Litecoin (LTC) Transaction Fees To Fall 10x In Anticipation of Bear Market End, Full Blocks

Colin Muller

Litecoin fees will fall by up to ten times, as part of changes in the upcoming version 0.17 of Litecoin, according to a post on the official Litecoin Medium. In the future, the average network fee will be Ł0.0001 per KB, as opposed to the current average of Ł0.001 per KB - $0.005 versus $0.05 at current prices, respectively.

The post detailed a current mismatch in the Litecoin ecosystem which has drawn attention to the issue of transaction fees, namely that fees remain relatively high even as demand for blockspace for transactions is low.

Fees are calculated per KB of memory usage in the blocks, and the post explained:

[c]urrently because the blocks aren’t full there is no need to pay higher fees, which is one reason why the move is being taken

Transaction sizes are based on the amount of transaction data they contain, rather than the amount of value being transferred. Some transaction sizes are less than one KB.

Adrian Gallagher, current lead Litecoin developer and the first hire of the Litecoin Foundation, said  that the future intentions of Litecoin were to “lay down the foundation for a fee rate which we can grow into proactively rather [than] re-actively [sic]”. His remarks come in anticipation of the end of the current cryptoasset bear market, which he predicts will end in three to six months.

The post also touched on the idea of a fee market, which applies to many other cryptocurrencies as well as Litecoin. In the future, when block rewards begin to diminish, it will become necessary to incentivize mining in a different way, namely with transaction fees to transfer already-existing cryptocurrency, rather than creating or “minting” new currency.

Déjà Vu

The strange thing is, this issue is not new, nor in fact is this announcement.

The exact same “news” was announced by Litecoin creator Charlie Lee way back on January 17 - when litecoin’s daily price closed at $187. Lee, also back in January, discussed the incorporation of a fee market into the Litecoin code.

On January 6, Lee outlined intentions of hard-coding in a fee market, proposing that fee rates be stored in Litecoin block headers. If this were the case,, "[m]iners [would be able to] choose to not mine low fee transactions to signal to the market to increase the fees. This should help create a fee market" Adding "I'm convinced this will work". This sounds a lot like Gallagher’s proactive-not-reactive aims.

Whatever the case, it would seem that this Litecoin upgrade has been in the works for some time.

Charlie Lee famously sold all of his Litecoin and later regretted it - although he added that “[he] didn’t actually have that many Litecoins” to begin with.

Litecoin's Hashrate Dropped 70% Since Block Rewards Halved to 12.5 LTC per Block

Hashrate on the Litecoin network has dropped nearly 70% from around 523 TH/S to 159 TH/s since the halving event, which cut its block rewards in half.

As CryptoGlobe reported, Litecoin’s halvening saw block rewards drop from 25 LTC to 12.5 LTC per block. Halvings are planned events, which on the Litecoin network occur every 840,000 blocks mined. The reduced LTC payout per block seemingly saw miners stop focusing on Litecoin, and turn to potentially more profitable cryptocurrencies compatible with the ASIC mining machines used on the LTC network.

Litecoin's hashrate over timeSource: BitInfoCharts

Halving events occur as some cryptocurrencies – like Bitcoin and Litecoin – are programmed to slowly reduce the amount of coins entering the market. These halvings ensure scarcity, as both LTC and BTC have a maximum supply of mineable coins. Some analysts believe the price of cryptocurrencies rises after a halving event as investors are reminded of their scarcity and demand goes up, while supply halves.

Bitcoin, which is set to undergo its halving event next year, notably saw its price surge in its previous halvings, which occurred in 2012 and 2016, dropping block rewards to 25 BTC per block and 12.5 BTC per block respectively.

In Litecoin’s case, the recent halving didn’t help its price. CryptoCompare data shows the cryptocurrency is trading at $46.18, after dropping from a $146 high in June of this year. The high came as LTC outperformed the market ahead of the halving.

Litecoin's price performance over last 12mSource: CryptoCompare

The price drop combined with the hashrate drop has seen some analysts argue LTC entered a mining death spiral, with most cryptocurrency miners not being able to profitably mine it. In July, Litecoin creator Charlie Lee predicted the correction, noting block could slow down for “some time” if a large percentage of the miners shut off their machines.

The price and hashrate drop also led to security concerns. ASIC owners likely pointed their machines at other blockchains and could eventually be used to attack LTC.

While 51% attacks are nothing new to the cryptocurrency space, they usually target smaller cryptocurrencies with smaller hashrates and communities. Litecoin is among the top cryptocurrencies and even though its hashrate is down by 70% since the halving, it’s still at its December 2019 levels, when LTC was trading at nearly $400.

Featured image via Pixabay.