SegWit Adoption is Higher on Litecoin Than Bitcoin, But Why?

By Kyle Torpey


Litecoin has turned into a sort of testnet for Bitcoin over the past few years, and the best example was likely when Segregated Witness (SegWit) was activated on Litecoin in April 2017 — before it was activated on Bitcoin.


Litecoin really had no need for SegWit at the time, as the network was nowhere near its capacity, which involved a 1 megabyte block size limit and a 2.5 minute block time interval at the time. That said, the activation of SegWit also allowed Litecoin to play a role in the development of the Lightning Network.


Bitcoin followed with its own activation of SegWit a few months after Litecoin, and some, like Litecoin creator Charlie Lee, believe SegWit’s deployment on Litecoin helped pave the way for the upgrade to get activated on Bitcoin. The fact that SegWit was working flawlessly on a live cryptocurrency network with real money at stake, combined with the fact that the market and users appeared to react positively to the potential for SegWit activation on Litecoin, were key points to back up this claim.


While it was Bitcoin that seemed to desperately need the capacity increase and efficiency improvements for the Lightning Network that came with SegWit, Litecoin has achieved greater levels of adoption two years later. Let’s take a closer look at why.


What Does the Data Say?


When looking at the SegWit adoption data for Bitcoin and Litecoin from Blockchair, it’s obvious that Litecoin will have greater adoption in the early days due to the fact that SegWit was activated on the altcoin first. Bitcoin then quickly rose to adoption levels around 10% as exchanges and wallet providers began to integrate the new transaction type into their platforms.


The adoption of SegWit by Coinbase in late February 2018 was a major moment for Bitcoin and Litecoin. Bitcoin went from 14% to 30% adoption, while Litecoin went from 9% to 28%.


kylelitecoin.jpg


After a dip in adoption over the next few months, Litecoin then rose from 24% in the middle of May to over 50% in September. SegWit adoption on Litecoin has more or less stayed around that 50% level since then.


On the other hand, Bitcoin hasn’t shown much sustained growth in Segwit adoption since Coinbase integrated the improvement, growing only 9 percentage points since then.


So What Gives?


There appear to be a few key factors that explain why SegWit adoption on Litecoin is higher than it is on Bitcoin.


First of all, it should be noted that Blockchain has not integrated SegWit. This wallet still accounts for at least 20% of Bitcoin network activity, so Blockchain alone adopting SegWit would push Bitcoin’s SegWit adoption levels above Litecoin’s.


There’s also VeriBlock, which is a project that uses Bitcoin transactions to improve the security of alternative blockchains. As discussed in a recent piece on the relationship between Bitcoin transaction fees and SegWit adoption, VeriBlock has a huge impact on the SegWit numbers. In the chart above, a spike in Bitcoin’s SegWit adoption numbers can be seen in March of this year. This spike was due to VeriBlock moving from testnet to mainnet. As the chart indicates, Bitcoin would be quite close to Litecoin’s level of SegWit adoption if VeriBlock’s non-SegWit transactions weren’t in the picture.


Some quick back-of-the-napkin math indicates that Bitcoin’s SegWit adoption could be approaching 70% if VeriBlock didn’t exist and companies like BitPay and Blockchain upgraded to SegWit. This would put Bitcoin’s SegWit adoption far above Litecoin’s 50% level.


Having said all that, it’s clear that there isn’t a strong need for SegWit for Bitcoin users right now, outside of its utility in developing the Lightning Network. Both Blockchain and BitPay have indicated that their users are asking for other features first. Bitcoin’s transaction fees have been rather low for more than a year, which likely explains the stagnation in SegWit adoption over that time period.


If fees were to rise to more significant levels, then Blockchain would likely add SegWit and VeriBlock would be using the Bitcoin blockchain less frequently. Until then, Litecoin’s advantage over Bitcoin in the SegWit adoption department is likely to hold.


Note: Thank you to Alto Financial’s Andrew Yang for assisting with the research for this article.

Update: An earlier version of this article mentioned an incorrect block size limit for Litecoin. This has been corrected.


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