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3 Reasons Litecoin is Undervalued

Posted 13 July 2017 3 Reasons Litecoin is Undervalued
Written by Adi Young @adiyoung

Litecoin is a borderless and decentralised cryptocurrency based on blockchain technology, released on 7 October 2011. Inspired by and nearly identical to bitcoin, the creator of Litecoin is Charlie Lee - a former Google and Coinbase employee.

Litecoin was announced as 'digital silver', to bitcoin’s digital gold. At the time of writing, litecoin was the fourth largest cryptocurrency by market capitalisation; trading circa $50 to bitcoin’s $2,500. 

Here are the three reasons I believe litecoin is undervalued:

1. Litecoin’s Utility: Litecoin is designed for high frequency transactions. Litecoin’s network aims to process blocks every two and half minutes, allowing for approximately four times faster confirmations compared to bitcoin (which is ten minutes). Where the success of bitcoin has created the problem of full blocks and increased transaction congestion, litecoin has the advantage of being speedier for everyday purchases. In May 2017, litecoin became the first of the larger cryptocurrencies to adopt Segregated Witness. In the same month litecoin completed the first Lightening Network transaction, with .00000001 LTC transferred from Zurich to San Francisco in under a second. Litecoin has almost zero payment costs and is easy to adopt.

2. Litecoin’s Supply Relationship with Bitcoin: Like bitcoin, litecoin’s supply is fixed and reducing over time (halving every four years). Like bitcoin, litecoin is a proof of work blockchain (albeit using a different algorithm) where mining difficulty is adjusted every 2,016 blocks produced. However unlike bitcoin, litecoin’s supply is capped at 84 million which makes it four times greater than bitcoin’s (capped at 21 million).

3. Coin Scarcity: Bitcoin will always be undervalued: the more it increases in value, the more demand it should create for itself. This is the attraction of a deflationary digital asset which has the potential to generate exponential growth (assuming current network rules remain constant). This is why bitcoin is regarded as the digital gold standard and why litecoin was created as the digital silver standard. Given the adjusted difficulty of mining bitcoin in comparison to litecoin, if litecoin is trading c. $50 today; then litecoin is potentially undervalued by $575 given bitcoin’s price of $2,500.

The conclusion being litecoin should trade approximately a quarter the price of bitcoin and is undervalued below this level and overvalued above.

Written by Adi Young @adiyoung
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