Litecoin: The champion of SegWit and Lightning Network

on Sep 8, 2017
Updated: Mar 11, 2020

On Saturday, the Litecoin price (LTC/USD) broke above $90 for the first time ever, bringing the cryptocurrency’s year-to-date growth to over 2,000%. This was the culmination of a rally that started in late August and pushed the Litecoin price from the low $50 to an all-time high of $92.07, according to data from cryptocurrency tracker Coinmarketcap.

While Litecoin has retreated from these levels, its decline was mostly the result of a slump in the broader cryptocurrency market on Monday, which was prompted by the news of a China ban on initial coin offerings. In fact, Litecoin was one of the big gainers in the next couple of days, when the market started to recover from the Monday crash.

So it seems that the Litecoin rally is more than just a temporary spike. But what’s driving it?

There is a strong case to be made that the whole cryptocurrency market has been on the rise lately and this has inevitably affected the Litecoin price. The growing interest from investors is pushing trading volumes higher and the market size to record levels. The whole cryptocurrency boom has certainly played a significant role in supporting Litecoin’s rise, but for me, there are two more important factors: SegWit and the Lightning Network.

On May 10 Litecoin became the first major cryptocurrency to activate SegWit – a scaling upgrade, originally proposed for the Bitcoin network in 2015. This is what prompted Litecoin’s initial rally this year, allowing the cryptocurrency to wake up after years of inactivity. And, perhaps more importantly, the software change allowed Litecoin developers to start implementing the Lightning Network, which would allow for much faster and cheaper transactions.

Fast forward to late August and the start of Litecoin’s latest rally. It coincided with the official activation SegWit on Bitcoin that put an end to a two-year scaling debate within the Bitcoin community. This development was also important for Litecoin, as it meant that cross-network transaction swaps between the two digital currencies can be made possible through the Lightning Network (which is based on SegWit).

On Saturday, Litecoin broke above $90 for the first time in its history. A few hours before that Litecoin’s creator Charlie Lee had announced on Twitter that the first Lightning Network-based Litecoin transaction was successfully executed.

But what exactly is the Lightning Network and is it really such a big deal? It is a peer-to-peer system for making micropayments in cryptocurrencies such as Litecoin and Bitcoin through a network of bidirectional payment channels. By opening such channel, two participants can transfer money to each other without having to rely on a third party or make their transaction public on the blockchain.

One of the most interesting features that the Lightning Network can enable are the so called ‘atomic swaps’. They function in a similar way as a normal Lightning Network-based transaction in a particular currency, but they allow users to cross-trade different digital currencies. So for example, if one user has Bitcoin and want to trade some of it for Litecoin, that user can open a channel to a LTC holder and buy some directly from them, without having to rely on centralised parties.

The activation of SegWit on Bitcoin makes possible for atomic swaps between the original cryptocurrency and Litecoin to become a reality. Of course, for this to happen, the Lightning Network also needs to be enabled for the Bitcoin blockchain.

Charlie Lee has repeatedly stated that he wants to see the two cryptocurrencies working in tandem. “Litecoin will provide a niche where it will be more used for payment, whereas bitcoin will be more used for storing,” he recently said in an interview with blogger Crypto Hedge.

He also envisions a future, where most people would not need to hold any cryptocurrencies other than Bitcoin and Litecoin, because with the Lightning Network they would be able to easily convert those two to other coins they might need.

“My vision is that with Lightning network … you wouldn’t need to hold all these coins, you could just hold all your money in bitcoin or litecoin, and if there is an application that requires ether or some other token, you can easily … convert it on the fly to the token that you need,” he said in the same interview.

Whether his vision will materialise remains to be seen, but if Litecoin’s market performance is any indication, the efforts of the Litecoin team are starting to pay off.

For further information on how to buy and trade Litecoin, see our comprehensive Litecoin guide.