Robert Steinadler, a year ago
The Litecoin halving is one of the most important events. Since Litecoin is in many ways similar to Bitcoin, the halving has the same function. Developers have different ways to solve one of the most pressing problems when creating a cryptocurrency. How do you limit the supply, and how do you control the inflation rate?
While some cryptos are designed with a fixed supply like XRP, others have a constant and annual inflation like Ethereum. Bitcoin and Litecoin, on the other hand, face this problem using the so-called halving.
Many analysts believe that the Litecoin halving even had an impact on the price in the past. In this article, we are going to take a closer look at its history and function.
Inflation is controlled by issuing a reward to the miners. Miners earn the fees that are included in the block and an additional reward of freshly minted LTC. With Bitcoin, every 10 minutes, a new block is produced and added to the chain.
Litecoin, on the other hand, has a faster block time: every 2,5 minutes, a new block comes into existence. Note that Litecoins block time is four times faster than the block time of Bitcoin. But there are more differences because Litecoin has a maximum supply four times greater than the maximum supply of BTC, which means that 84 million LTC will ever come into existence.
And last but not least, Litecoin uses a different mining algorithm with Bitcoin using SHA-256 and Litecoin using Scrypt.
We already explained that the block reward provides an incentive to both Bitcoin and Litecoin miners. It also controls the supply because by issuing new LTC, the block reward also determines the inflation rate in the Litecoin network.
The Litecoin halving is a function to influence this inflation of LTC. In effect, the block reward is cut in half every 840.000 blocks. When Litecoin started in 2011, the block reward was set to 50 LTC per block. With the first Litecoin halving, the reward was cut in half down to 25 LTC per block. With a block time of 2,5 minutes, every four years the halving will happen.
The inflation of LTC reduces itself over time, and with the halving occurring every four years, the last LTC will be issued approximately in the year 2142. The current block reward is 12,5 LTC per block, and the next Litecoin halving will occur approximately in July 2023, reducing it even further down to 6,25 LTC per block.
It has been often argued that the Bitcoin halving was indeed a factor contributing to BTC scarcity and, therefore, a reason for the last couple of rallies. Litecoin has a higher total and maximum supply, but the inflation is also reduced every four years like for Bitcoin.
But unlike Bitcoin, the price for LTC wasn’t affected by the Litecoin halving in the past. In the case of LTC, it is more likely that the halving is already priced in before the event occurs. There is no indication that the Litecoin price went up because of the halving. In fact, the price went down after the event happened in both 2015 and 2019. One could argue that both events occurred when the market was following a bearish trend and therefore couldn’t have the same impact as the halving’s we have witnessed with Bitcoin.
But this only contributes to the theory that it is more likely to explain Litecoins success with the rise of Bitcoin carrying the cryptocurrency market up to a higher level. Nevertheless, the Litecoin halving is an event to remember because LTC will eventually get scarcer with every further step.
The most important factor contributing to the Litecoin price is supply and demand. Keep in mind that more than 87 % of all LTC already have been mined so far. At this point, it is not so important to drive scarcity but to drive demand to see an increase in terms of price.
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