrepreneurs to have a clear business model.
The industry will take a long time to recover, but "the worst part is probably over," Zhao said during a panel on weathering the storm and the next growth phase. Zhao said, "Incentives are not a sustainable business model. Eventually, you will run out of money and crash."
Crypto Weekly
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