Litecoin's Emerging Scaling Debate Explained

If you're wondering why litecoin is attracting new attention of late, you might not be alone.

The often-overlooked alternative cryptocurrency is in the midst of a historically uncharacteristic price spike and a vicious bout of technical drama that is rivaling bitcoin's own scaling debate.

In fact, litecoin's new developments are perhaps best viewed as simply the latest extension of bitcoin's two-year scaling debate, since the controversy also revolves around a proposed blockchain upgrade called Segregated Witness.

The long-in-progress code change, supporters say, could usher in a wave of changes that could improve bitcoin's usability. But, some miners and users in the community are opposed to the change on technical and political grounds – a fact that, months after the code's release, has effectively stalled adoption.

However, while bitcoin is struggling to secure the needed levels of support from miners for the upgrade to go through, litecoin has almost reached the necessary threshold.

Some say that making the change on litecoin will help to signal whether it's a safe and beneficial technical change, or not. Thus, it's beginning to look almost like a testbed for bitcoin. Others argue it could be a way for litecoin to become a novel network, one with a distinct value proposition in its own right.

Still, it's been a bumpy road. One minute the community thinks SegWit is about to activate, the next it doesn’t seem so clear. In this way, the story could soon take another turn soon.

But first, let's start with the basics.

A quick history

Litecoin, a cryptocurrency branded as 'the silver to bitcoin’s gold', first emerged in 2011. At a technical level, it's nearly identical to bitcoin, except for a shorter block time, a different hashing algorithm and a few other changes originally designed with merchants in mind.

In January, litecoin released a new version featuring code for SegWit and an activation threshold of 75% of miner signaling (rather than the 95% required for activation on the bitcoin network).

"[W]ith SegWit and bitcoin’s current block scaling deadlock, I see a potential for litecoin to help bitcoin break through this deadlock," said litecoin creator Charlie Lee in a blog post.

Further, hashrate support for the change has, for the most part, been on the rise over the last couple of months, prompting buzz and renewed interest in the altcoin.

Why hasn't SegWit activated yet?

Because SegWit tweaks consensus rules, changing how nodes validate blocks, it needs a supermajority of miner support to activate quickly and safely.

On litecoin, if 75% of blocks feature a snippet of code indicating support for the change within a two-week period (known as a 'retarget period'), then the change locks in. The market has been reacting as its inched toward that mark.

This week, when support crossed 75%, many users speculated that the change would activate, but, a couple of mining pools multiplied their hashpower, bringing down support for the period to roughly 70%.

This has prompted some further discussion about whether the ability of miners to veto code changes is good or bad for public blockchains.

What's next?

Some

litecoin users have been calling for a user-activated soft fork, where the cryptocurrency's so-called economy paves the way for an upgrade, rather than mining pools.

In a nutshell, 'user-activated soft forks' (UASFs) are one of a few ways of pushing through consensus rule changes – rules that all nodes need to agree on unless they want to be left on an alternative blockchain. It's contentious because it could cause a network split. Another downside is that they take more time to prepare for.

Despite all the recent hype, though, it’s hard to say if SegWit will ever activate on litecoin, even if it’s close to doing so.

Nonetheless, some users and developers are making plans in case it does.

Bitcoin Core developer Johnson Lau said that, should SegWit activate on litecoin, he will shift some of his efforts there to work on MAST, a project that could expand the cryptocurrency's smart contract capabilities.

Lee also noted that a version of Lightning Network is also in the works, suggesting innovation could migrate to litecoin should it activate the change.

Litecoin image via Shutterstock