Cryptocurrency Litecoin surged then crashed Monday after the foundation behind the cryptocurrency tweeted a fake press release that touted a partnership with Walmart (WMT) that claimed the retail giant would accept Litecoin as payment at all stores across the country by Oct. 1.
And while Litecoin’s (LTC) dissemination of the fake news appears to be an innocent mistake from the employee running Litecoin’s Twitter account, this case is a perfect reminder of how susceptible cryptocurrencies can be to pump-and-dump schemes and other forms of manipulation. It also shows why increased regulation and oversight are likely on the horizon for blockchain technologies.
On Monday morning, a fake press release was published on GlobeNewswire that announced a fabricated partnership between Litecoin and Walmart which would see the cryptocurrency be accepted for purchases at all Walmart stores across the country. The press release was released via a GlobeNewswire user account that seems to have been created just to send this press release.
GlobeNewswire announced plans to put in additional verification measures to prevent people from impersonating brands in the future.
The since deleted tweet was debunked shortly after, but not before Litecoin took a quick trip to the moon. Litecoin jumped from $174.14 at 8:59 a.m. ET to a high of $231.11 at 9:49 a.m., before tanking to $175.32 at 11:19 a.m. The coin’s price has remained around $180 since the incident.
What is Litecoin?
Litecoin is roughly the fifteenth largest cryptocurrency by market capitalization, currently sitting just above $12 billion in market cap. Litecoin was started in 2011 by a former Google engineer and debuted as the “lite” version of Bitcoin.
Bitcoin and Litecoin have a lot of similarities, with both coins having limited supply, aiming to be a digital store of value, and having a proof of work (PoW) model meaning the cryptos are mined in a similar fashion.
While BTC and LTC have their similarities, they remain fundamentally different. The flagship Bitcoin was created to be a sort of digital gold, while Litecoin was created in reaction to Bitcoin and aims to be the “silver” to Bitcoin’s “gold”, though as time has progressed the differences between the two have become negligible.
Like many cryptocurrencies, Litecoin essentially created as a response to Bitcoin. Litecoin’s creators kept some desirable aspects of Bitcoin while changing parts they felt they could improve. One is a shortened time for “block creation”
The fundamental difference between the two are speed of transactions and the algorithms the two run on. Litecoin brags a transaction confirmation time that is about a quarter that of Bitcoin, with Litecoin transactions being verified in about 2.5 minutes and Bitcoin blocks taking about 9-10 minutes to process.
Compared to Bitcoin, which uses the more complicated SHA-256 algorithm, Litecoin uses a newer algorithm called ‘Scrypt’. Bitcoin mining has recently fallen out of reach for the average person as the more-complicated system has spawned the creation of Application-Specific Integrated Circuits (ASICs) – or tailor-made Bitcoin mining computers – which give a competitive advantage to corporate miners as better equipment equates to better mining capabilities. Litecoin’s use of the simpler Scrpyt algorithm keeps mining accessible to individuals as smaller advantages are gained from the use of expensive ASICs.
Why this looks bad
While this whole episode – in the end – didn’t hurt the price of Litecoin, as it remains basically where it was before the press release was published, this was still a really bad look for both Litecoin and the crypto space as a whole.
On Litecoin’s end, it’s not encouraging that one of the largest and oldest cryptocurrency projects out there can be pumped more than 30% on fake news. Pump-and-dump schemes plague the crypto market and knowing that a $12.3 billion market cap doesn’t protect you much at all from manipulation certainly underscores the need for increased oversight for the crypto market.
While Litecoin gave credibility to the fake press release through its retweet, which of course exacerbated the issue, it also etched away at the reputation of the space as investors will be more skeptical and less trusting of future good news.