The Litecoin community has been exploring new standards and optimizations for fungibility on Litecoin. A recent experiment has demonstrated that creating off-chain balance states with inscriptions can facilitate fungibility. This experiment has given birth to a new standard known as LTC-20, which has been proposed to the community for further tinkering and optimization.
What is LTC-20?
LTC-20 is a fungibility standard for Litecoin based on an experimental approach using ordinal theory. This standard demonstrates that off-chain balance states with inscriptions can be used to facilitate fungibility. However, it is not considered THE standard for fungibility on Litecoin, as there are likely better design choices and optimization improvements to be made.
Why is fungibility important?
Fungibility is the property of a good or commodity whose individual units are essentially interchangeable. For cryptocurrencies like Litecoin, fungibility is critical as it ensures that all units of the currency are treated equally. In other words, fungibility ensures that each unit of Litecoin is identical to all others and is therefore interchangeable with any other unit.
How does LTC-20 work?
LTC-20 is based on a three-step process: deployment, minting, and transferring. Deployments initialize the LTC-20 and do not affect state. Mints provide a balance to only the first owner of the mint function inscription. Transfers deduct from the sender’s balance and add to the receiver’s balance, only upon the first transfer of the transfer function.
The LTC-20 balance state can be found by aggregating all of these functions’ activity together. A valid transfer function inscription is required to transfer a balance. Validity can be determined by the available balance, which is defined as the overall balance minus valid/active transfer function inscriptions in the wallet (Transferable balance). If there are no valid/active transfer functions held by an address, the available balance and overall balance are equivalent.
LTC-20 is a new experimental standard for fungibility on Litecoin. While it is not yet considered the definitive standard, it provides a starting point for the Litecoin community to experiment with new designs and optimizations. Fungibility is critical for the continued growth and adoption of Litecoin, and the community’s exploration of new standards is a step in the right direction.