The proposal, originally intended to improve Bitcoin scalability, was activated in the Litecoin cryptocurrency network in 2017. As the Litecoin becomes an excellent testing ground for improvement solutions, the activation of SegWit also allowed the fifth largest cryptocurrency to make a contribution to the Lightning network development.
At a time when Bitcoin is needed to increase the scalability of the blockchain, Litecoin has reached highs in the adoption of SegWit. This is evident by the data of the LongHash.
As we can see, the SegWit has been more widely used on Litecoin since its launch. A sharp jump in Bitcoin adoption took place when cryptocurrency exchanges and wallet providers started to integrate scalability solutions into their platforms. It was Coinbase that took decision making to a new level. That time Bitcoin has doubled, and Litecoin has risen to three times.
To date, SegWit remains at 50% on Litecoin. And there are reasons for this one.
Firstly, the larger portion of the Bitcoin community uses the Blockchain.com service, that has not integrated SegWit yet. Another major service is BitPay.
Also, Bitcoin users do not demand SegWit. Both Blockchain and BitPay services indicated that their users first requested other features. As you know, SegWit helps reduce transaction fees. Just now the level of transaction fees on the Bitcoin blockchain is already quite low, which probably explains the stagnation of the SegWit introduction in the community.
Bitcoin’s Hashrate Is Overcoming Litecoin’s One Right Now
Although Bitcoin is an outsider in SegWit adoption, the first cryptocurrency continues to establish new hashrate heights. At the same time, the Litecoin hashrate has decreased. This drop was due to the recent cryptocurrency halving. As the creator of the digital currency Charlie Lee notes, the hashrate of the cryptocurrency has decreased by 4.4% since the moment of LTC halving.
Litecoin has had it's first difficulty change since the halving at block 1681344. Difficulty dropped from 15930321 to 15234158, which is a 4.4% drop in difficulty/hashrate.
Note that this is not a full diff change period since the halving. Next diff change at block 1683360.
— Charlie Lee [LTC⚡] (@SatoshiLite) August 9, 2019
When the block reward has fallen to 12.5 LTC per block, the value of the second cryptocurrency has not demonstrated a significant growth, which most likely forced small miners to refuse the mining. The rate of the latter is almost entirely dependent on the LTC market rate, and not on transactional activity.
It should be noted that Litecoin does not have liquid futures markets that allow miners to hedge large positions, which is especially important in the face of uncertainty. Therefore, the profitability of Litecoin miners is always significantly dependent on the rate of digital silver.
To date, the income of miners from fees is insignificant compared to the mining reward for the Litecoin block. Moreover, digital silver has a relatively low volume indicator of the on-chain transactions. Thus, the main miner’s income is the reward for the block.
A high percentage of Segwit adoption makes the profit of miners from transaction fees even more trivial.
Recall that after halving in 2015, the hashrate of Litecoin dropped by 15%, but within two weeks it recovered to its previous values. Thus, mass shutdowns of hardware did not occur in the medium and long term due to a decrease of reward.
Just the Litecoin price rally can compensate for the decrease in block rewards. The growth in the volume of on-chain transactions can only slightly affect the profitability of mining. Let’s see if the Litecoin will be able to recover this time or if the LTC miners will be forced to leave the market in the long run.