Why does Litecoin follow the bitcoin closely?


The founder of Litecoin, Charlie Lee, often refers to the cryptocurrency as "the silver for Bitcoin gold". In addition to sharing the same code base, both cryptocurrencies also show mostly similar price movements in cryptocurrency markets, which increase and decrease in tandem.

They also complement each other. Bitcoin's original mandate was to become a means for daily transactions. But the problems of downsizing have prevented him from fulfilling that role. Meanwhile, Litecoin has garnered the mantle and incorporated down-sizing technologies into its ecosystem to enable digital payments on its platform. In 2017, Litecoin had, what some analysts called, a phenomenal year.

The similarity between the two cryptocurrencies might seem confusing for observers, especially since the cryptocurrency ecosystem is based on a diversity of applications. But this was largely due to a conscious decision by Lee to follow Litecoin bitcoin. In a recent interview, he explained the motivation for his call.

Why does Litecoin follow Bitcoin?

Lee started with bitcoin because he knew that the same transaction fees on bitcoins would prove to be problematic for the transfer of small and large amounts. "If bitcoin focuses on moving large amounts of money, then commissions will be high and security will be high, Litecoin can serve as a compliment, can be used for small amounts of money and have lower commissions," he explained. This year, the Litecoin Foundation, the non-profit associated with Litecoin, acquired 9.9% of the German WEG bank, opening the door to the cryptocurrency to become part of the traditional banking system.

Bitcoin is the mother ship for most cryptocurrencies today, which means they have reproposed its code to meet their goals. But Lee took a hands-off approach to the original bitcoin code by developing Litecoin. Instead, it has improved the original bitcoin code with new features and functionality. For example, Litecoin has a larger block size and processes transactions much faster than bitcoins. Lee said he trusted the bitcoin and his code is structured in such a way for a reason. "We're seeing lots of coins change something around and then getting hacked or blowing up something, simply because they did not realize that the thing they changed was there for a reason," he said.

What are the disadvantages of Lee's approach?

There are two main disadvantages of Lee's tactics.

The first is that, except for a couple of exceptions, the price of Litecoin has mostly imitated that of the trajectory of bitcoin prices. It also means that Litecoin is not attractive to investors as bitcoins because it is not sufficiently distinguishable from the original cryptocurrency. It is not surprising that the assessment of litecoin is minimal ($ 3 billion) compared to bitcoin ($ 115 billion), during the writing of this article.

The second is a transfer of bitcoin vulnerabilities to his progeny. In the interview, Lee said he is currently worried about a bitcoin bug that has the potential to block nodes in its network and destroy its value. Litecoin will be directly affected by such an incident because it shares the code and copies bitcoin price movements.

"Something like that could destroy 90 percent of its value overnight, so things like that keep me awake at night, in the case of Litecoin, we're running a network worth three billion dollars, that's still a lot of money ", said Lee.

Investing in cryptocurrencies and other initial coin offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation of Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since the situation of each individual is unique, a qualified professional should always be consulted before making any financial decision. Investopedia does not make any representations or warranties regarding the accuracy or timeliness of the information contained in this document. On the date this article was written, the author has 0.21 bitcoins and 1 Litecoin.

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