Coinbase has just rolled out full support for Litecoin, its third cryptocurrency.
Users will be able to buy, sell, send and store Litecoin from Coinbase’s website or mobile apps, using easy payment methods like a credit/debit card or PayPal.
While Coinbase was founded as a platform to transact only with Bitcoin, the company has since announced its intent to add other cryptocurrencies with the broader goal of becoming a “digital currency company.”
Four years in the making
Last summer Coinbase added support for Ethereum, which is now the second most-popular digital currency with a market cap about one-third the size of Bitcoin’s market cap. At the time, the reasoning was that Coinbase saw Ethereum’s focus on smart contracts as a tangible improvement over Bitcoin, and not just another alt-coin that doesn’t serve any real function.
So why Litecoin? Interestingly, Litecoin’s creator, Charlie Lee, has been director of engineering at Coinbase for nearly four years. And while there were always ongoing discussions about adding Litecoin to the platform, they didn’t really materialize until recently.
Lee explained that it’s been a slow few years for Litecoin. While the digital currency had a heyday in late 2013 with its price spiking to over $50 per coin and over $1 billion in total market cap, it quickly fell back to earth and basically remained flat for three years.
So why the sudden change?
If you’re familiar with Bitcoin you know that the community is facing an internal struggle with deciding how to scale the currency for the future. Essentially, Bitcoin’s original code wasn’t designed to process this many transactions on a daily basis, and now the network is charging too much per transaction, which takes too long to confirm.
Luckily there are two main proposed solutions: Bitcoin Unlimited, which aims to get rid of the block size limit altogether, and Segregated Witness (SegWit), which wants to slightly increase the block size while also moving some non-essential data out of the transaction and off the blockchain.
Both solutions would require a “fork,” meaning the majority of miners would have to agree on the changes and signal to slightly alter the currency’s blockchain. So far the Bitcoin community has been unable to reach a consensus on how to fix the scaling issue.
A few months ago Lee and the Litecoin community decided to work on implementing SegWit into Litecoin. And after heated discussions with the biggest players in the Litecoin mining community, the group reached consensus about a week ago to implement SegWit. Last week, miners “voted” with their hash power to signal for SegWit, and the actual code will be implemented next week.
While Litecoin is still small enough that it’s not suffering from the same scaling issues as is Bitcoin, the team thought it’d be a good way to bring something exciting to Litecoin.
Plus, SegWit has some other benefits besides just increasing network capacity. It prevents malleability, which is essentially the risk (that currently exists in Bitcoin) that third parties can alter transactions before they are confirmed by the network. Implementing SegWit will also allow Litecoin to experiment with something called Lightening Networks — which would essentially allow for instant Litecoin payments off the main blockchain, with transactions only settling on the chain when they need to.
And perhaps best of all, these recent developments have rekindled interest in the Litecoin currency, sending the price (and more importantly, volume) skyrocketing. This increased trading volume is what finally allowed Coinbase to implement Litecoin, knowing they now have a liquid enough market (on the Coinbase-owned exchange GDAX) to supply user demand.
Essentially, Lee sees Litecoin’s long-term goal as being able to help Bitcoin alleviate some transactional volume by taking over smaller, less important transactions. So you could use Lightening Networks on Litecoin to buy a coffee with zero confirmation times or transaction fees. But if you’re wiring $50,000 to your bank, you could still use Bitcoin for the increased security that comes from a bigger network of decentralized miners.
He also sees Litecoin as a testing ground for future Bitcoin features. If Litecoin can successfully implement SegWit and Lightning Networks, it may show the Bitcoin community that these features are clearly the way to once and for all resolve the capacity issue.