Looking into crypto and comparing investing in ETH v LTC? Considering developing on crpyto and comparing Litecoin versus Ethreum? This article compares and the two coins from a technical and investment perspective, and gives a concluding theme for the main difference between the two. You can then decide which one is better for you!
Litecoin and Ethereum are inspired by Bitcoin. So to be more complete, we’ll compare Litecoin and Ethereum to Bitcoin and then to each other. This triangle comparison maximizes your understanding of each coin.
Litecoin’s Main Advantages
Litecoin was founded in 2011 by Charles Lee. Litecoin intended to solve smaller, more uncontroversial problems with Bitcoin, which launched 2009. In contrast, Vitalik Buterin sketched the idea of Ethereum in 2013, and launched it in 2015. Litecoin’s has less downside risk than Ethereum for a few reasons:
1) Litecoin has existed as a proven cryptocurrency for longer than Ethereum. You can infer increased stability from the Lindy Effect.
2) Litecoin is technically much closer to Bitcoin, which is more battled tested than Ethereum.
3) Litecoin doesn’t have an active founder introducing significant hard forks. Litecoin is more decentralized.
4) Litecoin, unlike Ethereum, is not natively Turing Complete, which means it has a less rich feature set. The less rich feature set means a much lower attack surface for adversaries.
5) Litecoin imposes an upper bound on the number of coins that miners can mint. The limited supply is positive for LTC price an investment.
These Litecoin advantages are conservative advantages. They’re effects of Litecoin having fewer features and less innovation in some ways than Ethereum. This will be important when we get to Ethereum’s advantages.
Litecoin’s Main Disadvantages
Litecoin’s main disadvantage versus Ethereum is that Litecoin is an incremental improvement over Bitcoin. Bitcoin is slowly but surely eating Litecoin’s pie. On the other hand, Ethereum is a revolutionary change over Bitcoin. Ethereum and Bitcoin occupy different niches and compete with each other less.
To illustrate the nature of Litcoin’s incremental nature, consider the following list. They contain main technical improvements of Litecoin over Bitcoin, and show these improvements today are no longer subtantial:
- Litecoin has SegWit. This improves security. However, in 2017, Bitcoin also introduced SegWit, decreasing Litecoin’s advantage.
- Litecoin allows one block every 2.5 minutes and 5x as many transactions as Bitcoin. However, Ethereum allows one block every 20 seconds, and 25x as many transactions. There is a question of whether multiplying transaction account by an order of magnitude is a real innovation. After all, it’s easy to add another “0” in code to 10x the transaction amount. Bitcoin’s lightning network, EOS, and many Layer 2 protocols allows for thousands times more transactions.
- Litecoin uses scrypt for mining, which aims to be more decentralized than Bitcoin’s SHA-256. After both ecosystems evolved, Bitcoin’s pools vs Litecoin’s pools look quite similar in terms of concentration.
Litecoin is a incremental technical improvement over Bitcoin. Yet Bitcoin was the first mover, has 50x as much market cap, and has an order of magnitude more network effects than Litecoin. Unsurprisingly, Bitcoin caught up to Litecoin on many of these incremental improvements, like Segwit. Otherwise, Litecoin’s incremental improvements don’t make up for Bitcoin’s network effects due to Bitcoin’s much larger size.
Ethereum’s Main Advantages
Ethereum is the Premier Smart Contract Platform
Ethereum’s main technical advantage versus Litecoin (and thus Bitcoin) is that it’s a smart contract platform, in addition to being a payments / store of value platform. Smart contracts let one user pay another user based on the result of a computation. For example, a contract can pay out based on whether it rained yesterday, what the price of the S&P was, or whether all board members voted yes on a proposal. A contract can exchange one currency for automatically. A contract can lock up one coin and issue and synthetic other coin. These contracts run with no centralized counterparty. It is permissionless and censorship resistant.
Ethereum’s Turing Complete smart contracts are a revolutionary change from Bitcoin, not just an incremental improvement like Litecoin. Ethereum also has some incremental improvements, like allowing one block per 20 seconds versus Litecoin’s 2.5 minutes or Bitcoin’s 10 minutes. Ethereum also allows more transactions per second than Litecoin or Bitcoin. These act as minor supplements of Ethereum’s strength.
Ethereum is the premier smart-contract platform for developers. This network effect will be a unique strength of Ethereum over other cryptocurrencies.
Ethereum is Rapidly Reinvesting and Developing
Bitcoin was scrappily and impressively developed by a handful of people when cryptocurrencies were barely a concept. These developers had resources on the order of a million dollars. Due to decentralization, Bitcoin hasn’t been able to plow back it’s newfound wealth into massive changes to its specification. Litecoin is based essentially on this same Bitcoin specification.
In contrast, Ethereum was able to raise tens of millions of dollars when ICOs arose. The Ethereum ecosystem as of 2021 has raised billions of dollars, and put these dollars into real reinvestment into the ecosystem. This plow-back of capital accelerates growth of Ethereum.
A great example of the advantages of continued development is the progress of Ethereum 2.0. Ethereum 2.0 introduces proof-of-stake and sharding. Proof-of-stake decreases the energy footprint of Ethereum a thousand fold. Sharding increases the transaction throughput a thousandfold. These radical changes are hard to introduce in a more fully decentralized system like Bitcoin or Litecoin.
Ethereum’s Main Disadvantages
As great as Ethereum may sound, so system is without it’s disadvantages. Ethereum’s fast development and ability to plow-back capital is partially the result of development efforts centering around Ethereum’s de-facto leader, Vitalik Buterin. Ethereum’s semi-centralization makes it more vulnerable to downside risk.
For example, the price of ETH already accounts for some of Ethereum’s promise. If Vitalik quit from the project, progress could slow substantially and ETH price could fall. Likewise, Vitalik may make mistakes. Vitalik could uninentionally cause Ethereum to go in technically unpromising direction. Vitalik could make decisions negative to ETH price.
A further potential disadvantage is that the Ethereum community does not maximize short term ETH value. Unlike Bitcoin and Litecoin, Ethereum has no hard upper bound on supply. Unlike Bitcoin and Litecoin, where community members actively target a higher BTC/LTC price, Ethereum usage of its ecosystem first and foremost.
To illustrate this, Ethereum’s gas price can be seen as a dividend for ETH holders under a proof-of-stake system. Increasing gas price would increase ETH price, but would hamper usage of Ethereum. Vitalik has vocally come out in favor of lowering gas prices and increasing usage.
From one point of view, this is negative for ETH price. An analogy is that a CEO doesn’t want to increase profits or pay dividends this year. From another point of view, this can be positive. Some of the best startup founders, including Jeff Bezos, haven’t strongly targetted short-term profitability. Bezos still maintains in 2021, more than 20 years after Amazon’s founding, that it’s goal is to keep customers happy and have a very thin or even negative net margin on it’s retail sales. This incidentally has been a great way to get Amazon to grow. This growth maximizes long term AMZN stock value.
Likewise, Vitalik’s focus on increasing usage of Ethereum could be a great way to maximize long term ETH value.
In conclusion, Ethereum and Litecoin are different offshoots of Bitcoin. The main advantages of Ethereum over Litecoin is Ethereum’s revolutionary smart contract system, and Ethereum’s fast pace of development. The main advantages of Litecoin over Ethereum is that Litecoin is much more decentralized and built on trusted technologies, and offers diversification from Bitcoin.
From an investments point of view, ETH is a more volatile bet. ETH bets on growth (vs value) and on Vitalik’s vision for massively increasing the throughput of the Ethereum computer. LTC is a less volatile bet. Litecoin is a smaller change on Bitcoin.
If forced to rank the two, we would choose Ethereum over Litecoin. The more subtle truth though is that they are simply different. Both are worth holding at least a little bit for diversification. You should read their specificiations more, listen to their communities explain their own strengthns, and then choose the right mix for yourself.