Litecoin has given the Bitcoin project a new lease of life. Will Bitcoin lose a large number of developers and projects?

The Litecoin blockchain has long been considered less innovative than the Bitcoin blockchain, but its decision to activate the Segregated Witness (SegWit) code upgrade is causing developers to take a different look at it.

Litecoin, the fourth-largest public blockchain by total investment, is expected to activate SegWit this week — a move that would pave the way for projects that are currently impossible to implement on the bitcoin network. Given the low likelihood that SegWit will be activated on the bitcoin network, the decision will put Litecoin, which was founded in 2011 as one of the first “altcoins” seeking to improve the bitcoin codebase, in a new spotlight.

Now, projects that originally intended to build on bitcoin’s SegWit implementation are publicly discussing using litecoin as a testbed, hoping to prove their projects on a real-world public blockchain.

So far, the Lightning Network has become the most concrete example of some teams adapting to this new possibility. Last week, a Lightning Network project launched a version of its software that is compatible with Litecoin.

Other projects that rely on SegWit are also looking at alternatives to Bitcoin.

Nicolas Dorier, a bitcoin developer and CTO of distributed ledger startup Metaco, explained that developers are simply eager to continue their work in any way possible.

Dorier told CoinDesk:

“A lot of developers thought SegWit was going to pass, and they had built a lot of stuff. The last thing they want is for their hard work to go to waste.”

New Immigrants

However, this transition will not be as simple as it sounds, as a lot of work needs to be done to ensure that the Litecoin codebase and projects that seek to use Litecoin are able to make this switch.

For example, Johnson Lau, the lead developer of MAST, which seeks to implement more complex smart contracts on Bitcoin, is now planning to implement the project on Litecoin. So far, we are seeing Lau taking an increasingly active role in Litecoin code development, writing a guide to help miners prepare for SegWit activation.

After becoming increasingly “frustrated” with the fact that SegWit could not be activated on Bitcoin, he decided to make his project compatible with Litecoin — a process that took him just a few hours.

Another notable Dorier project is NTumbleBit, an implementation of a theoretical decentralized coin-mixing project called Tumblebit, which is a top-layer network like the Lightning Network. (Dorier hopes to eventually add functionality that would allow users to trustlessly exchange bitcoin for litecoin, while also providing greater privacy.)

He said:

“That’s my goal.”

Power boost

The publicity SegWit has received is also helping to kick-start Litecoin’s previously announced research and development efforts.

For example, another high-profile project that may appear on the Litecoin network is Confidential Transactions, which is designed to shield sensitive information from public blockchains.

Litecoin developers have been working on implementing this idea since September, when litecoin developer Xinxi Wang released a development update in which he argued that SegWit would make it easier to deploy privacy-focused technology.

However, Litecoin Foundation director Franklyn Richards said the team is not ready to talk about the project yet.

One potential problem is that Confidential Transactions take up 20 times more space on the blockchain than normal transactions.

Given the current limited capacity of the blockchain network (a factor that has fueled even more heated debate in the Bitcoin space), this factor could also pose a problem for Litecoin in the future.

In addition, Blockstream CTO Greg Maxwell has been researching "confidential transactions", but he recently said in a conversation that it is "premature" to add "confidential transactions" technology to Litecoin.

However, other developers have expressed their hopes for using Litecoin.

Sergio Demián Lerner, a developer at bitcoin smart contract startup Rootstock (RSK), said his team is unlikely to change its plans based on which blockchain activates SegWit first.

He stressed that:

“RSK is very Bitcoin-centric at this point.”

However, given that the company plans to open source their technology, it’s possible that others may use RSK’s technology and create their own versions on Litecoin.

He added:

“We will help any serious team that wants to advance RSK technology.”

Precautions

However, it is worth noting that there is a politicized element to these efforts.

Although Litecoin has approved the activation of SegWit, as RSK said, some miners still prefer the Bitcoin network, which is seen as a more important and valuable long-term project.

Furthermore, the types of technology projects that are considering migrating to Litecoin are generally experimental and in their infancy.

These factors combined have created some concerns in the community.

While Litecoin has enabled a wave of young projects to test their ideas, some worry that doing so will “export” the value of the Litecoin token by making big technological promises to win investor attention.

The news of SegWit has already sent Litecoin’s price to a three-year high.

Dorier has also been thinking about the long-term impact of SegWit, saying:

“Even if SegWit makes Litecoin better for some use cases, the main problem is that mining centralization is still not solved for both Bitcoin and Litecoin. If Litecoin gets big enough, it will face the same problems that Bitcoin is facing.”

He pointed to the currently favored approach to bitcoin protocol upgrades, which he also believes inadvertently gives miners too much veto power over development upgrades.

The problem is that if this problem is not corrected on Bitcoin, then as the Litecoin network and value rise, future upgrades to Litecoin along the lines of SegWit may similarly have trouble gaining support.

Given so much uncertainty, it’s probably too early to know what role Litecoin will play in helping these projects bypass the bitcoin scaling debate and move toward the real world.

However, Blockstream’s Maxwell was generally optimistic about Litecoin’s upcoming SegWit activation, stating at a recent meetup:

“Eventually Bitcoin developers will work on Litecoin because the people who are actually doing Bitcoin protocol development don’t want to improve the script without SegWit because SegWit really makes the protocol improvement process much easier.”