If you've been following me over this past year, you'll know that I consistently monitor Litecoin on-chain transaction activity. Some may think that it's not that important, but I believe this data does give us pretty useful insight into how the network is growing. Most individuals within the crypto space rely on technical analysis, and while I do think that type of analysis is very helpful in checking biases and entering/exiting positions, analyzing the public blockchain data gives us more of a fundamental perspective.
So let's take a look at Litecoin's Median Transaction Values, Total Transactions, Active Addresses, and Avg. Transaction Values and compare them to Bitcoin's.
First, Median Transaction Values:
Notice that LTC has significantly increased it's median transaction values relative to BTC.
Why is this happening?
Because Bitcoin blocks have been full, when someone wants to transfer funds on the BTC network, he/she must either pay higher fees to get timely confirmation or wait until the BTC mempool has cleared in order to get their transaction into a block. This can sometimes take multiple days. Since LTC functions as a perfect substitute to BTC but does not have full blocks, lower value transfers are preferring the Litecoin network because they can get into the next block and pay sub cent fees for confirmations.
Let's take a look at an example of why people would rather use LTC over BTC for low value transfers. Coinbase recently updated the number of confirmations on digital assets they require before a user gains access to the funds they send to Coinbase.
If I want to send BTC to Coinbase, I need to first secure blockspace by paying the top fee level which is currently around $3.00, and once my transaction is in a block I must wait for 2 confirmations. Each one of those confirmations takes on average 10 minutes. So if you pay the higher fee level you wait 20 minutes, but if you don't you may end up waiting days, weeks, or months if a lot of people suddenly demand to transact on BTC.
With LTC, Coinbase requires 6 confirmations. Since each block is found in about 2.5 minutes, a LTC transaction is confirmed after 15 minutes. So it makes more sense for a user who wants quick access to their funds to use LTC when transferring to Coinbase over BTC. The user gains access to his/her funds more quickly, doesn't have to compete for blockspace, and avoids paying the high BTC transaction fee.
Now let's take a look at total transactions on the BTC and LTC networks:
LTC is currently settling around 50% of total BTC transactions.
The trend in LTC catching up to BTC in total transactions is likely to continue for the reasons stated above. Since LTC blocks are only 10% full, it can increase transactions to around 1.2M before fees start to rise.
The number of Active Addresses is a good way to measure the number of users operating on the network on any given day. Since the end of 2020, LTC went from about 10% of the number of BTC users to around 35% today.
The only metric where LTC signifcantly underperforms BTC is in avg. transaction values. Litecoin is currently around 100x lower in avg. transaction values which explains the market capitalization difference. But the gap in avg. transaction values between the two networks will lessen as well over time as demand for BTC increases.
Adoption is increasing more on the Litecoin network than the Bitcoin network but you wouldn't know that if you just watched the price all day. Because we understand the underlying economics of block space, Litecoiners are positioned to do far better than maximalists in a hyperbitcoinization scenario.
Thanks for reading!