Litecoin rose some 10% today, surpassing $13, the highest it has ever been since 2014. The main reason is because after some political to and fro between miners and developers, a unanimous agreement has been reached to signal for segwit and for litcoin’s maxblocksize to be increased above 1MB once the network operates at more than 50% of its capacity.
A number of mining pools that strongly argued against segwit in litecoin, including LTC.TOP, LTC1BTC and Antpool, have now decided to support segregated witnesses (segwit), an upgrade proposal that facilitates the Lightning Network while making on-chain scalability more difficult.
That means the network will most probably reach its activation threshold of 75% and, since all upgrades are a hard-fork for miners, it is probable as good as all miners will now upgrade in the next two-three weeks.
The activation is implemented through a two steps process. Firstly, more than 75% of 8,000 blocks need to be in favor of segwit which roughly translates to around two weeks. Thereafter, a grace period of another two weeks is given for other miners to upgrade now that its implementation is certain. Then, the proposal goes live.
Shortly afterwards, the Lightning Network is expected to be launched. This is a second layer protocol, on top of bitcoin, that batches transactions and combines them into one on-chain transaction, thus reducing demand for blockchain space.
The way it does so in practice is by employing hubs which in a way act as a clearing mechanism for the funds, transporting them, similar to corresponding banking, from one account to another with the eventual settlement on the litecoin network or, in traditional banking, on the SWIFT network.
How exactly it would do so in a practical manner is a matter of much debate. Its proponents say the hubs, or clearing houses, would be decentralized as anyone can set one up. Its detractors say that upfront funds would be required to operate a hub which further has network effects and economies of scale, leading to centralization and abuse.
Further questions have been raised regarding the usability of the Lightning Network from a convenience point of view. It adds another step as users need to lock funds for a period of time which may increase mental costs and, since we tend to be lazy, may lead to a preference for alternatives.
Litecoin’s segwit activation might provide us something more concrete as well as data to see how users behave, but the currency is hardly used. It barely has 4,000 transactions a day, compared to eth’s 80,000 and bitcoin’s 250,000.
Moreover, the currency has plenty of on-chain capacity, thus it may well be the case that the Lightning Network is just fully ignored as it does not provide any added benefits for ordinary transactions, which account for the vast majority, while adding some disadvantages, especially in requiring higher fees due to the need to pay the hubs and the litecoin nodes/miners.
The current hype, therefore, might be followed by a dump as nothing magical happens for litecoin once segwit activates. Nor does the currency appear to have any use for the Lightning Network.