This article was updated on April 7, 2018, and originally published on Nov. 29, 2017.
To borrow and modify a catchphrase from sports commentator Dan Patrick: "You can't stop cryptocurrencies, you can only hope to contain them."
Last year, the aggregate value of all cryptocurrencies combined surged from $17.7 billion to $613 billion by years end. In just 12 months' time, the value of all virtual currencies rose by more than 3,300%! Mind you, the stock market, inclusive of dividend reinvestment, has historically gained about 7% per year. Digital currencies have absolutely left traditional assets in their dust.
Leading the charge is bitcoin, which barreled briefly to $20,000 per coin in December. Bitcoin began 2017 below $970 a coin, so it's had an incredible run. Its current market cap of $117 billion actually places it ahead of Dow Jones Industrial Average stalwart General Electric.
Bitcoin's biggest competitor isn't Ethereum
Bitcoin isn't alone. In fact, CoinMarketCap.com lists 1,560 different investable virtual currencies as of April 7, 2018 -- many of which have their very own underlying blockchain. Blockchain is the digital and decentralized ledger that records transactions without the need for a financial intermediary like a bank or credit union. With a low barrier to entry -- i.e., anyone with time, knowledge, and funding can create blockchain -- competition among virtual currencies and their blockchains can be fierce.
The biggest competitor to bitcoin and its crypto-empire might appear to be Ethereum. Ethereum has the second-largest market cap of any digital currency, and it had an even better performance last year than bitcoin. Further, its blockchain is being tested in small-scale and pilot projects by more than 200 different organizations in the Enterprise Ethereum Alliance.
But the two cryptocurrency giants seemingly have different missions at the moment. Ethereum appears intent on pushing its blockchain to enterprises, while somewhat ignoring its Ether token as a means of payment. Meanwhile, bitcoin has focused extensively on building up its reputation as a payment facilitator, and only recently turned its attention to attracting businesses to its blockchain. While competitive to a degree, bitcoin and Ethereum aren't direct threats to one another.
Say hello to bitcoin's primary rival
Instead, bitcoin's biggest competitor just might be Litecoin. As of April 7, 2018, Litecoin had the fifth-largest market cap of all cryptocurrencies, at $6.6 billion, trailing only, Bitcoin Cash, Ripple, Ethereum, and bitcoin.
In many ways, bitcoin and Litecoin are extremely similar. They both have protocols written that limit the number of coins that can be mined, albeit the mean block time for Litecoin is quicker than bitcoin. This leads to potentially quicker payments, although smaller in most instances. They're also much older than most virtual currencies, with bitcoin and Litecoin being created in 2009 and 2011, respectively. They are "mature" digital currencies, if such a thing exists.
But what really ties these two at the hip and makes them competitors is their foremost focus on becoming go-to payment facilitators. Five brand-name companies have been accepting bitcoin as legal tender since 2014, with many smaller merchants joining in.
Litecoin hasn't been nearly as successful, but that looks to be more a function of its creator, Charlie Lee, taking a backseat for years and only recently putting his full effort behind building up his cryptocurrency's use. Retailer Overstock.com is the one brand-name retailer that Litecoin has managed to attract. However, at the Litecoin Foundation website, there's a list of dozens of accepted retailers.
Litecoin certainly has what it takes to give bitcoin a run for its (virtual) money. Last year, Litecoin completed the highly anticipated SegWit upgrade, which has been critical in improving the capacity of its blockchain, hastening settlement times, and reducing the costs to process transactions. Doing so should help attract businesses and, perhaps, investors.
Then again, Charlie Lee doesn't view Litecoin as bitcoin's biggest rival. He believes that bitcoin and Litecoin can coexist for the betterment of both virtual currencies, although that remains to be seen.
A risk to all virtual currencies (bitcoin and Litecoin included)
But one risk that bitcoin, Litecoin, and every cryptocurrency shares, to some degree, is the aforementioned fact that the barrier to entry is relatively low.
There's virtually no argument from pundits that blockchain has the potential to change the payment process for a number of industries. The questions are: when will it happen, and which blockchain(s) will be preferred?
Investors have demonstrated a long history of overestimating the adoption of new technology. Nearly every instance of game-changing technology, such as business-to-business commerce vis-a-vis the internet, genome mapping, and 3D printing, all resulted in bubbles being burst. This isn't to say the businesses within these industries have failed to find success over the long run, but they certainly didn't find it nearly as quickly as investors expected. That might happen with blockchain technology.
There's also the real possibility that the underlying blockchain technology that businesses prefer isn't bitcoin's, Litecoin's, or even Ethereum's. There's a lot of competition out there, and preferences can change on a dime.
Can Litecoin offer a real challenge to bitcoin's crypto-supremacy? Only time will tell.