On May 7th 2019, a blog post of the Litecoin.org project has announced the release of a new client software version: Litecoin Core v0.17.1. The update brings slight user interface changes, a new wallet format, extended privacy features, and a significant network fee policy change which effectively reduces the minimum transaction cost from 0.001 LTC/kb (the default value of the previous client) to 0.0001 LTC/kb.
This is great news for both Keynesians who want to spend their coins, and Lightning enthusiasts who want to onboard the second layer at a fraction of the Bitcoin cost. However, according to data provided by Bitinfocharts, Charlie Lee’s coin has never really faced a lot of demand for block space: the busiest day was December 20th 2017, and the average fee was around $1.5. After the phenomenal bull run has passed, the transaction costs have returned to a price ranging from one to four cents.
Litecoin Core 0.17.1, lower fees, and the Lightning Network
As soon as the 0.17.1 Litecoin Core update gets adopted by a majority of nodes, even writing your transaction in a full block cost as little as $0.15 (ten times lower than the bull run amount). This means that under regular conditions of low demand, the average fee will be lower than a cent. In terms of opening a Lightning Network channel, this is exactly what is needed to increase adoption and tackle the criticism of costs, as Atomic Swaps from LTC to BTC become possible.
In a nutshell, instead of opening a Bitcoin channel and paying the higher fee, you can go for Litecoin. As soon as you’ve joined the Network, you will be able to exchange your LTC for BTC and benefit from all the merchant adoption and network effect. This also means that there will be a lot more going on for Litecoin, to keep up with the latest developments.
More privacy for Litecoin
Also part of the Litecoin Core 0.17.1 update is the coin selection feature which enables greater privacy for user UTXOs. Furthermore, support for partially signed transactions has been added in order to “simplify workflows where multiple parties need to cooperate to produce a transaction”. This inclusion, which is an adaptation of Andrew Chow’s 2017 BIP 174, is meant to enable greater functionality for hardware wallets, multisig setups, and CoinJoin transactions.

Fungibility is the only property of sound money that is missing from Bitcoin & Litecoin. Now that the scaling debate is behind us, the next battleground will be on fungibility and privacy.
I am now focused on making Litecoin more fungible by adding Confidential Transactions. 🚀
— Charlie Lee [LTC⚡] (@SatoshiLite) January 28, 2019

As announced in January 2019, Litecoin has set a greater goal to attain fungibility and privacy. Part of this quest is the addition Confidential Transactions, and the solution of choice seems to be that of creating extension blocks through the Beam MimbleWimble implementation.
While the Core 0.17.1 update doesn’t swerve the protocol in this direction, it opens up the door for some tricks and fixes that will definitely improve the privacy. Furthermore, it’s going to be interesting to see to which extent the Litecoin developers are interested in forking a CoinJoin wallet such as Wasabi and allow LTC users to mix their coins. Definitely, this solution is no substitute for Confidential Transactions, but it can be a great tool for privacy nonetheless.
The economics of low fees for Litecoin
The main reason why Litecoin affords to take this risk of lowering the miner reward for writing transactions into blocks is that the creation of Charlie Lee is the leader of its mining algorithm and has no serious competition. Therefore, miners can’t really rebel and switch to something else that they might find more profitable (such as Digibyte and Dogecoin).
However, it’s very likely that this protocol change has been negotiated in advance and the financial considerations regard greater adoption and resulting economies of scale. The fee market is still in its early phase, and miners are still making most of the profits from the rewards given for discovering new blocks.
If more merchants accept Litecoin as a mean of payment and more people open LTC Lightning Channels, then there will be significant gains for those who secure the network. Furthermore, if Litecoin earns a reputation for being the major cryptocurrency with the lowest on-chain fees which also offers a gateway to the Lightning Network, then there will be much more enthusiasm surrounding digital silver.
Traders willing to get on exchanges greatly benefit from the lowered fees (especially during bull markets), Lightning enthusiasts will definitely prefer to experiment with the cheaper way of onboarding the Network, and everyday users who make transactions will love the cost reduction. It’s a win-win-win situation in a competitive environment where Bitcoin forks like BCH and BSV constantly market their low fees. Furthermore, since Litecoin is loyal to the king and actively supports it, this is good news for BTC and Lightning.
Crypto Insider has contacted Litecoin Core developer thrasher in order to comment on the changes brought by the fee reduction. His reply was the following:
The rationale was that the team and I decided that we wanted to make transaction fees cheaper for everyday use. Miners will still earn coins from the block reward, despite a reduction in the fees they collect. There always needs to be a balancing of fees, otherwise the network is at risk of getting spammed. At the same time, we also want to make it cheap enough so users don’t pay anything excessive for regular transactions or for participation in the Lightning Network. We hope to spur more adoption as time goes by.

Read more:

Interview: Charlie Lee on the future of Litecoin
Litecoin will add Confidential Transactions in 2019
Litecoin explores MimbleWimble with Beam

The above is to be considered opinion and not investment advice in any way, as an unbiased media, no one interferes with the Editorial content of CryptoInsider.com, writers have freedom to choose their own direction, members of Crypto Insider do not participate in trades based on content.
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