Litecoin (LTC) is more than just a test bed for Bitcoin. With the recent implementation of Segwit, Litecoin has seen its price surge. However, there are people in the crypto community that say Litecoin’s purpose (Bitcoin’s test bed) has been fulfilled and is now largely a meaningless coin… again. Essentially implying that the price is going to drop, possibly to pre-segwit levels. I disagree.
The concept that there is only space for one cryptocurrency to be successful in a given space is a misconception. While I agree that for most alt coins to be successful it should be unique and offer something new, but there are exceptions to this rule.
To illustrate, Bitcoin is by no means the best or most advanced crypto currency when defined by its feature or functionality. It’s one of the simplest, yet its the most valuable coin today. Not to say that Bitcoin does not have other merits but one of it’s greatest economic moat lies in its brand, which gives it a network effect that no other coin can compete with.
Bitcoin’s network effect and branding essentially translates to the following:
- Even greater brand awareness
- Good Liquidity (Can buy and sell easily with minimal fees)
- Infrastructure (ATMs, Coinbases, Bitcoin Wallets, Exchanges, Community Forms and Shops that Accept BTC as payment)
The result of this network effect is what ultimately gives Bitcoin it’s value and money or gold like characteristics. Without brand awareness or trust it will have no real value. Without liquidity it is not money or a investment commodity. Without Infrastructure it’s usage is limited and potentialdiminished. Hence, an asset or something that would be otherwise be worthless like paper can have value by having a strong network effect. That alone is sufficient.
It is for this same reason that Litecoin is valuable even if it doesn’t offer a single thing new. I am by no means saying that Litecoin is on par with Bitcoin in terms of network effect, far from it. However, I would not hesitate to argue that it’s quite possibility has the strongest network effect when compared to other alt coins.
Brand Awareness – Let’s face it, outside of the cryptosphere most people have only heard of Bitcoin. But if you heard of any other crypto coin it would probably be Litecoin or Ethereum. In addition, Litecoin age, simplicity and similarity with Bitcoin makes it easier for mainstream consumers to understand, trust and adopt.
Liquidity – Litecoin is also a coin that has good liquidity and has consistently ranked top 3 in trade volume recently. It can be easily traded on almost any major exchange and is now even available on coinbase. High volume also translates to small spreads when trading. (ie. You can buy or sell closer to the market price)
Infrastructure support – In terms of infrastructure, it is miles behind Bitcoin but it’s still better than the majority if not all other alt coins. It has decent wallets (web and hard wallets), traded on almost every large exchange, some ATMs popping up, accepted as a form of payment in some stores and has strong community support (plus General Charlie Lee of course).
To sum up, Litecoin has reached the threshold in which by default the network effect will give it value. After all gold has value but so does silver, even though silver doesn’t offer anything new as an investment metal.
Note: I am not suggesting that Litecoin has no features that differentiates it from Bitcoin, it certainly does and is not a 100% copycat; but I believe understanding that it does not necessary need to be different to have value is important. This can not be said with some alt coins out there today which could literally be worth nothing in the not too distance future.