A Litecoin halving is an event where the number of generated Litecoin rewards per block is halved.
Occurring roughly every four years, Litecoin halvings aim to preserve Litecoin’s purchasing power. The last Litecoin halving took place on August 5 2019, when the mining reward reduced from 25 Litecoins per block to 12.5 Litecoins per block.
The next halving is expected to take place on August 6 2023, when the reward will decrease from 12.5 to 6.25 Litecoins.
The purpose of a Litecoin halving
To understand why Litecoin halving events occur, it’s helpful to understand the process behind the creation of LTC tokens.
There is a limited amount of Litecoin that can be created. In total, there will be 84 million coins in circulation and, once they have been mined, no more can ever be generated.
Because Litecoin has a fixed supply, it is a scarce asset and inherently deflationary. If its supply wasn’t capped, its purchasing power would be slowly eroded over time – as is the case with fiat currencies, which are printed at will.
Litecoin halvings are scheduled to occur once every 840,000 blocks until the maximum supply of 84 million Litecoins has been generated by the network.
So far, around 75% of all Litecoins have been mined, with approximately 63 million of the total 84 million currently in circulation.
Impact on miners
Litecoins are released in a predictable rhythm through block rewards.
Miners receive Litecoin rewards for adding new blocks to the network. When a Litecoin halving occurs, miners receive 50% fewer Litecoins for verifying transactions.
The block production time on the Litecoin network is around one block every 2.5 minutes. Following the 2019 halving, around 576 blocks are produced every 24 hours with a new supply of 7,200 LTC entering into the market – half the previous daily level of approximately 14,400 LTC. With each halving event, significantly fewer Litecoins are added to the market.
Litecoin halving events are expected to impact people’s interest in mining because several widely used Litecoin mining devices will have a harder time generating enough LTC to offset electricity costs.
Moreover, mining difficulty – a measure of how hard it is to maintain and add to the blockchain – doesn’t tend to immediately adjust to the drop in mining profitability.
As a result, miners might decide to mine other cryptocurrencies, which can lead to a decrease in the hash rate. According to BitInfoCharts, Litecoin’s hash rate currently stands at 157 TH/s – vastly below its July hash rate of 523 TH/s.
Some Litecoin enthusiasts reckon these effects will be fairly short term because computing power tends to increase in the months following a halving to compensate for the drop in mining profitability. During the halving on August 25 2015, for example, the Litecoin hash rate fell by 15% before rebounding in the next two weeks.
Others, however, are worried Litecoin’s falling hash power makes it vulnerable to a 51% attack, when a single miner or cartel assembles more hashing power than all other mining participants.
If they obtain more than half of the total hashing power in the network, they can outvote other miners and gain control over which transactions are included on the blockchain.
Litecoin traders should expect to see heightened volatility during a Litecoin halving. Litecoin is currently trading at $45, which is 53% lower than its August 5 price of $97.
A similar occurrence took place in 2015, when Litecoin peaked at $8 in July before falling to $2 by the August 25 halving date.
The latest price drop hasn’t helped an already difficult year for the market’s sixth-largest cryptocurrency, whose tight correlation to Bitcoin meant it suffered greatly when Bitcoin entered its latest bear phase.
Some analysts argue a Litecoin rebound isn’t imminent because the falls witnessed over the past six months suggest the supply cut was already priced in by traders.
So while a Litecoin halving can impact the coin’s value – at least in the short term – the goings-on in the wider cryptocurrency market are of greater importance when trying to predict its price in the future.
Disclaimer: We do not give advice on financial products.