Litecoin's SegWit Activation: Why it Matters and What's Next

In an era when blockchain upgrades have been defined by years of intellectual combat, a new milestone is set to offer a stark contrast to that narrative.

Barring any unexpected hiccups, a highly anticipated code change is set to lock-in on the public litecoin blockchain today. With the introduction of Segregated Witness (SegWit), litecoin, the fourth-largest cryptocurrency by market cap, should see a boost in the capacity of its currently limited transaction throughput, among other changes to its protocol.

Adding impact to the news is the context in which this upgrade takes place.

SegWit has been at the heart of bitcoin's scaling debate since it was first proposed at the end of 2015. On that network, miners have been hesitant to support the change for technical and political reasons, and as such, users have been calling to test the technology on litecoin as a way to determine whether concerns are valid.

Since SegWit could potentially pave the way for technologies that expand the value proposition of cryptocurrencies, the move toward accepting the upgrade has reignited excitement around the normally less-popular cryptocurrency. Litecoin's price has nearly tripled since the end of March as a result.

But, what's the big deal? Why are some in the community so eager to see the change?

Litecoin Foundation director Franklyn Richards argued that the upgrade might pave the way for other technologies to be tested on a live platform, such as the long-proposed Lightning Network and sidechains – a sentiment echoed by mining pool F2Pool operator Wang Chun when contacted by CoinDesk.

And, oddly enough, some see it as a way to move forward bitcoin’s scaling debate, even if it's unclear exactly how that might happen.

As the rules are coded into litecoin, the change will lock-in when 75% of blocks over a two-week period feature a snippet of code flagging support for SegWit.

If by a predetermined point (block 1193472), 75% are still flagging support, then the code change will activate, making SegWit a permanent piece of the litecoin network.

At press time, this decision was roughly 600 blocks away.

After that, there are two weeks or so to go before the change officially activates to give wallets and users sufficient time to adopt the change. This process was originally described in BIP 9, a specification that outlines the currently favored method of making consensus-level changes to bitcoin.

Further, it’s a backwards-compatible change, so litecoin services don’t need to upgrade to support the transactions if they don't want to. And, perhaps partially because litecoin transaction volume is still low, wallets don't seem to be in a rush to do so.

"LiteVault may support creation of SegWit addresses in the future, if the demand for them exists. And at that time, LiteVault will be upgraded to be able to spend from those SegWit addresses," said a spokesperson for the popular litecoin wallet.

He added that, as far as he knows, no wallets currently support SegWit-style transactions.

The bigger consequences of the change are a bit longer term.

For one, it seems likely that an up-and-running version of the Lightning Network will also be deployed on litecoin, meaning yet another scaling solution originally designed for bitcoin may see live testing on the smaller network.

Litecoin creator Charlie Lee said that he’s working with Lightning Labs on the possibility.

Meanwhile, another Lightning Network startup ACINQ recently tested its version of the top-layer network on litecoin. It noted that, since the cryptocurrency is very similar on a technical level to bitcoin, it works nearly "out of the box".

These sorts of developments might breath new life into the cryptocurrency, since, despite being among the top five cryptocurrencies for a while, litecoin has been all but a barren field of innovation for some time. (F2pool's Chun, for instance, even went so far as to joke that litecoin doesn't have any developers.)

As for now, it seems last-minute foils to the plan are unlikely due to a consensus from miners. Even mining firms that staunchly oppose SegWit on bitcoin (ViaBTC and Bitmain) have indicated they plan to continue to support the plan.

The Litecoin Foundation's Richards argued that litecoin users “unanimously” support the code change, and that the "politics really only exist on bitcoin", stating:

Yet, SegWit was designed to help to expand transaction volume, and, while this might seem necessary for bitcoin right now (since blocks are filling up), ironically, it isn't exactly necessary for litecoin. At press time, the cryptocurrency has about a fifth of the transaction volume observed with bitcoin.

So, does it really need the transaction capacity boost? Some, including Charlie Lee, have framed it more as a step towards SegWit adoption on bitcoin.

Jack Liao, CEO of litecoin mining hardware developer LightningAsic, for instance, admitted to CoinDesk that he expects the upgrade to do "nothing" for the litecoin economy.

"But it can push bitcoin community to active SegWit as soon as possible," he said.

Henry Brade, CEO of investment platform Prasos, added that it might mark the first time that another altcoin will work as a technical testbed for bitcoin changes.

He further suggested that, if SegWit proves to be safe, it will put more pressure on bitcoin mining pools to adopt the change.

He concluded:

Litecoin image via Shutterstock