What Is Litecoin Halving?
Litecoin has now been one of the most popular cryptocurrencies on the market for a very long time. It has a great brand image, along with sustained popularity and a valid use case. Often dubbed as “the silver to Bitcoin’s gold” it shares many of the same characteristics as the current no.1 crypto but with some of its own unique features too.
One of the most significant features that these two crypto-assets share is they undergo a process called Halving. Halving can have a dramatic effect on price predictions, miner activity, and the inevitable hype that surrounds a cryptocurrency.
Halving is definitely a concept that everyone wanting to learn about crypto should understand, so we have created this easy-to-follow guide to explain what Litecoin is, how Halving works, and the effects this can have on markets and miners.
What Is Litecoin?
Founded in 2011 by former Google engineer and software developer Charlie Lee, Litecoin enjoyed success as one of the most popular Altcoins on the market. After his time at Google Charlie Lee also worked as a director of engineering at Coinbase and was one of the first employees that the company had. His experience in the crypto space then led to the creation of Litecoin with a vision that was very similar to that of Bitcoin’s.
In fact, Charlie Lee launched Litecoin with the aim to be different from many of the pumps and dumps found on the market. It was unique in the way that no developers received any LTC before its ICO and similarly, there was no pre-mine.
The vision of Litecoin was essentially to be a light version of Bitcoin. If people viewed Bitcoin as virtual gold then Litecoin would be a virtual silver, facilitating cheap and faster transactions than the slower jugunaught that Bitcoin is. Litecoin also differed from BTC in its mining algorithm; instead of the SHA-256 proof-of-work system that would require miners to have specialized hardware, Litecoin would be able to be mined on any regular computer.
This is certainly a valid use-case as even today we see protocols competing to lower transaction costs and increase throughput whilst still keeping the principle of decentralization intact. In tandem with this Litecoin had a capped supply that would be halved every 4 years, just as Bitcoin. This seemed a sure-fire way to protect the value of LTC over time and mirror the deflationary characteristics of Bitcoin.
What Is Halving?
To understand what halving is we must first touch on mining. Mining is the process of contributing to the decentralized network that supports a protocol’s ecosystem and receiving financial rewards for doing so. People often don’t understand how a network can be decentralized, and offering rewards to miners for providing that physical infrastructure that a network need is exactly how it works.
Litecoin uses a proof-of-work system that essentially means miners must solve complex mathematical equations to create a block. This block is then verified if solved, meaning it has become a verified part of the blockchain it supports and now further blocks can be built on top of it. Creating blocks is costly due to the computer power required, so miners receive rewards for doing so in the form of the native currency - in this case in LTC.
This process of mining is also how new coins are created. When a block is solved minor receive coins that are new to the overall supply, meaning it is an inflationary aspect of the ecosystem.
Halving is the deflationary element of the Litecoin ecosystem. It is an inbuilt function within the network that means every four years the rewards miners receive for mining blocks will be cut in half. Of course, this is not ideal for miners but in terms of tokenomics, it helps to reduce the supply of new coins. This essentially increases the value of those LTC that can be mined as now there are half as many available; this can also have a direct impact on the market price of the coin as speculators can see that there is no dilution of value. Essentially, it's a control on the supply.
Impacts on Miners
Miners are obviously very directly affected by this process. A dramatic 50% decrease in returns from mining activities will certainly be felt by those undertaking such activity. Miners must also find ways of working as efficiently as possible in this time to try to maximize their returns.
Impacts on Price
Halving can have a dramatic impact on price and this is certainly the area most looked at. If the supply of LTC is reduced then usually you will see a correlative effect of an increase in market value. Vise versa, an increase in supply is usually coupled with a decrease in market value. There are also clear patterns to be seen in any halving period with the market price. Usually, miners will increase their workload before the halving period thereby reducing the market value of the asset in question. Following this and the subsequent halving prices will begin to stabilize, and can even dramatically increase under some circumstances.
Litecoin Halving History
The first Litecoin halving occurred in August 2015. Originally rewards for miners per block were 50 LTC, this was therefore reduced to 25 LTC. The valuation of LTC slightly rose in the period before the halving, before dropping slightly and then leveling out after the halving had taken place. LTC had previously reached highs of $32 before this first halving but seemed to then level out around about $4 after it.
Within the time between the first and second halving, LTC had significantly changed. What was around a $4 coin at the time of the first halving had now reached far over $250, so the economic environment had changed significantly. August 2019 saw the second halving take place which reduced the miners’ reward down to 12.5 LTC. Since this event, LTC has somewhat stabilized at its $100 support level having fallen steadily for the past four months.
Litecoin’s next halving is supposed to take place in August 2023 and will see the rewards for miners drop again by another 50% to 6.25 LTC. The general consensus of the crypto community is that the price of an asset will rise after a halving - but this is somewhat up for debate.
While in theory, a halving should increase the value of an asset this does not seem to always be the case in practice. We have seen with Litecoin that its halving is not necessarily the biggest catalyst in its price change. In fact, after being designed as the silver to Bitcoin’s gold, it seems that the BTC price is the biggest catalyst for LTC price change.
The price of an asset is determined by two factors: supply and demand.
While halving does clearly have a part to play in this there are too many other contextual factors at play that also could influence this.
Halving is an integral part of the Litecoin ecosystem; it is one of its core tools to regulate the supply of the coin and ensures that it isn't unlimited as is with some fiat. As well as this critical aspect of tokenomics it also acts as a reward system for the people that help provide the infrastructure for the Litecoin network: miners. Halving directly affects miners due to the 50% reduction of their reward for creating blocks but in tandem helps balance the financial ecosystem of the network.
While halving is theoretically supposed to lead to an increase in the value of an asset we have seen this is not historically the case with Litecoin Halving. In fact, it seems that its relationship to BTC is a much more prevalent factor and should be viewed as more meaningful than the 4-yearly halving cycle of Litecoin. We can therefore conclude that the upcoming Litecoin Halving in 2023 is unlikely to dramatically influence the value of LTC.