Litecoin VS. sanitized bitcoin
The US Senate has called for hearings to be held about bitcoin, on November 18, 2013. Recently there has been a lot of speculation about the potential regulatory requirements on bitcoin. This news raged through the bitcoin community, and came about because of the announcement of a company called CoinValidation. This company proposes to create a blacklist database for government enforcement agencies, to track any bitcoin addresses that have allegedly been used for "illicit" transactions.
Accompanied with CoinValidation's plan, is news that The Bitcoin Foundation is having private discussions on how to create "redlists" that would also indicate coins that maybe used in "illicit" transactions. This is different than CoinValidation's plans for a third party database, as The Bitcoin Foundation's plans would be incorporated directly into the bitcoin wallet. Thus, directly affecting all bitcoin users worldwide.
For many users these potential changes to bitcoin is an affront to the very nature of why bitcoin was created. There have been many public calls to create a new fork of bitcoin (bitcoin 2.0) to avert some of the proposed changes. The bitcoin community as a whole is quite adamant about keeping bitcoin out of the hands of regulators, or third party monitoring services.
If bitcoin is mired down into a regulatory sinkhole, would creating an additional fork of bitcoin really be the correct route to take? Currently, litecoin is the most promising replacement of bitcoin. It addresses some of the concerns that the bitcoin community has expressed since the flood of ASIC miners hit the scene. Litecoin is sitting at a $100 million dollar market cap, and has gained much of the hash rate (miners) that were once the backbone of the bitcoin network.
Litecoin offers some immediate advantages over bitcoin. The first is the utilization of the Scrypt proof of work algorithm. Scrypt is a newer form of cryptography (that wasn't created by the NSA) that requires a much greater amount of hardware memory to hash (mine). The current ASIC miners that dominate the bitcoin network would be useless, and the mining would return to GPU mining, at least until ASIC miners are created for litecoin. Although, the scrypt algorithm reduces the ASIC advantage by a factor of 10. With the added hardware cost to hash/mine litecoin(scrypt), it in turn makes the litecoin network much more secure, at least for the time being.
The creator of litecoin is former google employee, Charles Lee, who now works for Coinbase, one of the largest bitcoin payment processors. The lead developer of litecoin is Warren Togami, who was the creator of the Fedora Linux project. Togami has brought a new level of competency, and professionalism to the litecoin project. The litecoin developers have taken great care to optomize the litecoin blockchain, as a result the litecoin blockchain is significantly smaller than the bitcoin blockchain (13GB vs. 1.65GB). This is important as the network grows, so does the blockchain.
Litecoin also offers faster confirmation times on transactions (2.5 minutes vs 10 minutes). This is highly beneficial for everyday transactions.
Bitcoin may never have to deal with direct regulation from governments, and may shrug off companies like CoinValidation and their attempts to usurp the basic tenets of bitcoin. However, there is a real threat of this happening, especially when you consider the public face of bitcoin (The Bitcoin Foundation), has continued down the path of pushing for regulation in DC, including incorporating lobbying efforts into their mandate.
On the other hand, litecoin has been able to observe some of the pitfalls bitcoin has encountered along the way, and avoid them when possible. There is an active community for new & advanced users alike. Although, litecoin still needs some of the established services, such as online payment processors like Mt. Gox & Coinbase. Both of these companies have indicated interest in incorporating litecoin in the future, with Mt. Gox promising full support for litecoin, to be released at any time.
Litecoin is a valuable alternative to bitcoin, and should be considered a hardy competitor, and/or a full replacement for bitcoin, IF it ends up being subverted by unfortunate circumstances.