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Strong Litecoin is vital for Bitcoin

For the first time in history in 2017 we've seen Litecoin getting ahead of Bitcoin technologically, offering something Bitcoin didn't yet have (for mostly political reasons) — Segregated Witness implementation.

For the first time ever it made me think there actually might be a reason for Litecoin existence. A reason that is much deeper than anyone perceived it before. And that reason is that it makes Bitcoin stronger in the long run by creating an duopoly in the cryptocurrency market, where we now have two very similar (in terms of the codebase) currencies. This duopoly, in turn, has distinct characteristics:

  1. It's easy for users to switch their savings currency. They go to the exchange and buy LTC for BTC or vice versa, bypassing fiat. This means they get to keep their money safe in their wallets, off exchanges and banks.
  2. Because it's easy to switch, this creates a very simple mechanism for the market to vote on changes in either cryptocurrency, without the fear of things accidentally going wrong for some users (as is the possibility with UASF or hard forks). Voting can be done without any kind of signaling.
  3. Such voting puts a price on decisions of individuals. Anyone who disagrees with the changes that are accepted by the economic majority is simply left with less money.
  4. Also, voting by buying either LTC or BTC avoids the need for shady tokens on exchanges who want to speculate on yet to be made changes and splitting chains.
  5. Attempts to infiltrate the community and potentially destroy the currency by pushing decisions about its development become more expensive as you now have to convince two communities instead of one. We've seen this didn't work out with SegWit at all.
  6. It pretty much reduces any major argument the community might have to a buy/sell decision - if you disagree at any point, just switch. Less fighting is good; more robust and fast price feedback is better for everyone.

Of course, the price of switching to Litecoin is currently too high — it's much less liquid: less companies accept it, less exchanges accept it, people are less aware of it. That's why it's critically important to work on Litecoin infrastructure and make it as cheap as possible for all market players to switch their payments, their smart contracts, their savings to either currency. And this is only potentially possible to make the switch cheap because Litecoin code is as close to Bitcoin as possible.

To be clear, I don't think Litecoin will ever overtake Bitcoin in market share - that's not why we need Litecoin. Regardless of what people thought Litecoin was, it is now obvious that it can be used as a sort of backup currency in case something happens to Bitcoin. And in order to make it functional we can't just sit back and think it will work without the infrastructure. It's critically important to make it easy for everyone to have a plan B. And no, in this case plan B is not Bitcoin.

There are many analogies in the economy already. There's a reason Pepsi exists. There's a reason there is a duopoly of Gold and Silver or Airbus and Boeing. It's a check on the proposed product.

There are a lot of voices out there (as I'm writing this) that say it's unwise to just give up and switch. Perhaps, but it's also unwise to think that those willing to push their agenda would stop after one small fight is lost by them. Or multiple fights, even. Especially not when they would have all their money remain on both chains in a potential hard fork. The answer, in my opinion, lies in the natural redistribution: those with the wrong opinions lose by choosing the worst currency at the moment. They pay the price.

If Litecoin today was just as liquid as Bitcoin, we wouldn't be having the SegWit and UASF debate. The choice would be made by the economic majority long time ago. However, because Bitcoin is de-facto the only usable cryptocurrency out there, it becomes possible to hold everyone hostage. It also becomes acceptable to make risky propositions such as UASF. This situation is a perfect example of something that shouldn't happen in a mature market. Having a duopoly of Litecoin and Bitcoin might be the way to prevent this from ever happening.