Litecoin ‘Halving,’ Set for Wednesday, Should Harden Supply of ‘Digital Silver’

Litecoin creator Charlie Lee knew Bitcoin was special after he read an article in 2011 about how it was the exclusive payment method on Silk Road, a marketplace for illicit drugs; a feat no traditional payment method could accomplish at the time.

He was so impressed that when he later decided to start his own project, he cloned Bitcoin inventor Satoshi Nakamoto’s code – including many of the original blockchain’s key features. One of those was the implementation of periodic “halvings” into the blockchain’s underlying programming, for a 50% reduction in the pace of new issuance of the cryptocurrency every four years or so.

That quadrennial milestone is expected to happen Wednesday around 15:09 UTC (11:09 am ET), according to the website litecoinblockhalf.com. It will be the Litecoin blockchain’s third halving since its inception in 2011.

Lee explained during a Twitter livestream last week that these disinflationary halvings help achieve mass adoption without sacrificing network security.

Litecoin, like Bitcoin, uses a “proof-of-work” security mechanism – relying on “miners” who expend computational resources to process transactions and secure the network. During that process, miners win rewards – a combination of variable transaction fees and a predetermined “subsidy” that gets halved approximately every four years. (With Litecoin, they happen every 840,000 transaction blocks, and the average time to generate each block is about 2.5 minutes.)

Eventually, the plan is to wean the miners off these subsidies and pay them mostly via transaction fees.

“Satoshi chose four-year block halving so that it gives enough time for the network to grow in time for the fees to eventually take over.” Lee said. “The idea is that there will be enough usage on-chain creating enough fees. The fees will be enough to pay the miners to continue to help secure the network.”

But for now, the trick is to keep miners incentivized while gradually reducing the payouts. Lee says one possibility is that since there are fewer new units of the cryptocurrency being created, the price should ostensibly get a boost thanks to a slower increase in the supply.

“The price is driven by supply and demand,” Lee explained during a Twitter Spaces event on Tuesday. “If the supply side gets cut in half and the demand stays the same, then the price should go up.”

Read more: As Litecoin Halving Approaches, Founder Touts Silver Collector Cards Loaded With 'Digital Silver'

Bitcoin, started in 2009, is the largest cryptocurrency by far, and is often viewed by crypto analysts as a bellwether of digital-asset markets. And crypto traders, who have uncannily tracked the Bitcoin blockchain’s own quadrennial halvings, are well aware of the patterns observed in bitcoin’s price. Bull markets typically start one year before Bitcoin’s having, and culminate in extreme sell-offs two years afterward.

That’s also the current trajectory, ahead of Bitcoin’s next halving, expected in 2024. The BTC price is up 77% year-to-date, following last year’s 64% sell-off.

The litecoin (LTC) price is up 33% in 2023, and crypto analysts aren’t predicting any massive uptick in connection with this week’s halving.

“Like I’ve previously said, a lot of the price action is a self-fulfilling prophecy,” Lee said. “Just because people think the halving is going to cause the price to go up, they will buy ahead of the halving or even right after the halving.”

“For bitcoin and litecoin, sometimes the price went up before, sometimes it runs up afterwards,” Lee added. “Sometimes it doesn't really have too much of an effect. It all depends on how the market reacts to the halving.”

As much as anything, Litecoin’s halving might just provide a lesson on blockchain mechanics as Bitcoin’s next halving approaches.