The cryptocurrency Litecoin is often referred to as silver for bitcoin gold. This year, Litecoin investors might have been better off staying in the analog world: while Bitcoin has gained twice as much as gold, Litecoin has barely kept pace with silver.
Some investors are now anticipating a rally in Litecoin prices, with a major upgrade emerging and with signs that activity on the blockchain network is picking up.
The upgrade introduces a "data protection protocol" called Mimblewimble, which is designed to help protect the identity of holders of Litecoin token senders and recipients while improving the scalability of the network to process further transactions. A test network from Mimblewimble, which has been in the works for almost a year, is planned for the end of September.
And based on market data, the imminent expansion seems to arouse enthusiasm among users: The transactions confirmed daily in the litecoin blockchain have more than doubled this year and reached a seven-day average of 48,948 last week, the highest value since February 2018 source Glassnode.
Litecoin supporters hope that the additional privacy features of the token from the Mimblewimble upgrade will help attract users who would otherwise be interested in existing privacy tokens like Monero (XMR) and Zcash (ZEC). These tokens come with their own risks, e.g. B. the potential for holders to be watered down by new issues.
The speculation is that the upgrade could help Litecoin, which is up about 50% to $ 63 this year, catching up on Bitcoin's 64% increase.
"Litecoin's upcoming Mimblewimble upgrade has seen a surge in transactions and active addresses," said Matthew Dibb, co-founder of Stack, a provider of cryptocurrency trackers and index futures.
On-chain transactions with Litecoin Source: Glassnode
According to Nicholas Pelecanos, head of trading at NEM Ventures, a cryptocurrency, Litecoin’s ability to process a large number of transactions at any given time should increase with the upgrade and help address scalability concerns that some users and investors have had deterred investment firm.
"In 2017, a major development bottleneck in the blockchain space was scaled up," Pelecanos said. "The problem is now being resolved with the protocol upgrades required for most leading protocols so that ratings are at lifetime highs."
The processing speed of the Litecoin network has doubled this year to roughly one transaction every two seconds. However, this is still far slower than the Bitcoin blockchain, which can process around 3.7 transactions per second. The upcoming protocol upgrade could further increase transaction capacity.
One problem with the additional data protection functions is that it is not yet clear how to deal with the supervisory authorities. Coinbase UK delisted Zcash last year, likely due to pressure from financial watchdogs. The South Korean exchange Upbit delisted the data protection coins Monero, Dash and Zcash in 2019.
"There's a stigma against privacy coins, and some exchanges have delisted them," Litecoin founder Charlie Lee said in a recent interview with CoinDesk. "But as far as I can tell, the exchange with this Litecoin data protection upgrade as an expansion block is fine as it is more of a sideline." The exchanges do not need to support the side of the expansion block. "
Litecoin, Bitcoin and Silver Daily Charts Source: TradingView
David Schwartz, project manager at the Litecoin Foundation, a non-profit organization that promotes the development of the blockchain, wrote on Twitter earlier this month that he thinks the cryptocurrency is undervalued.
"Average usage has doubled since the last bull run started and is picking up pace," he tweeted. "So much so that transactions have exceeded historical price, which means the price is not showing its true worth."
Of course there is some skepticism. Crypto markets are notoriously speculative.
"The recent recovery may be due to the upcoming upgrade," says Connor Abendschein, research analyst at Digital Assets Data. "A stronger positive sentiment across the crypto market has driven the prices of most assets higher in the past few months."
"As the upgrade gets closer, we'll see if Litecoin just increases Bitcoin's coattails or if it can find some legs and walk on its course," Abendschein said.
Correction (12:50 UTC, August 17, 2020): In an earlier version, Nicholas Pelecanos was incorrectly quoted as saying that LTC's network was confronted with bottlenecks in 2017. This has been corrected.
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