In the world of cryptocurrency, numerous projects are competing with one another. Some are worth paying more attention to than others. It is not all that easy to build a proven track record, yet Litecoin has seemingly done so without too many problems. As such, now is a good time to recap what makes this altcoin so special.
- What is Litecoin
- What Makes Litecoin Different?
- Mining Litecoin
- Where can I buy and store Litecoin?
- Litecoin Block Explorer
- Bitcoin Vs. Litecoin: What’s The Difference?
- No Real Innovations are Needed
- Some Notable Successes to Date
- Why Litecoin
- What Comes Next?
What is Litecoin
Litecoin has quickly risen from obscurity to become one of the world’s most popular, well-known and most valuable cryptocurrencies.
Often referred to as the little brother of bitcoin, litecoin is a peer-to-peer cryptocurrency that has gained fairly widespread adoption since its inception in 2011. A form of digital money that utilizes a blockchain to easily maintain a public ledger of all transactions, litecoin is used to transfer funds directly between individuals or businesses without the need for an intermediary such as a bank or payment processing service.
Roughly seven years ago, the cryptocurrency landscape looked very different compared to today. The number of altcoins could be counted on two hands, and new projects came to market every few weeks or months. Litecoin is one of the longest-standing altcoins in cryptocurrency. For most crypto enthusiasts, it is referred to as the “silver to Bitcoin’s gold”. It has a different mining algorithm and supply cap – 84 million LTC vs 21 million BTC – yet offers the same functionality as Bitcoin in every other sense.
What Makes Litecoin Different?
Three things make Litecoin different:
- Number of Coins
- Market Cap
Litecoin is based on the same open source code behind bitcoin, with some notable differences. Created by engineer Charlie Lee to be the silver to bitcoin’s gold, one of the main disparities between the two cryptocurrencies lies in their transaction speeds.
Because it generates blocks about four times faster than bitcoin, litecoin can confirm the legitimacy of transactions a lot quicker as well as process a much higher number of them over the same time frame.
For more information about how blocks are created and transactions are confirmed, be sure to read our primer on blockchain technology – which functions as the underpinning of litecoin and most other p2p virtual currencies.
Number of Coins
One of the reasons some cryptocurrencies hold intrinsic value is because of their limited supply. Once a certain number of bitcoin (btc) or litecoin (ltc) are created, that’s it.
There can be no more new coins at that point. While bitcoin has a limit of 21 million coins, litecoin will max out at the 84 million mark.
Although its market cap pales in comparison to bitcoin, litecoin still ranks among the top 5 cryptocurrencies at the time of publication. These rankings fluctuate based on price and number of coins in circulation.
Another significant difference between bitcoin and litecoin is the hashing algorithm that each uses to solve a block, as well as how many coins are distributed each time a solution is found. When a transaction is made, it is then grouped with others that have been recently submitted within one of these cryptographically-protected blocks.
Computers known as miners utilize their GPU and/or CPU cycles to solve rather complex mathematical problems, passing the data within a block through the aforementioned algorithm until their collective power discovers a solution. It is at this point that all transactions within the respective block are fully verified and stamped as legitimate.
Miners also reap the fruits of their labor each time a block gets solved, as a predefined number of coins is distributed among those who helped out – with the more powerful hashers getting the lion’s share. People looking to mine cryptocurrency typically join pools, where their computing power is combined with others in the group to obtain these rewards.
As mentioned above, litecoin and bitcoin utilize contrasting algorithms when hashing. While bitcoin employs SHA-256 (short for Secure Hash Algorithm 2) which is considered to be relatively more complex, litecoin uses a memory-intensive algorithm referred to as scrypt.
Different proof-of-work algorithms means different hardware, and you need to be sure that your mining rig meets the proper specifications for producing litecoin.
Where can I buy and store Litecoin?
One of the major reasons why Litecoin’s value increased recently was its induction in Coinbase. As long as you can use them in your country it really is the best and fastest way to buy Litecoins.
Apart from that, you can buy Litecoins in the following exchanges:
If you want a comprehensive list, then you can check this out. When it comes to storing litecoins, there are a ton of wallet options that you can use.
- Option #1: Hardware Wallet
Hardware wallets are physical devices where you can store your cryptocurrency. They come in a few forms but the most common is the USB stick style typified by the Nano Ledger series. Although many swear by them, hardware wallets are still prone to compromise. Firstly, you’re trusting that the company who made your wallet hasn’t logged all the private keys with a plan to raid wallets in the future. This applies to those bought from the company themselves, but particularly if a hardware wallet has been acquired second hand. Under no circumstances should anyone ever use a pre-owned hardware wallet.
The following hardware wallets can be used to store litecoins:
- Ledger Nano S
Option #2: Desktop Wallet
Desktop wallets are a form of hot wallets. Desktop wallets are downloaded and installed on a single PC or laptop and they are only accessible from that one device where it was downloaded. While it is a safer alternative than an online wallet, it can still be very inconvenient because you will not get access to your money unless you are on the device from which you downloaded the wallet.
Exodus is a great example of a desktop wallet which supports multiple cryptocurrencies like Litecoin.
- Option #3: Mobile Wallet
Mobile wallets are a pretty good example of hot wallets. They are pretty convenient to use because all you need to do is to download an app into your phone.
- Option #4: Paper Wallet
Paper wallets are an offline cold storage method of saving cryptocurrency. It includes printing out your public and private keys on a piece of paper which you then store and save in a secure place. The keys are printed in the form of QR codes which you can scan in the future for all your transactions. The reason why it is so safe is that it gives complete control to you, the user. You do not need to worry about the well-being of a piece of hardware, nor do you have to worry about hackers or any piece of malware. You just need to take care of a piece of paper.
You can create your own paper wallet from liteaddress.org.
Litecoin Block Explorer
As is the case with other public cryptocurrencies, all litecoin transactions within its blockchain are public and searchable. The easiest way to peruse these records or search for an individual block, transaction or even address balance is through a litecoin block explorer. There are many to select from, and a simple Google search will allow you to find one that suits your individual needs.
Bitcoin Vs. Litecoin: What’s The Difference?
On the surface, Bitcoin and Litecoin share a lot in common. At the most basic level, they are of course both cryptocurrencies. Whereas state currencies such as the U.S. dollar or the yen rely on political and legal mechanisms for value and legitimacy, cryptocurrencies rely only on the cryptographic integrity of the network itself. Yet Bitcoin and Litecoin also differ in important respects. In what follows, we will address four of their most important differences, progressing from the most straightforward differences to the more complex.
Market Capitalization and Popularity
At the time of writing, Bitcoin’s market capitalization sits at roughly $217 billion. Whether this figure strikes you as either high or low will depend largely on your historical perspective. When we consider that Bitcoin’s market capitalization was barely $42,000 in July 2010, its current figure seems staggering. While Bitcoin remains by far the most highly valued player in the cryptocurrency space, others such as Ethereum, Ripple and Litecoin are catching up.
We can now ask the question, what other characteristics set Bitcoin and Litecoin apart?
Total Amount of Coins
One of the main differences between Bitcoin and Litecoin concerns the total number of coins which each cryptocurrency can produce. The Bitcoin network can never exceed 21 million coins, whereas Litecoin can accommodate up to 84 million coins. Although in theory this sounds like a significant advantage in favor of Litecoin, its real-world effects may be negligible. This is due to the fact that both Bitcoin and Litecoin are divisible into nearly infinitesimal amounts. In fact, the minimum quantity of transferable bitcoin is one hundred millionth of a bitcoin (0.00000001 bitcoins) known colloquially as one “satoshi.” Users of either currency should therefore have no difficulty purchasing low-priced goods or services, regardless of how high the general price of an undivided single bitcoin or litecoin may become.
Despite this, Litecoin’s greater number of maximum coins might offer a psychological advantage over Bitcoin, due to its (so far) smaller price for a single unit. In a video interview posted by IBM’s banking division in November 2013, IBM executive Richard Brown raised the prospect that some users may prefer transacting in whole units rather than in fractions of a unit—a potential advantage for Litecoin.Yet even assuming that this is true, this problem may be solved through simple software changes introduced at the level of the digital wallets through which Bitcoin transactions are made. As Tristan Winters points out in a November 2013 Bitcoin Magazine article, “The Psychology of Decimals,” popular Bitcoin wallets such as Multibit and Electrum already offer users the option of displaying the value of their bitcoins in terms of official (or fiat) currencies such as the U.S. dollar. This can help circumvent the psychological aversion to dealing in fractions when using bitcoin.
Transaction Processing Speed
Although technically transactions occur instantaneously on both the Bitcoin and Litecoin networks, time is required in order for those transactions to be confirmed by other network participants. According to data from Blockchain.info, the Bitcoin network’s long-term average transaction confirmation time is just over 9 minutes per transaction. The equivalent figure for Litecoin is roughly 2.5 minutes, according to data from BitInfoCharts.com. In principle, this difference in confirmation time could make Litecoin more attractive for merchants. For example, a merchant selling a product in exchange for Bitcoin would need to wait nearly four times as long to confirm payment as if that same product were sold in exchange for Litecoin. On the other hand, merchants can always opt to accept transactions without waiting for any confirmation at all. The security of such zero-confirmation transactions is the subject of some debate. However, recent innovations such as Bitpay’s proposed Inter-Channel Payments system (nicknamed “Impulse”) may make these kinds of instantaneous transactions significantly more secure, mitigating Litecoin’s faster confirmation time advantage.
Different Algorithms: Bitcoin’s SHA-256 vs. Litecoin’s Scrypt
By far the most fundamental technical difference between Bitcoin and Litecoin are the different cryptographic algorithms which they employ. Bitcoin makes use of the longstanding SHA-256 algorithm, whereas Litecoin makes use of a comparatively new algorithm known as Scrypt.
The main practical significance of these different algorithms is their impact on the process of “mining” new coins. In both Bitcoin and Litecoin, the process of confirming transactions requires substantial computing power. Some members of the currency network, known as miners, allocate their own computing resources toward the task of confirming the transactions of other users. In exchange for doing so, these miners are rewarded by earning units of the currency which they have mined.
SHA-256 is generally considered to be a more complex algorithm than Scrypt, while at the same time allowing a greater degree of parallel processing. Consequently, Bitcoin miners in recent years have utilized increasingly sophisticated methods for mining bitcoins as efficiently as possible. Today, the most dominant method for Bitcoin mining consists of the use of Application-Specific Integrated Circuits (ASICs). These are hardware systems which, unlike the simple CPUs and GPUs which came before them, can be tailor-made for the sole purpose of mining bitcoins. The practical consequence of this innovation has been that Bitcoin mining has become increasingly out-of-reach for the everyday user.
Scrypt, by contrast, was deliberately designed to be less susceptible to the kinds of custom hardware solutions employed in ASIC-based mining. This has led many commentators to view Scrypt-based cryptocurrencies, such as Litecoinm as being more accessible for users who also wish to participate in the network as miners. In recent years, however, companies such as Zeus and Flower Technology have brought Scrypt AISCs to the market, suggesting that Litecoin’s vision of easily accessible mining may become a thing of the past.
No Real Innovations are Needed
One thing worth pointing out when it comes to Litecoin from a technical perspective is how it does not necessarily offer anything unique. In fact, it has all of the building blocks Bitcoin benefits from. Surprisingly, it activated SegWit well before Bitcoin, and the same may happen where the Lightning Network is concerned. Other than that, Litecoin is not anonymous, private, has no smart contracts, and isn’t used for ICOs or airdrops. It is a Bitcoin clone, but that isn’t necessarily a bad thing.
Some Notable Successes to Date
Whereas most cryptocurrencies imitating Bitcoin tend to come up short pretty quickly, Litecoin has been incredibly successful. This near 100% clone of Bitcoin has been appreciated by a lot of crypto enthusiasts and speculators over the years. Although it is valued vastly lower than Bitcoin itself, it has remained a top 10 currency by market cap for most of its existence. Ever since activating SegWit, its network quickly saw an advancement in terms of lower fees, faster transactions, and an increase in median transaction value.
Additionally, Litecoin has always been a go-to solution for those who missed out on mining Bitcoin. Unlike BTC, mining LTC is a lot more user-friendly because of its Scrypt algorithm. Although there has been an influx of ASIC miners as well, it is still a more approachable mining ecosystem in this day and age. At current prices, however, there isn’t much money to be made from mining any cryptocurrency.
Charlie Lee, the developer of Litecoin, wanted to improve upon Bitcoin in the transaction department. It is much faster to move funds across the network. Especially when waiting for network confirmations has been a longstanding problem with Bitcoin. Litecoin clearly has the advantage here, and its lower fees make it a perfect alternative. Despite these selling points, Litecoin has never dominated any crypto-related discussions or “hype cycles”. That is not a bad thing, but one would expect more engagement from the community as well.
Right now Bitcoin has a huge scalability issue. Even with the changes Bitcoin introduced on August 1, 2017, Bitcoin still will never be able to serve every user in the world. As Bitcoin’s popularity increases, so will its fees. This isn’t such a big deal for large infrequent purchases, like maybe buying a car or a house. But what about for buying a cup of coffee?
Litecoin offers a solution to these problems by offering a low-cost and instantaneous transaction, with the ability to scale their network much larger than Bitcoin. This is a problem Litecoin is able to solve by learning from Bitcoin’s mistakes.
To help users better understand the differences and similarities between the two coins, Bitcoin is commonly compared to gold, while Litecoin is compared to silver. Traditionally, gold has been used just to store and keep safe, while silver was made into coins and used for common purchases.
The analogy of gold and silver refers to the usefulness of the coin, not the value itself. Since there will always be less Bitcoin available (like gold), it tends to be used less but is worth more. However, since there are more Litecoins (silver) available, it gets used more but is worth less. For this reason, it is much more likely that Litecoin will be used for small everyday transactions in the future.
Think about it: would it make sense to pay for something small with gold? You would need to have very very small quantities of gold to pay for what you wanted to buy. Imagine trying to pay for your groceries with a bit of gold dust! But since silver is less valuable by volume, it is much more useful for everyday use.
In theory, you can use both gold and silver in the exact same way. You could buy a house with a truckload of silver coins (Litecoin) or with a single bar of gold (Bitcoin). You get the same end result – a piece of value exchanged for something deemed to have a very similar value.
What Comes Next?
It is evident Litecoin will fight to survive, just like any other alternative cryptocurrency and asset on the market. Its solid brand gives it a competitive edge right now, but its price also heavily relies on Bitcoin’s momentum these days. If the community can step up its effort, and the ecosystem keeps expanding and improving, things can get very interesting in the future. Bitcoin is many things, but when it comes to using it for transactions, Litecoin is often the better choice.
Litecoin has all of the functionality of Bitcoin with notable improvements. It is likely that in time Bitcoin and Litecoin could become the gold and silver standards, not just for purchases but for all other coins and tokens. In the future, when you need to purchase another type of coin or a physical product, you could just swap the coins you already have for what you need.
A good way to think about this is the way that you buy fuel for your car. Just because you have a car doesn’t mean that you need to buy crude oil barrels. You simply go to the gas station when you need to and exchange your money for what you need as you need it.
While it hasn’t received all of the press and hype of Bitcoin or Ethereum, Litecoin has all the ingredients to become one of the world’s standard currencies once cryptocurrencies become widely adopted in the future.