Most recent update: [March 09, 2022]
No securities regulatory authority has expressed an opinion about the Crypto Contracts or Litecoin, made available on the VirgoCX Platform, including an opinion that Litecoin is not itself a security and/or derivative.
What Is Litecoin?
Litecoin (LTC), in many ways, can be described as “Bitcoin-lite.” It is a cryptocurrency that is designed to allow an instantaneous, peer-to-peer exchange of value at an affordable rate. As one of the longest-enduring altcoins on the market, it has a large and active following. As of January 2021, Litecoin is one of the most widely accepted cryptocurrencies in the globe, with over 2,000 merchants accepting LTC as a form of payment.
How Does It Work?
Litecoin originally began as a fork of Bitcoin, aiming to supplement Bitcoin rather than compete against it. While they are similar in essence, Litecoin has a few key characteristics that differentiate it from its predecessor. The main difference is that it goes beyond the block limitations of Bitcoin, with a block generation time of two-and-a-half minutes (compared to Bitcoin’s ten minutes). Litecoin’s architecture was designed to be lighter and quicker than Bitcoin, enabling transactions from across the globe to complete in under a second, owning up to its namesake.
All-in-all, Litecoin’s speed and relatively low fees make it an appealing payment option and means of transferring value, but the network has significantly less miners than Bitcoin due to its use of a Scrypt algorithm, having an overall negative effect on the coin’s security.
History of Litecoin
Litecoin first came about in 2011, two years after Bitcoin’s first block was mined. It was originally released via an open-sourced client on Github by computer scientist Charlie Lee, formerly a Google employee and later the director of engineering at Coinbase. A well-known computer scientist and MIT alumni, he was well-known for his work on Google’s Chrome OS.
Originally, Lee’s aim was to supplement Bitcoin’s economy, with many dubbing Litecoin the “silver” to Bitcoin’s “gold.” For a time, it was one of the highest-valued coins and was a top five cryptocurrency. In 2013, LTC witnessed a huge price surge that saw its aggregate value leap over 100% in the span of a day. This had brought permanent public attention to the coin that it still sees today.
In May 2017, Litecoin was one of the first to employ SegregatedWitness (SegWit), a Bitcoin network improvement which implemented a soft fork change in the transaction format of Bitcoin. This was meant to mitigate a blockchain size limitation that reduced Bitcoin’s transaction speed, and further bolstered LTC’s already quick network. Later that same month, the first ever transaction on the Lightning Network (a payment protocol on the blockchain that allowed even quicker transactions) was made with Litecoin, transferring 0.00000001 LTC from Zurich to San Francisco in under a second.
In 2017, Lee sparked controversy when he declared over social media – during a time that LTC was enjoying its all-time high – that he had sold and donated all of his Litecoin, citing a conflict of interest and wanting to focus more objectively on developing the project. Litecoin’s price immediately tanked, with many holders blaming Lee and claiming that he had dumped his own currency. Analysts have retrospectively attributed the fall of Litecoin’s price to the general state of the cryptocurrency market at the end of 2017.
Litecoin’s Unique Characteristics
Because Litecoin was developed to be a companion to Bitcoin, they accomplish the same goal: being a decentralized form of payment and store of value. Litecoin achieves its goals differently, however, by being 4x faster in the confirmation of its transactions. This is made possible by being able to produce 4x as many blocks as Bitcoin, creating a new block in 2.5 minutes to Bitcoin’s 10. This effects all equivalent characteristics that currencies share: Litecoin has a supply limit of 84 million coins to Bitcoin’s 21 million, and halving occurs every 840,000 blocks to Bitcoin’s 210,000. Its speed is the main draw for LTC and why it is so popular amongst merchants.
As mentioned before, the LTC network has significantly fewer miners than its parent network. This is due to the LTC network utilizing Scrypt as its proof-of-work algorithm, rather than Bitcoin’s SHA-256 algorithm. The main differentiator between Scrypt and SHA-256 is the source in which the algorithms expend their energy; SHA-256 favours pure processing power, whereas Scrypt uses high-speed random access memory (RAM). Much of Bitcoin mining is done using application-specific integrated circuit (ASIC) CPUs due to the complexity of the SHA-256 hash function. ASIC mining rigs can be incredibly costly to build. Litecoin’s creators chose the Scrypt hash function to shift the focus away from ASIC miners and allow users with regular, lower-powered computers to mine, thanks to Scrypt’s smaller power requirements.
Despite this, miners were still able to create ASIC miners for Litecoin, eventually dominating the Litecoin mining scene. Today, it is not profitable to mine Litecoin without specialized equipment, leading to a decrease in the overall number of miners on the network. Consequentially, having fewer miners on the network also reduces the network’s security.
SegWit, which was originally a Bitcoin implementation proposed in 2015, worked by “segregating” the digital signal data (the “witness”) outside the base block on the blockchain. This was proposed in order to compensate for Bitcoin’s scalability issues. Litecoin was the first to implement SegWit in 2017, as sort of a testing ground for the much larger Bitcoin network. The test was eventually successful and was soon launched on Bitcoin thereafter.
Similar to SegWit, Litecoin employed the usage of the Lightning Network before Bitcoin as a test as well. The Lightning Network is a second-layer technology that uses micropayment channels to scale a blockchain’s capability to work transactions.
Litecoin also plans to employ a privacy protocol called MimbleWimble, which builds on confidential transactions and encrypts or hides information like transaction amounts. Charlie Lee has argued that this can decrease block size and increase scalability. As of 2021, development on implementing MimbleWimble onto the Litecoin network is underway.
Supply and Incentive
Following in its parent’s footsteps, Litecoin has a limited supply 4x that of Bitcoin. At 66 million coins currently in circulation as of March 2021, it is one of the largest cryptocurrencies in regard to market capitalization.
Like Bitcoin, Litecoin utilizes a proof-of-work model, where coins are mined through generation and authentication on the blockchain. Miners are rewarded tokens for expending their personal resources to authenticate the blockchain. Initially, the block reward for mining Litecoin was 50 LTC, mirroring Bitcoin’s initial block reward. As of July 2021, the current block reward is 12.5 LTC. Because Litecoin uses scrypt, creating purpose-made ASIC rigs and applications for Litecoin mining is costly and complicated. It is still possible to use traditional mining rigs, but it does, however, require a significant amount of processing power.
Like Bitcoin, Litecoin also experiences halvings, but at every 840,000 blocks. As of 2021, the LTC network has gone through two halvings: first in 2015 and again in 2019. The next halving is estimated to occur sometime during August 2023, reducing the block rewards from 12.5 LTC to 6.25 LTC per block.
Some of the downsides that come with investing in Litecoin is the fact that it is inherently used as a playground of sorts for new technology that gets implemented onto the BTC network. While this is great for making Litecoin a pioneer, it unfortunately gets delegated to being Bitcoin’s second fiddle. There might be advantages in terms of its efficiency and speed but for cryptocurrencies, adoption is king and Litecoin is considered an alternative to Bitcoin rather than a direct competitor.
Another issue that investors have with Litecoin is based on its aforementioned creator selling off all of his tokens. Although Lee had some noble causes for selling his stake in the project, it does not sit well for investors when a coin’s creator dumps all of his holdings, especially during a time when Litecoin was experiencing a boom in its price. Despite some of its advantages to
Prior to listing Litecoin on the VirgoCX Platform, VirgoCX performed due diligence on Litecoin and determined that Litecoin is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:
- The creation, governance, and location of Litecoin and/or its primary development team;
- The supply, demand, maturity and liquidity of Litecoin; and
- Legal and regulatory risks associated with Litecoin.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
Litecoin on CoinMarketCap: https://coinmarketcap.com/alexandria/article/litecoin
Litecoin on CoinBase: https://www.coinbase.com/price/litecoin
Litecoin on Investopedia: https://www.investopedia.com/terms/l/litecoin.asp
Litecoin mining on Investopedia: https://www.investopedia.com/tech/how-do-you-mine-litecoin/
Litecoin on Wikipedia: https://en.wikipedia.org/wiki/Litecoin
Litecoin: The Silver to Bitcoin’s Gold: https://www.gemini.com/cryptopedia/litecoin-vs-bitcoin-blockchain