Litecoin was one of the most trending cryptocurrencies in July 2023. At the start of the month, transaction volume on the network surged, and so did its price. Also, more whales have been accumulating Litecoin recently. Date insight from Intotheblock also reveals that over 60% of Litecoin holders are in profit.

The increase in activity on the Litecoin network has been partly attributed to the upcoming Litecoin halving in August. But what exactly is Litecoin halving, and what do investors need to know regarding halving?

What is Litecoin Halving?

Litecoin halving is an event where miners’ rewards for validating transactions are cut down in half. Miners are rewarded for producing new blocks on the chain with miners’ fees and freshly minted LTC tokens. When Litecoin was first introduced in 2011, the block reward for miners was set to 50 LTC per block, but after the first halving, the reward was reduced to 25 LTC per block. Due to its 2.5 minutes speed of completing a block time, the halving occurs every four years.

Litecoin, like Bitcoin, employs the proof of work mechanism, a consensus system that involves mining. Miners secure the network and are rewarded with LTC tokens for contributing to the network’s strength. However, as time goes by, mining rewards will steadily decrease.

Why Halving?

Halving is a very important way to reduce inflation and drive up token prices through a healthy amount of scarcity. As the block reward decreases, it becomes harder to mint new tokens, drastically reducing the number of tokens in circulation.

Halving is crucial to the crypto community because it can affect the token’s price and market capitalization. Some price prediction experts base some of their speculation on the chances of a token increasing in price on halving events, among other technical analyses, before giving the final price forecast of the coin.

Brief History of Litecoin

Litecoin is a cryptocurrency created in 2011 as a fork of Bitcoin by Charlie Lee, a computer scientist who wanted to make mining accessible to everyone. Charlie Lee also solved some of the pressing problems of blockchain technology by designing a blockchain network with four times the speed of Bitcoin.

Even though Bitcoin and Litecoin utilize the proof-of-work consensus mechanism system, Lee made Litecoin with the Scrytpt algorithm. The Scrypt algorithm requires less computational power compared to Bitcoin’s SHA-256.

Effects of Halving on Litecoin’s (LTC) Price

In line with historical price action, halving does not positively impact Litecoin’s price. During the first halving in 2015, LTC’s price appreciated by 150% in June and 12% in July. However, in August, the month of the halving, LTC’s price declined by 35%.

Again, in 2019, LTC’s price appreciated by 20% in June but declined by 21% in July. The 2019 halving occurred on the 5th day of August, and LTC’s price declined by 34% in August.

While the scarcity triggered by halving is meant to drive the coin’s value higher, previous halving events prove that the higher perceived value is always factored in a few months before the halving event.

Effects of Halving on Miners

Miners are at the impact end of halving because it dramatically reduces their earnings, slashing them by half. One disadvantage is that they may need to opt for higher power, consuming more energy. Other times, they may need to cut costs because they are now making half the profit they used to do the same work. However, on the bright side, halving does not stop mining activities, and it can potentially increase the price of Litecoin in the long run.

Effects of Halving on Network Security and Nodes

Halving does not affect running nodes or the transactions running on the network. Therefore, users and investors need not fear that the event could hinder or significantly delay their transactions. Further, it does not affect network security, but it indirectly contributes to its growth by regulating coin supply and combating inflation.

Past Litecoin Halving Events

Litecoin’s First Halving

Litecoin’s first halving event occurred in August 2015, slashing the block subsidy from 50 LTC to 25 LTC. A few months before that time, the coin rose from $1.65 to $8.97 within a month and a half. However, LTC’s price followed a strange pattern as it dropped drastically to $2.40 just a day before the halving event. Then, in the following months, it recuperated and gradually increased, trading between $2.87 to $3.24.

Litecoin’s First Halving in August 2015 | Source: Coinmarketcap

Litecoin’s Second Halving

The second halving occurred four years later, in August 2019, reducing the block subsidy from 25 to 12.5 LTC. Some months before the halving, the token rose from $22.54 in late 2018 to over $144, raking in a 400% market gain by June 2019. But still following in the footsteps of the first event, it dropped below $50 by December but rose again in the first quarter of 2020, reaching a peak of $103.

Litecoin’s Second Halving in August 2019 | Source: Coinmarketcap

The Next Litecoin Halving

The next Litecoin halving event will occur on August 2, 2023. During the third halving, block rewards will be slashed from 12.5 LTC per block to 6.25 LTC per block. It will be the third Litecoin halving in history. Like in previous halving events, Litecoin’s price has already gained momentum in preparation for the big day.

There is a lesson to learn from each halving event. LTC’s value typically rises during the months preceding the halving, but drops to significantly low levels a few days before the event. Litecoin’s price appreciated by about 25% in the first few days of July 2023.

The Differences between Bitcoin And Litecoin Halving

Bitcoin and Litecoin have so much in common because both are among the first cryptocurrencies to be introduced. While Bitcoin is the current king of crypto assets, Litecoin is one of the first altcoins to be developed to modify Bitcoin. It was built to solve the issue of scalability and speed on Bitcoin.

Nevertheless, they both employ the proof of work mechanism. Litecoin’s block time speed is 2.5 minutes, while Bitcoin’s is 10 minutes, making it four times faster. However, Bitcoin has some edge over Litecoin, making its halving significantly different. Here are a few points that highlight this.

Litecoin and Bitcoin have different scarcity levels

Bitcoin is programmed to have only a 21 million capped supply. Still, Litecoin has a limited supply of 84 million tokens making it four times larger than Bitcoin in quantity and less scarce. Also, the current LTC tokens left to be mined are over 10 million, more than eight times larger than the BTC left. In addition, Bitcoin was three years earlier than LTC, and that gap will always make it trail behind.

Litecoin Halving does not impact the global cryptocurrency market

Litecoin halving does not impact the general cryptocurrency market, while Bitcoin halving does. When Bitcoin halving occurs, new bull cycles are usually formed months after. The new bull cycle usually starts with a BTC rally, and alts follow the same bullish direction.

Bitcoin usually has a larger impact on the crypto market because of its rank as the first-ever cryptocurrency and the most decentralized network. Bitcoin’s dominance is currently about 50%. Hence, other assets react to its bullish or bearish movements. On the other hand, Litecoin’s positive or negative price action after the halving hardly ever affects the value of other crypto assets.

Different bullish patterns after halving

Litecoin usually experiences a significant bull run a few months before its halving. In 2015 and 2019, LTC surged significantly about 2-3 months before the block rewards were subsidized. For Litecoin, after the halving comes a price retracement or decline.

Unlike Litecoin, Bitcoin’s bullish run typically comes months after. The last Bitcoin halving was in May 2020, and the bullish surge kicked off about 6 months later.

Conclusion

Halving is essential to all cryptocurrencies that employ mining. This is because it helps control the number of tokens in circulation and increases prices by creating needed scarcity. Litecoin’s reduced block rewards could trigger scarcity and long-term value appreciation.

Notably, the future of Litecoin still heavily depends on the team’s ability to innovate, adapt, and maintain community support. While Litecoin’s halving may foster short-term optimism, its long-term success relies on continued technological advancements and its ability to stay competitive in the dynamic world of cryptocurrencies. Only time will reveal the true impact of this halving on Litecoin’s journey ahead.