Why litecoin is important
With the recent popularity of bitcoin, and the exponential growth of hashing (mining) power on the bitcoin network, there has been little news about bitcoins closest complimentary currency, litecoin. For those of you who don't already know, litecoin is similar to bitcoin. It has a couple of technical differences that may or may not be highly influential in bitcoin and/or litecoin's success. More on this later.
The lead developer of bitcoin, Gavin Andresen recently penned an article about his dislike for alternative currencies. (Found here) The article's narrative is that a single "inflation proof" crypto-currency is all that is needed. Whereas the more crytpo-currencies available will only dilute the overall value of bitcoin. I can see this being a exaggerated point, and one that is not likely to happen in the way Andresen sees it.
Creating gazillions of alt-coins seems to me to just be a way of getting back to an "inflate on demand" world. Not enough genuine Bitcoin money for you? No problem! Create a new alt-coin to produce more! ~Gavin Andresen
The current position of bitcoin is still being determined. We can only speculate where bitcoin will be in five years, and maintaining blind loyalty only to bitcoin, while ignoring alternative currencies such as litecoin, is an inadvisable path. Inside the free market of ideas, competition offers choice, and in turn offers more freedom for the people.
It is all about supply and demand; Bitcoin makes the supply predictable, so price is purely a function of demand. Throw altcoins into the mix, and suddenly supply becomes essentially infinite, because it is trivial to create Yet Another Altcoin. ~Gavin Andresen
The likely scenario with an endless supply of "altcoins", is that people will start to ignore the 100's of new altcoins being created, unless they offer something that is beneficial to the marketplace. There are dozens of new altcoins springing up, and yet there are only two that are gaining real traction, one is bitcoin, the other is litecoin. Many of the other altcoins have already faded out of existence. Yet, there are many scenarios where new altcoins can fill the gaps where bitcoin cannot, as we are still in the early days of adoption.
Where are the opportunities
There are a few facts/questions we have be aware of.
- Bitcoin is in it's infancy, we don't know what it will become in the coming years.
- What happens if SHA256 is compromised?
- What happens if bitcoin is consolidated in the hands of a few, and becomes a payment system for large transactions only?
- What happens if wide-spread adoption happens, and transaction confirmation time matters?
These are just a handful of possible scenarios where an Altcoin could provide a functional alternative to bitcoin. Currently we see a flood of new ASIC manufacturers hitting the market with their mining hardware. This is great for the bitcoin network, and security; however, I see this potentially driving most of the mining rewards to large mining operations, further consolidating bitcoin.
We are also seeing hedge funds, and institutional investors starting to take notice, which is a fantastic thing for holders of bitcoin. However, the purchasing power of these hedge funds, along with the limited supply of bitcoin, could drive the price of bitcoin to $10,000, $100,000, $1,000,000 per bitcoin? At that point, what does bitcoin become to the average person that doesn't own bitcoin? What are their alternatives, if they want to join in the crypto-currency evolution?
Litecoin directly addresses some of the questions above. At this point in time, litecoin is the one crypto-currency that address some of the potential gaps that bitcoin leaves. In two years from now as the market changes, I may be writing a different article describing another altcoin that fills the gap that litecoin leaves. The point is, the market changes quickly, and you can be ahead of it, or trying to catch up to it.
We've all heard the old adage "don't put all your eggs in one basket", this remains true in the crypto-currency world. Help build and support bitcoin, but at the same time, build and support litecoin. It's not a question of which one will "win", but how we can effectively cover our bases, in order to enhance our freedom, and prosperity.