Litecoin is often regarded as Bitcoin’s “little brother”. Since its inception in 2009, Bitcoin (BTC) has dominated the cryptocurrency space, however, there are many other cryptocurrencies that have been developed over the years, such as Litecoin. This article explores what Litecoin is, how it works, and why some people prefer it to Bitcoin.
What is Litecoin?
Litecoin (LTC) is a cryptocurrency that was created in 2011 as a hard fork of Bitcoin. The Litecoin blockchain was designed to improve upon Bitcoin’s shortcomings and be more accessible to a wider audience. Upon its inception, Litecoin’s mission was to be “the silver to Bitcoin’s gold”. If the market capitalization of these two currencies is any indication, this statement isn’t far from the truth.
Litecoin is considered to be the first “alternative cryptocurrency” also known as an altcoin. In fact, Litecoin is built on Bitcoin’s code. While it shares many similarities with BTC, its developers made some key modifications.
Who created Litecoin and why?
Litecoin was created by Charlie Lee, a former Google employee. Lee has said that he wanted to create a “lighter” version of Bitcoin, meaning that Litecoin transactions would be faster than Bitcoin’s. He also wanted Litecoin to be more accessible to regular people than Bitcoin, which at the time was still mostly unknown and used by tech-savvy early adopters.
These weren’t the only issues with Bitcoin that Lee wanted to address. He also saw Bitcoin’s block time as a problem, which was (and remains) 10 minutes.
Did You Know?
Block time is the average time it takes for a new block to be added to the blockchain.
Besides originally creating Litecoin, Lee is also the managing director of the Litecoin Foundation, which is a non-profit that is dedicated to the continual improvement of Litecoin.
How does Litecoin work?
Now that we know a little bit about the history and motivation behind Litecoin let’s dive into how it actually works.
Like Bitcoin, Litecoin is a decentralized cryptocurrency that relies on a peer-to-peer network. That means there is no central authority, like a bank or government, that can control the digital currency. Instead, transactions are verified by nodes on the Litecoin network.
These nodes work together to verify and validate every transaction that Litecoin users make on the network. Once the cryptocurrency transaction is verified, it is added to the blockchain, which is a public ledger of all Litecoin transactions.
Litecoin, like Bitcoin, uses a Proof of Work algorithm to secure the network and validate transactions. However, Litecoin uses the Scrypt hashing algorithm while Bitcoin uses SHA-256. Scrypt was originally designed to make it difficult for large-scale custom hardware attacks.
Some people believe that this makes Litecoin more accessible to regular people, as Scrypt is less resource-intensive than SHA-256. This theoretically means that Litecoin mining can be done on a regular computer, while Bitcoin mining requires more expensive hardware.
The original Bitcoin hashing algorithm, called SHA-256, was created by the US National Security Agency. Some members of the cryptocurrency community were (and still are) suspicious of anything with ties to the NSA.
It is important to note that both Bitcoin and Litecoin are currently facing scalability issues. The number of transactions the network can handle per second is limited. This has led to high transaction fees and slow confirmation times for both Bitcoin and Litecoin.
Over the years the cryptocurrency has evolved, and there are several notable updates that have improved its overall functionality.
In 2017, Litecoin activated Segregated Witness (SegWit). This was a soft fork that changed the way data is stored on the blockchain. SegWit also laid the groundwork for future updates, like the Lightning Network.
The Lightning Network is a second-layer scaling solution that can be used to speed up transactions and reduce fees. It was implemented on the Bitcoin network in 2018, and is currently being tested on the Litecoin network.
Litecoin has also adopted Atomic Swaps. This is a way to exchange one cryptocurrency for another without having to go through a centralized exchange. This allows for more direct, peer-to-peer transactions.
The most recent, and in some cases controversial, update to Litecoin is the Mimblewimble protocol. This is a privacy-focused update that aims to make Litecoin transactions more private and anonymous. Mimblewimble’s functions extend beyond privacy though. The update aims to further scale and speed up cryptocurrency transactions as well.
Bitcoin vs Litecoin
Bitcoin and Litecoin share many similarities, however, there are some key differences between the two cryptocurrencies.
Block transaction time
One of the most important differences is block time. As we mentioned before, Bitcoin has a block time of 10 minutes while Litecoin’s is 2.5 minutes. This means that Litecoin transactions are confirmed faster than Bitcoin transactions. The speed of these transactions also differs between the two. Bitcoin can handle around seven transactions per second while Litecoin can handle 56. Because of the transaction speed difference, Bitcoin’s transaction fees are far higher than Litecoin transaction fees.
Another key difference is the total supply of each cryptocurrency. The Bitcoin blockchain has a hard cap of 21 million, with a little over 19 million mined to date. Litecoin, however, has a total mineable supply of 84 million, with 67 million currently in circulation.
Both BTC and LTC address inflation by using a halving mechanism. In the case of BTC, halving occurs every 210,000 blocks. For LTC, halving happens every 840,000 blocks. This will continue until all of the coins are mined.
Did You Know?
Halving refers to the process of reducing the rewards that cryptocurrency miners receive when they successfully create a new block. The reward is reduced by half at set intervals. When Litecoin was launched, the reward was 50 LTC per block. After the first halving in 2015, this dropped to 25 LTC. After a third halving in 2019, it is currently at 12.5 LTC.
Final thoughts: Bitcoin vs Litecoin
Though its speed may make Litecoin seem like a superior asset, it is not without faults. LTC is often thought of as a test for BTC. This is because LTC developers will often implement updates to the Litecoin network before they are applied to Bitcoin. Some people see this as a good thing, while others view it as a negative. Some argue that Litecoin is simply following in Bitcoin’s footsteps and is not innovating enough.
Litecoin use cases
Just like Bitcoin, Litecoin can be used to purchase goods and services. However, because of Litecoin’s faster transaction times and lower fees, it is well suited as a payment coin, especially for making smaller purchases.
Litecoin has been adopted by a number of businesses as a payment method. Some notable examples include Twitch, SlingTV, and Newegg.
Litecoin can also be traded on a number of cryptocurrency exchanges, such as Swyftx.
How to buy Litecoin
You can buy Litecoin (LTC) from most big crypto exchanges. Swyftx is a popular crypto exchange in Australia and New Zealand where users can buy Litecoin with low fees and store it in their personal crypto wallet.
Litecoin is one of the most popular cryptocurrencies on the market. It has a large community of supporters and developers behind it, and it continues to be one of the largest cryptocurrencies by market cap.
Despite Bitcoin and Litecoin commonly being compared, one is not necessarily better than the other. Rather, they’re each better suited for different purposes. BTC is likely better as a long-term hold, whereas LTC is perhaps better suited as a payment coin.