The cryptocurrency market has been around for only more than a decade. But it has expanded exponentially, with Bitcoin’s market cap alone surpassing $700 billion on Jan. 14, 2021. Still, even though thousands of new coins intend to address various issues, some of the older ones remain at the top. Of course, we all know Bitcoin is still dominating the industry. But, interestingly, some older altcoins like Litecoin continue to thrive, despite discussions about their archaic concept.
Today, it is the fifth-largest cryptocurrency by market cap, even though it doesn’t support smart contracts, and its main purpose is to mimic the concept of Bitcoin. But what is it and what do we know about Litecoin?
Litecoin is a peer-to-peer (P2P) cryptocurrency and a public blockchain network. It represents an open-source project similar to Bitcoin but using a different cryptographic algorithm. That gives Litecoin the capability to handle more transactions with shorter block generation periods and cheaper transaction fees.
What Is Litecoin (LTC)?
Litecoin is dubbed as the Bitcoin of all altcoins. Mainly because it features similar functionalities to Bitcoin and acts as P2P money systems focused on decentralization and security. It meant to be an ideal commerce-eccentric digital assets payment method for merchants and spenders offering instant transaction confirmations. Despite the similarities to Bitcoin’s protocol, it differs in terms of the hashing algorithm.
Litecoin uses the memory intense script proof of work (PoW) mining algorithm prioritizing efficient transaction speed and efficiency. That means, even consumer-grade GPU hardware is allowed to mine Litecoin, unlike Bitcoin. Ultimately, Litecoin exists as a blockchain where the participating nodes process transactions. Whereas miners provide security and verification to maintain a public ledger of all transactions.
Anyone can use Litecoin, with the ticker LTC, to carry out cross-border transactions, store value, speculate on its fluctuating price, or make payments, among others. Litecoin often attracts investors because it’s often promoted as the silver to Bitcoin’s gold.
The Characteristics of Litecoin
Litecoin was created to address several issues of Bitcoin. Specifically, to reduce the amount of time it takes to validate a new block into its blockchain and uphold the storage efficiency. This benefit was meant to attract more merchants to use Litecoin as a payment system instead of Bitcoin. When using the latter, merchants had to wait approximately one hour before any transactions were officially confirmed after four or six blocks of confirmation. With Litecoin, that waiting time was cut in half and sometimes by 75%, as the block confirmation takes 2.5 minutes.
Still, the interest from merchants in Litecoin and cryptocurrency, in general, hasn’t grown, which forced Litecoin to transform and integrate new features. For example, the Lightning Network and Segregated Witness, which are updates implemented by Bitcoin as well.
The interest in Litecoin hasn’t spread out beyond the crypto community, but at least it was strong enough in the crypto world. It has always been on the top of the crypto chart. As of mid-January 2021, its market cap is around $9.625 billion and a circulating supply of 66.25M.
Interestingly, when Bitcoin soared to its all-time high valuing over $40,000, Litecoin still fails to get even closer to its all-time high set at the end of 2017.
Since Litecoin uses the same source-code as Bitcoin, the cryptocurrency also relies on the PoW consensus mechanism. However, Litecoin’s blockchain is created in a way to allow more individuals to become miners. With Bitcoin, privilege is reserved for those who can afford expensive equipment known as application-specific integrated circuit (ASIC) miners.
How Does Litecoin Work?
Litecoin uses an updated version of the Bitcoin code, so the two blockchains work similarly. In other words, Litecoin employs cryptography to enable the exchange and ownership of the eponymous cryptocurrency. All transactions carried out by Litecoin users are stored chronologically in a distributed ledger– Litecoin’s blockchain.
The blocks containing transaction data are created, validated, and added by miners, who are then incentivized for their efforts. Currently, the reward per validated block is 12.5 LTC. This amount is halved in half every three years. The last so-called halving event occurred in August 2019, when the Litecoin reward per block was slashed from 25 LTC. As in the case of Bitcoin, the compensation is reducing gradually to maintain the high scarcity of the cryptocurrency in the long-run, which will positively impact its valuation.
The maximum supply of Litecoin is capped at 84 million coins, while over 66 million LTC are circulating right now, which is about 79%.
Litecoin’s PoW was designed to allow everyone with computing hardware to become a miner. The hashing algorithm initially made it less practical to use specialized mining equipment like ASICs. However, as time passed, the approach proved unsuccessful, and today the market is dominated by large miners.
The modified mining algorithm also allows Litecoin to carry out faster transactions when compared to Bitcoin. On the blockchain, the new blocks are added every 2.5 minutes instead of 10 minutes on Bitcoin.
Who Founded Litecoin Crypto?
Litecoin was developed in October 2011 by Charlie Lee, a computer scientist. The former Google employee wanted to create something faster and more scalable than Bitcoin. He took the code from Bitcoin, which was the only dominant cryptocurrency at the time, and made his modifications. Remarkably, he just adjusted the protocol to reduce the occurrence of concentrated mining pools.
Lee, a graduate of the Massachusetts Institute of Technology (MIT), has been a dominant figure for the Litecoin community since its inception. In 2013, Lee joined Coinbase, the largest cryptocurrency exchange in the US, to work as Director of Engineering.
In 2017, Lee sold off all of his Litecoin holdings, citing an alleged conflict of interest. Interestingly, this happened when LTC peaked along with Bitcoin and many other coins. He was often criticized for being too vocal on social media, which could sometimes have consequences on the price of Litecoin. For many, his decision to sell his LTC holdings was also suspicious, but he explained:
“Some people even think I short LTC (Litecoin)! So in a sense, it is a conflict of interest for me to hold LTC and tweet about it because I have so much influence.”Charlie Lee, founder of Litecoin.
Lee is still the head of the Litecoin Foundation, and in 2017 he left Coinbase to focus on his cryptocurrency project.
The Retrospective of Litecoin
Here is a short history of Litecoin:
- In 2011, Charlie Lee created Litecoin as a better alternative to Bitcoin. The cryptocurrency was soon dubbed “digital silver.”
- In 2013, Lee was hired by Coinbase, which boosted LTC’s notoriety. The price surged from $3 to over $30 in a short while, before gradually retreating.
- In May 2017, Coinbase listed Litecoin and triggered another significant spike. At this time, Litecoin continued its rally up until the end of 2020, hitting an all-time high at over $360.
- During the same month, Litecoin adopted Segregated Witness and the Lightning Network layer, which enable users to conduct multiple LTC transactions per second.
It’s worth mentioning that Litecoin has quickly become a sandbox for other cryptocurrencies, especially Bitcoin. Thus, whenever the crypto community pondered a major upgrade to be implemented by Bitcoin, they favored its initial trial on Litecoin. For example, the Segregated Witness was first introduced to Litecoin and then to Bitcoin.
Litecoin vs. Bitcoin vs. Ethereum: The Differences
Here is how Litecoin compares with the two largest cryptocurrencies by market cap – Bitcoin and Ethereum. The latter was also designed as a better Bitcoin alternative, but it comes with way more features than Litecoin. Here are the main differences and similarities between the three:
Protocol and Mining
Given that Bitcoin and Litecoin rely on PoW consensus algorithms, their blocks are validated by miners who receive 12.5 BTC or LTC, respectively, per block as a reward. The reward amount is then halved according to a predetermined scheme.
Elsewhere, Ethereum is transitioning to PoS, and validators instead of miners will maintain its blockchain. To become a validator, one has to deposit no less than 32 ETH, which is substantial for an average person. The same about the same scenario as Bitcoin, which requires expensive ASIC machines to conduct profitable mining. With Litecoin, miners can use regular GPUs to mine a block. However, but large miners usually dominate the more enormous profits.
All of these three cryptocurrencies are very secure. Bitcoin is usually steered clear from 51% attacks or double-spending due to the costly GPU power to take over the network. Litecoin and Ethereum, on the other hand, must be susceptible to 51% attacks whether, by hash rate, stake, and or other permissionless-acquirable resources.
Still, back in 2016, an application built on Ethereum called The DAO (from Decentralized Autonomous Organization) was hacked by entities who found and exploited a loophole in the DAO’s coding. As a result, the attackers managed to steal 3.6 million ETH. While it wasn’t Ethereum’s failure, the community chose to fork the blockchain to omit the hackers’ transactions so that their holdings would become less relevant. The new blockchain held the “Ethereum” name, while those who disagreed with the change remained with what’s now called “Ethereum Classic.”
As scaling refers to the transactions a blockchain can handle, it’s certainly measurable. Bitcoin can process a maximum of 7 transactions per second (TPS), whereas Ethereum can validate 15 TPS maximum during the PoW consensus. However, in the ETH 2.0 upgrade, the chances for Ethereum to validate a block can increase to 100,000 TPS in Phase 1 of the implementation. Litecoin, on the contrary, can validate up to 56 TPS. That’s 8x faster than Bitcoin.
In the end, with the adoption of PoS, Ethereum will become infinitely more scalable than its two brethren.
Supply and Market Capitalization
As mentioned, Litecoin’s total supply is capped at 84 million. Bitcoin also has a limited supply, which was set by the mysterious founder Satoshi Nakamoto at 21 million. Currently, about 18.6 million BTC are circulating in the market right now. Elsewhere, Ethereum doesn’t limit its total supply, currently at over 114 million ETH in circulation.
Bitcoin is the largest cryptocurrency by market cap by far, with over $706 billion as of Jan. 14, 2021. Ethereum comes next with $128 billion, and Litecoin is fifth with over $9 billion.
Both Litecoin and Bitcoin are similar in terms of features, in which they are both proof of work ecosystems, but Ethereum’s concept is rather different. The second-largest blockchain hosts smart contracts, which settle automatically based on predetermined terms. Smart contracts enable the creation of decentralized apps (dApps) and ERC-20 tokens. Ethereum now hosts thousands of tokens, including DeFi tokens that surged in 2020.
How Does Litecoin Mining Work?
As you may know, Bitcoin uses a hashing algorithm that requires miners to solve a mathematical puzzle for every block. The miners who are the first to solve the puzzle are eligible to add the next block that contains transactions from the “mempool” and get the reward. A similar process is being used for the Litecoin mining process, but it relies on a different hashing algorithm that welcomes miners who use GPUs and CPUs. Specifically, Bitcoin uses SHA-256 (Secure Hash Algorithm 2), while Litecoin employs an algorithm known as— Scrypt.
Since Litecoin’s transaction confirmations are much quicker than Bitcoin, naturally, a block can be mined at a faster rate too. When comparing it to Bitcoin side-by-side, miners can mine a block every 2.5 minutes, which is four times faster than Bitcoin.
However, it’s worth taking note that Scrypt ASICs can also be used to mine other coins that run on the same algorithm. Though the profitability of mine a Litecoin is arguable, the decision is still up to you. That includes the factor of sourcing the right equipment, and the rewards are halved.
The Pros of Trading Litecoin
Many traders prefer Litecoin because it has been time-tested and proved reliable. Also, it is cheaper and is often more stable than its counterparts. However, since it is a cryptocurrency, it can also show extreme volatility compared to traditional assets, making it a tremendous speculative tool for intraday and swing traders.
A great advantage of Litecoin is that its total supply is capped at 84 million LTC, suggesting that the scarcity level will be maintained over time. That can potentially have a positive impact on the LTC’s price, similar to BTC, driven by an increase in demand.
Besides, Litecoin is a faster and cheaper option to make transactions compared to Bitcoin.
The Limitations of Litecoin
While Litecoin has many advantages, it has often been criticized for lacking a real purpose even though Litecoin was meant to be a global money system to facilitate cheap cross-border transactions. Stablecoins now exploit this use case.
Another problem is that wealth centralization is higher than in Bitcoin and Bitcoin Cash. Moreover, even though Litecoin pledged to be miner-friendly and reduce the need for ASICs, it now has a similar hash rate to Bitcoin and other PoW networks.
Some investors despise Litecoin because it is the second most popular cryptocurrency on the Dark Web due to its anonymity features.
What to Do With My LTC?
Besides mining, you can obtain Litecoin by purchasing it on regular cryptocurrency exchanges, such as Coinbase, Binance, Kraken, and among others. Some of these exchanges, such as Coinbase and Binance, allow you to buy LTC with fiat currency.
Alternatively, you can trade LTC or Litecoin derivatives to generate profits. For example, you can trade LTCUSDT Perpetual Contracts on Bybit – one of the largest and most reliable crypto derivatives trading platforms. If you decide to trade LTC, make sure to stick to tested trading strategies, and consider risk management techniques.
Yes, Litecoin might be overshadowed by the bulls run on Bitcoin. However, it remains on the top of the crypto charts consistently for a reason. Despite the similarities it possesses, it’s still good to understand what is Litecoin and to get a grasp of its concept. The last thing you need is to be caught in confusion when things go south.
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