Everyone has heard of Bitcoin. It is the original cryptocurrency that started the crypto craze. But what about Litecoin? It is not talked about as much as other currencies even though it is one of the oldest altcoins.
Adapted from Bitcoin’s open-source code by Charlie Lee, Litecoin was officially launched in 2011. It is built on blockchain technology which is a decentralized public ledger.
Litecoin’s defining feature is that it is a lighter and faster version of Bitcoin. But what differentiates Litecoin from Bitcoin? What kind of technology does Litecoin use? Is investing in Litecoin a good idea?
Such questions might be popping into your mind right now. Read ahead to find their answer.
History of Litecoin
Litecoin’s history is irrevocably linked to Bitcoin. Just like Bitcoin is the original crypto, Litecoin is the original altcoin- a term for all cryptocurrencies other than Bitcoin.
By 2011, Bitcoin mining was becoming too centrally controlled. Theoretically, it was supposed to be decentralized but in practice, only GPUs were able to mine Bitcoins.
This became a barrier to mining as large-scale mining firms now formed a large share of Bitcoin miners.
Litecoin, therefore, was developed in 2011 as a “lite” or improved version of Bitcoin by a former Google engineer Charlie Lee. It was created with the aim of improving Bitcoin’s shortcomings.
Soon after creating Litecoin, Lee joined the crypto exchange Coinbase in 2013 as Director of Engineering. He left the organization in 2017 to focus full-time on Litecoin’s development.
Currently, Charlie Lee serves as the Managing Director of Litecoin Foundation, the non-profit organization that funds and promotes Litecoin’s development.
One of the oldest cryptocurrencies, it emerged from a fork in the Bitcoin blockchain. It was based on a new separate hashing algorithm called Scrypt, different from Bitcoin’s SHA-256 algorithm.
Litecoin was designed to be faster than Bitcoin with more security and lesser transaction cost.
Like Litecoin was made from a fork in Bitcoin, over time, forks have occurred in Litecoin too like Litecoin Cash(LCC), Junkcoin(JKC), Monacoin(MONA), Einsteinium(EMC2) and Cloakcoin(CLOAK). However, Litecoin founder Charlie Lee has denounced every such split as a scam.
How does Litecoin Work?
Litecoin is a cryptocurrency i.e. a digital currency that is free from the oversight of a central entity like a central bank or government. Instead of the sovereign guarantee of a government, Litecoin relies on the blockchain network to validate transactions in a decentralized manner.
Designed to be a better version of Bitcoin, Litecoin is also an open-source, decentralized peer-to-peer network-based cryptocurrency. Called the “silver to Bitcoin’s gold”, it is also a mining-based currency.
While Litecoin’s base is similar to Bitcoin, it has implemented several features over the years in order to differentiate and improve itself.
Segregated Witness or SegWit is a technology meant to help cryptocurrencies scale up. Adopted by Litecoin in 2017, it helps in increasing the number of transactions included in a block by reducing the “weight” of transactions.
It does so by segregating the “witness” or digital signature data. It removes the digital signature data from the main block which now only contains the wallet addresses of the sender and receiver.
This effectively reduces transaction size enabling more transactions per block.
Lightning Network is also a scaling-up solution. It is an extra layer built on top of the blockchain where transactions are conducted between users.
Transactions on these user-generated payment channels are faster, cheaper, and easily confirmed
Lightning Networks have also found some critics who allege that this layer-2 solution pushes users to non-custodial wallets where they would have to run their own nodes.
Surprisingly, Bitcoin saw a much faster Lightning Network adoption as compared to Litecoin. It was probably because the base layer already had a low transaction fee.
MimbleWimble is an upgrade for enhancing security on the Litecoin Network. Deployed in May 2022, it allows users to preserve the privacy of their transactions and obfuscate traceability.
There are Extension Blocks within the main block where users can transfer their Litecoin. Details about transactions that are conducted on these blocks are visible only to the involved parties. Thus, it provides users with a high level of transaction privacy.
Fun Fact: MimbleWimble is named after the tongue-tying spell in Harry Potter.
Uses of Litecoin
Litecoin is highly liquid and much faster than Bitcoin with a transaction processing speed of 54 per second.
This made it an attractive option for traders when crypto was in its nascent stage and Bitcoin had a low transaction processing speed.
Due to its high liquidity, LTC is suitable for everyday payments as transactions are settled almost immediately. Merchants like Newegg and SlingTV easily accept payment in Litecoin.
Litecoin has been a relatively stable cryptocurrency since its inception. Though cryptocurrencies are generally volatile and risky investments, Litecoin’s reliability is desirable to traders and investors not wanting to suffer sudden shocks from their crypto exposure.
Many traders also prefer Litecoin betting on its fixed supply and issuance reductions to indulge in price speculation.
Litecoin is built on the blockchain network. Like other cryptocurrencies, it relies on a peer-to-peer network to validate transactions. Nodes(or participants) have to create a consensus to add a new block to the existing chain.
These participants are rewarded with LTC for their efforts after the completion of the transaction. This process of verifying transactions post which new Litecoin comes into circulation is known as Litecoin mining.
Though there are now multiple protocols for validating transactions, Litecoin uses the most widely used Proof-of-Work(PoW) consensus mechanism.
In PoW, miners compete to solve difficult mathematical puzzles with their device’s processing power. The one who solves the puzzle first validates the transaction after which a new block is added to the chain. The miner is then rewarded for his efforts which at present is 12.5 LTC. This is expected to reduce to 6.25 LTC in August 2023 after the third Litecoin Halving. The process of Litecoin Halving is explained in detail in the next section.
Although earlier a lone participant could mine Litecoin only with his Central Processing Unit(CPU), it has become almost impossible due to increased competition.
Today, sophisticated Graphical Processing Units(GPUs) and Application-Specific Integrated Circuits(ASICs) are deployed to mine Litecoin. These days, pool mining is a better option than solo mining as it increases the chances of successful mining. However, remember that the mining rewards are distributed among the pool participants according to their hash power contribution.
Litecoin Halving Explained
Since Litecoin emerged out of a fork in Bitcoin, it shares many features with Bitcoin including the Halving event.
Litecoin Halving is a process wherein the reward of successfully mining Litecoin is reduced. Since the amount of reward is reduced by half or ‘halved’, the process is known as Litecoin Halving.
It takes place roughly every four years with the first one being in August 2015. The initial reward for Litecoin mining, which was 50 LTC was reduced to 25 LTC. Subsequently, it further came to 12.5 LTC after the second halving in August 2019. The next round of Litecoin Halving will take place on 6th August 2023 when the reward will decrease to 6.25 LTC.
The major purpose of Litecoin Halving is to be a deflationary measure. Since the supply of Litecoin is fixed at 84 million coins, halving would effectively decrease the amount of LTC available as awards.
Since the supply is limited, it will essentially increase the value of the LTC that can be mined. Therefore, miners would still be incentivized for mining LTC even if the reward is less than before.
Litecoin vs Bitcoin
Litecoin is one of the earliest altcoins. Dubbed the “silver to bitcoin’s gold”, it was devised from a fork or split in Bitcoin. As such, it shares many features and base technology with its predecessor.
Both of them are cryptocurrencies meant to function as alternate methods of payment. They both rely on the Proof-of-Work consensus mechanism where miners solve mathematical problems to be able to mine coins.
Both Bitcoin and Litecoin have a supply cap- Bitcoin’s fixed at 21 million BTC and Litecoin at 84 million LTC. Halvings are an important event for both where the rewards for mining are reduced after every four years.
But since Litecoin was designed to be a well, lite version of Bitcoin, it improves upon many shortcomings of the latter.
The main difference exists in their hash function. Bitcoin uses the SHA-256 cryptographic hash function while Litecoin employs Scrypt.
Besides that, Litecoin prioritizes transaction speed above all. It has a transaction processing speed of 54 per second which comes out to be a block time of roughly two-and-a-half minutes. Bitcoin takes on average nine minutes to confirm a transaction.
However, it should be noted that while Litecoin does produce more coins, Bitcoin is more secure than the former due to its high hash rate.
Is Litecoin Better than Bitcoin?
Litecoin was conceived to be a better version of Bitcoin. While it has faster transaction speeds and lower costs, Bitcoin offers more value per coin.
Bitcoin is the largest and most popular cryptocurrency to date and as of late 2022, is trading at an average of $17,000 as compared to Litecoin’s $76. But Litecoin does generate more coins than Bitcoin and is easily scalable.
As for the question of which is the better of the two, it honestly depends on you. Because better is subjective. It depends on what you want.
Bitcoin is the way to go if you want a popular crypto with wide distribution and a bigger market cap. Litecoin should be your choice if you want cheap and fast transactions.
Litecoin vs. Ethereum
Litecoin(LTC) and Ethereum(ETH) are both popular names in the crypto world. They are both among the earliest entrants in the blockchain technology fold. However, they both have certain key differences that many people are not aware of.
Aren’t Litecoin and Ethereum similar things? Is Ethereum a cryptocurrency? Read on to find the answers.
Firstly, Litecoin is a virtual currency based on decentralized blockchain technology. There is no central authority that regulates and controls the supply of currency. Nodes have to create a consensus to verify transactions on their peer-to-peer network.
Ethereum, on the other hand, is a platform. It aims at optimizing and accelerating the development and adoption of smart contracts.
While Ethereum does have its native cryptocurrency Ether, it is more than just an alternate payment system. It seeks to expand the use of blockchain technology from just the financial sector to other fields.
In this sense, Litecoin is more similar to Bitcoin than either is to Ethereum.
Also, Litecoin relies on the Proof-of-Work(PoW) consensus mechanism to validate transactions. Though it is the most widely used protocol, the downside of PoW is that it is very energy intensive.
Ethereum meanwhile shifted to the more environment-friendly Proof-of-Stake consensus mechanism in 2022 after its Merge upgrade.
Also, while Litecoin’s supply is capped at 84 million LTC, Ether(or rather, Ether) has no such fixed upper limit.
What is Litecoin Worth?
Litecoin was valued to be around 30 cents when it debuted in 2011. Its price rose to nearly $45 during a massive bull run till December 2013, as per Coinmarketcap.
The infamous Mt. Gox hack in 2014 caused a Litecoin crash with prices dropping as low as $2.
In 2017, Charlie Lee sold all his Litecoin holdings. This coincided with LTC hitting a high of $375. The timing of the sale sparked accusations of price manipulation by Lee though he stated that he had sold his share due to a conflict of interest.
LTC reached a peak of $412 in May 2021. After a rough year for cryptocurrencies at large, Litecoin is now trading at an average of $76 in December 2022. It has a market cap of $4.8 billion and ranks in the top 15 most popular cryptocurrencies.
The supply of Litecoin is fixed at 84 million LTC. It has a circulating supply of nearly 72 million LTC. A halving event takes place after every 840,000 blocks. The last Litecoin block will probably be mined in 2142.
Investing in Litecoin
Investing in Litecoin is a simple procedure. As one of the oldest cryptocurrencies, it is easily available on most leading exchanges. Litecoin trading generally involves finding an exchange, funding the account, and then making the purchase. The detailed steps are mentioned below:
1. Finding an Exchange
Buying Litecoin on an exchange is the easiest method to get your hands on some. You can either go with a centralized, decentralized, or hybrid exchange. Research different exchanges and find one suitable for your needs.
2. Signing Up
You can sign up for making an account for a cryptocurrency exchange by going to their website or by downloading their app. Centralized exchanges work similarly to conventional stock exchanges while decentralized exchanges have no intermediary between buyers and sellers. Also remember that though certain exchanges require no ID, most are KYC-compliant.
3. Transferring Funds
Transfer funds to your crypto account either via bank transfer or by debit or credit card. You should find out about the transaction fee associated with all methods before selecting one.
4. Purchasing and Storing
Now, you can buy the Litecoin you want by entering the amount of Litecoin you want, making the payment, and confirming the transaction.
Is Litecoin a Good Investment?
Litecoin has been in the market for many years. Though not as popular as some other cryptocurrencies, it has been a steady player since its launch. It is this enduring quality of Litecoin that investors are attracted to.
While not free from fluctuations, Litecoin has been relatively stable compared to some of its peers. It also has the added benefit of being widely recognized and accepted by several businesses.
The Litecoin Foundation has also slowly but steadily introduced upgrades that have improved Litecoin’s security and privacy functioning.
While it has many excellent features, whether Litecoin is a good investment or not depends on you. Cryptocurrencies are inherently risky investments with extreme price volatility. Thoroughly assess your financial profile, long-term goals, and risk tolerance before making any decision. A piece of basic advice is to not invest what you cannot lose.