What is Litecoin?

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Updated: 23 September 2020

Litecoin was first introduced to the market on October 7th, 2011. Litecoin is a peer-to-peer cryptocurrency, with its structure almost identical to that of Bitcoin. Ever since it was created by founder Charlie Lee, Litecoin has gained traction and become one of the top alt coins. Currently, Litecoin is 6th in place in terms of market capitalization ($3.6bn). Investors who look for alt coins different that Bitcoin and Ethereum often turn to Litecoin for its strong infrastructure and potential.

In this article, we will look at the following topics regarding Litecoin:

  • What is Litecoin?
  • Where can you buy Litecoin?
  • How does Litecoin work – differences between Bitcoin and Litecoin
  • Litecoin – storage

What is Litecoin?

Litecoin, as we mentioned, is a peer-to-peer cryptocurrency and an open-source software project released under the MIT/X11 license. The coin was created by Mr. Charlie Lee, who previously worked at Google and had the idea of creating a type of cryptocurrency similar to Bitcoin but that was lighter and with more straightforward infrastructure. While Bitcoin was seen as the “gold” of cryptos, Litecoin became the “silver” of the crypto work. The reason? Cheaper and easier to use on a daily basis.

It was on the 7th of October 2011 that Litecoin was initially released through GitHub, which is an open-source client. The network then went live nearly one week later, effectively being a Bitcoin Core client fork. As the founder of Litecoin, Mr. Lee had the vision of creating a lighter version of Bitcoin. While Bitcoin has a token limit of 21 million, the limit for Litecoin is 84 million. The average block time for Bitcoin transactions is around the 10 minutes, with for Litecoin – 2.5 minutes.

What is Litecoin

How does Litecoin work – differences between Bitcoin and Litecoin

Miner Block Rewards

For the miner block rewards, they are cut in half every 210,000 blocks with Bitcoin, with Litecoin only doing so with every 840,000 blocks. The initial rewards are set at 50 BTC and 50 LTC respectively, with the current block reward being 25 BTC and 50 LTC. Litecoin and Bitcoin are very similar in nature. There are of course some fundamental differences that will be discussed. One of the main differences is the way in which mining is conducted. While both coins utilize the proof of work consensus, the way in which this is done differs.

Miners utilize computer power in order to generate solutions for difficult cryptographic equations and once the equations have been solved, the miner receives both a block reward and a transaction fee for their efforts. Bitcoin utilizes the hashing algorithm called SHA-256 for its mining. This process needs a massive amount of processing power, which has led to highly powerful machines circuits called ASICs being developed for the process of Bitcoin mining. This led to massive mining pools taking up full power plants of space with these ASICs running on a 24-hour basis, seven days a week.

Mining Litecoin – Scrypt

The mining of cryptocurrencies is a heavy, energy-intensive process. Litecoin utilizes a mining procedure called Scrypt. Just as the mining of Bitcoin, the procedure uses the SHA 256 algorithm, but in much simpler manner.

Instead of having equations solved using raw computing power, it instead relies on memory. While you are able to have multiple devices created with massive amounts of memory, most people are able to compete with the large mining pools because all they have to do is purchase memory cards as opposed to the highly specialised ASICs that are used in Bitcoin mining. Memory is also a lot more expensive on a mass level to produce compared to hashing chips for Bitcoin mining. Scrypt was created with the aim of ensuring that the mining process is as democratic and accessible as it possibly can be. In recent times, however, there have been Scrypt ASICs created by a couple of companies which could cause a massive disruption in the way Litecoin is mined. Litecoin, as it name suggests, is an alt coin created to be fast and secure. The community wants a much quicker and easier version of Bitcoin to make payments on a daily basis.

Scalability issues

As the Bitcoin network experiences a lot of scalability issues and network congestion, the transaction waiting time can often be as high as one hour. Therefore, Litecoin is the ideal option for merchants who conduct a lot of mini transactions on a daily basis. For every single Bitcoin transaction confirmation, merchants can have four Litecoin confirmation transactions. Due to the small block size, a higher number of miners will be able to mine more blocks and therefore earn the relevant rewards. The rewards are evenly distributed and the network is more decentralized.

While there are many benefits of having such quick block reaction time, there are some disadvantages too, one of which is orphaned blocks. With so much competition in the mining space, there occasionally is an issue whereby more than a single miner has solved the equation and had a blockchain that can be added to the chain. If this happens, it’s the network which makes the decision of which block should be added. The other, disused one, is then orphaned (no transactions on it). Due to the low downtime with Litecoin, the probability of these orphan blocks increases greatly. It also strains the blockchain itself. Thanks to the implementation of SegWit, this problem has been solved to a certain extent.

Flood attacks

One of the key differences between Bitcoin and Litecoin is the so called “flood attacks” In July 2015, Bitcoin, for example, experienced a great number of flood attacks. The network was flooded with spam transactions, which means that the blocks are filled and the entire blockchain gets clogged up. Litecoin, on the other hand, is protected from such attacks. The founder, Charlie Lee, ensured that the network makes this type of attacks as economically unfeasible as possible.

Each sender receives a fee every time they have an output, even if the fee is small. For a flood attack to occur, these senders will be charged for each micro transaction they are using to clog the network. Therefore, it will be costly for miners to “afford” clogging the network. In addition, one of the interesting features of Litecoin is atomic swaps. This allows coins to be exchanged across chains without needing any third party involved. If you wanted to trade Bitcoin with someone who had Litecoin, usually this would have to be done through an exchange which would charge the respective fees. However, with atomic swaps, these coins can be traded straight with one another, with no need for an exchange. The way these atomic swaps work is due to the use of hashed time lock contracts.

How to buy Litecoin?

How to buy Litecoin?

As with many alt coins, there are a number of ways through which an investor can buy and trade Litecoin. For a start, an investor can look at different cryptocurrency brokers, as well as comparison guides that present different trading and investment techniques.

Litecoin is supported by many fiat-to-crypto brokers such as Coinbase, which makes it very easy for an investor to exchange their fiat currency into Litecoin by using your debit or credit card. When Litecoin was first introduced to Coinbase, it received a significant boost in value because it was a testament to the great benefits that this digital currency possessed.

If you are looking to buy Litecoin by using cryptocurrency that you already hold, you will have to do so on a traditional exchange. This will involve sending your relevant crypto funds to be used in this transaction from your storage wallet to the given wallet on the exchange and then fill out a buy order. Depending on the liquidity of the exchange, your price might be better or worse compared to the rest of the market. Some of the most popular exchanges today include the likes of Binance and Bitfinex. In terms of fiat-to-crypto brokers, you will be looking at the likes of Coinbase and Kraken.

Litecoin – storage

There are many different ways in which an investor can store cryptocurrency funds such as Litecoin. Many people expose their coins to unnecessary risk by keeping them in hot wallets such as those on exchanges. If there is an attack on these exchanges, hackers can drain these funds from the account. The best option for storing Litecoin is on a hardware wallet such as the Ledger Nano S or Trezor. These are physical devices in which Litecoin can be stored offline in a manner where no hackers can tap into the existing funds. Before putting Litecoin in such a hardware wallet, an investor must ensure that whatever he decides to buy actually supports the storage of Litecoin.

Other wallet options include desktop wallets whereby a wallet application is downloaded onto a desktop and it can only be accessed through that device. Of course, this doesn’t allow for much flexibility as you can only access your funds from that single device. There are mobile wallets available for use, as well as paper wallets. Paper wallets are a form of offline cold storage whereby you print off your private and public keys onto paper and then store it in a safe place. These keys are in the form of QR codes and an investor does not need to worry about any malware or hackers.

Conclusion

Litecoin is regarded as the “silver” in the cryptocurrency space. Since its release in October, 2011, the coin has seen significant traction and adoption levels. Litecoin investors have mainly benefited from scalability solutions that have made Litecoin very attractive as opposed to Bitcoin. Litecoin is primarily used for daily, volume-based transactions. Litecoin received a major boost in value when it was listed on Coinbase. The activation of SegWit has helped the Litecoin community address some of the key problems the network was experiencing, especially with orphan blocks. Going forward, there are many improvements that can be made to the Litecoin network.

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