Everything you need to know about litecoin halving
Litecoin halving happens when the reward received by miners for every transaction they add to the blockchain is cut in half. Built into the Litecoin protocol since its creation, halving the coin keeps the inflation rate in check by limiting the supply of Litecoins circulating in the market thus increasing its scarcity and in turn heightening its overall value.
Before diving deeper into the nitty-gritty details of why the halving process is important, we’ll first cover what Litecoin is and how it relates to Bitcoin and Bitcoin halving day.
What is Litecoin
Often dubbed ‘digital silver’, Litecoin is designed to be a much faster payment alternative to Bitcoin. Like its more established counterpart, Litecoin is a decentralised cryptocurrency running off of the blockchain (a public and open-source ledger). As of writing this, it now takes only 2.5 minutes for Litecoin transactions to be confirmed.
Here’s a list of Litecoin’s benefits:
- No central authority governs the system
- All records are accessible to the public
- Cheaper than Bitcoin
- A thousand times faster than the traditional monetary systems.
Since Litecoin utilises blockchain technology just like Bitcoin, it also follows the same verifying and rewarding process where miners all over the world need to reach a consensus that each transaction is legitimate. For every block that is added to the chain, a miner is rewarded with newly minted coins in a process called ‘mining’.
What is Litecoin halving
For every 840,000 blocks that are verified and added to the chain, the reward given to miners is reduced to half. This takes place every 4 years and occurs annually until the block reward becomes 0. Since there can only be 84,000,000 litecoins to ever be produced, the halving will continue until the year 2142.
When Litecoin first saw the light of day in 2011, the block reward given to miners was 50 litecoins. On August 25, 2015, the first Litecoin halving event happened and for block number 840,001, the reward received by the next miner became 25 litecoins.
The second halving event occurred on August 5, 2019, when the number of blocks in the system reached 1,680,000. After this block, the reward became 12.5 litecoins. The next litecoin halving date is set to happen on August 6, 2023, after which the block reward will become 6.25 litecoins.
Below you’ll see the table for every halving event that has happened and is still to come.
Relationship between Litecoin and Bitcoin
Litecoin is often compared to Bitcoin and for good reason. The two coins actually have quite a lot in common. Charlie Lee, the creator of Litecoin, had the intention of complementing Bitcoin rather than competing with it thus coming to be known as the “silver to Bitcoins gold”.
Litecoin is faster and more affordable than most other coins on the market today, making it accessible and tradeable. Lee envisioned a peer-to-peer payment system that can be used in making daily transactions and would only take a matter of minutes to be verified. Bitcoin was deemed perfect but in terms of block confirmation time, it takes around 10 minutes.
Litecoin may be fashioned after Bitcoin, but it works on a different protocol. It purposely reduces block confirmation time to 2.5 minutes, allowing a higher volume of transactions to be verified and added to the system.
Cryptocurrencies are volatile and their prices can rise or drop in a matter of minutes. With Litecoin’s faster processing time, there is a smaller window for the price to change during the verification process.
Even though it seeks to excel, Litecoin adopted a lot from its predecessor. Take the limited amount of supply to be created, for example. There can only be 21 million bitcoins in existence. This solves the problem of inflation and serves as a solution to the problem of unlimited supply in the current fiat monetary system. Banks can print money whenever needed, which greatly affects the purchasing power of the currency.
With the limited supply of coins, Bitcoin guarantees that its value will not drastically change for every added coin in the system. To make sure that miners won’t run out of coins to mine in such a short amount of time, Bitcoin halving event is built into the protocol. The same principle applies with Litecoin and that’s why we have a Litecoin halving event as well.
Litecoin adopted the same safeguarding methods, but whereas Bitcoin has a limit of 21 million, Litecoin’s limit is almost four times larger at 84 million. To keep inflation rates in check, the protocol automatically reduces the number of rewards given to miners for every 810,000th block. That’s why the litecoin halving day occurs every four years.
If there are too many coins circulating in the market, then Litecoin’s purchasing power is set to drop. This is why the halving day is important. It ensures that the coin stays relevant and doesn’t drop by increasing the scarcity of the digital asset, the protocol decreases the inflation rate.
The effect of previous litecoin halving days
Litecoin halving day seems to sound like bad news if you’re a miner. This means you’ll receive fewer coins for every computational effort you do in verifying transactions. But if you’re a major mining group that’s in it for the long haul, this shouldn’t bother you at all. And if you’re an investor, trader, or holder, it shouldn’t worry you at the very least.
The effect of the halving event often sees a lot of miners dropping out because their reward is reduced. Less people do the hard work and the hash rate, or the speed that a miner solves the blockchain code, drops. This often leads to slower performance in the network and for you as an holder, this could mean that your transactions may take a bit longer than usual. But there’s no reason to be cautious, since in just a few weeks after the halving event, network speed picks up and the hash rate returns to normal.
If you’re an investor or holder, then there’s no reason for you to worry about halving day. In fact, more people are optimistic about this event since it yielded long-term positive results in Bitcoin before, and Litecoin’s price graph is predicted to follow the same pattern.
Bitcoin halving event
For Bitcoin, the positive effect of the last halving didn’t clearly show the good until a year later. During its first halving event in 2012, Bitcoin’s initial price was at $12 and 150 days after the halving day, it went up a bit to $127. After just one year, Bitcoin’s price skyrocketed to $1,038 The following halving day occurred in 2016. People were excited and anticipation was high in the air.
Since the previous halving event yielded positive results, people were looking forward to the same outcome and bought Bitcoins before the fateful day. Its initial price was $650; after 150 days, it climbed to a mere $758. Just like in the previous halving day, it wasn’t until after a year passed that positive results were seen in the price graph. In 2017, Bitcoin’s price rose to $2,526. For Litecoin owners who look at Bitcoin’s prices as a reference, this is great news.
Truthfully, there are a lot of factors that could have affected the rise of Bitcoin’s price before, and the reasons behind it can’t be solely based on the halving day. Nonetheless, this doesn’t faze the crypto community, especially since the coin has gone through a rough patch in 2019 and earlier this year due to the coronavirus outbreak. Now, things are looking a bit brighter and for most people, Bitcoin halving day serves as the light at the end of the long, dark tunnel.
In relation to Litecoin
Now, what exactly does this mean in relation to Litecoin? Since Litecoin is fashioned after Bitcoin, the latter’s performance after its halving day can serve as an example to where Litecoin can go in the future.
After halving events, it is expected that there will be a drop in the number of miners since some will bail-out and seek more profitable pursuits. For example, after the August 2015 halving event, the Litecoin hash rate dropped by 15%. But the numbers rebounded soon after two weeks as miners compensated for the loss of computational power.
As for the effects on the prices, halving day usually heightens volatility, with prices spiking and dropping before the event itself. Due to the widespread belief that halving causes the prices to go up, more people are buying prior to the halving.
During the second Litecoin halving last 2019, the price immediately rose from $79 to $100. But the surge did not last and the price soon dropped. The price didn’t pick up until a year later.
During the first Litecoin halving event in 2015, the coin was yet to undergo a bull run, and the price often seesawed between $1 and $7. It wasn’t until early 2017 that Litecoin’s price soared and breached the $100 territory. In 2018, Litecoin’s price surged for a hot minute and went beyond $100. After a few days, it returned to its pre-halving price of around $80.
Though Litecoin’s price didn’t skyrocket just as Bitcoin did after its halving days, it’s far from bad news. The halving event isn’t about having prolific short term results. It’s a safeguard against losing the coin’s value. It’s not something that should magically raise the coin’s price to heights it has never reached before. Just as you’ve seen in Bitcoin’s growth, the effects of the halving event normally show itself after a year.
It has been 8 months since the last Litecoin halving day. Compared to its price of $80 to $90 in August 2019, Litecoin is currently selling at $50. Lots of factors come in as to why the price has dropped, but the main cause can be attributed to the coronavirus pandemic the world is experiencing right now. Plenty of investors liquidated their assets before their respective governments placed lockdowns. But after a dropping to $39 in March, Litecoin’s price has been climbing upwards and has now reached $50.
Litecoin Price History
Things are looking good for the crypto world as coins increase in price and supply daily. Top cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Bitcoin Cash (BCH), and Litecoin (LTC), have all climbed in supply, adding a massive total of $10 billion to the crypto market. A testament to the resilience of digital currency.
What’s next for Litecoin
The next Litecoin halving date is still three years away. In that amount of time, lots of unpredictable events can occur, making it difficult to predict how this event will affect the future. The crypto community is yet to see the long-term effect of last year’s Litecoin halving.
Fluctuations in the network will most probably only occur in the first few weeks after the event before the network returns to normal. A drop in the hash rate is most probably going to happen, but it will eventually rebound after a few weeks.
Litecoin halving is bound to shake the crypto community again. Without a doubt, there’s no better time for revolutionary cryptocurrencies to perform their best, show their worth and prove to the world that they are, in fact, the future of money than now.
Words by: Leann Padilla