The Bitcoin network is known for being slow and bloated, and riddled with high transaction fees and scaling issues. A former Google employee addressed these challenges by developing a new cryptocurrency called Litecoin. But what is Litecoin? Here’s everything you need to know.
Litecoin, whose coin trades by the symbol LTC, was created by Charlie Lee and went live in October 2011. It was the second successful cryptocurrency to launch after Bitcoin.
By November 2013 Litecoin had reached a $1 billion market cap and as of the time of this writing (February 2018) has a market cap of nearly $14 billion, achieving the title 5th biggest cryptocurrency by market capitalization.
The Litecoin ethos is to be smarter, faster and more efficient than Bitcoin. But the two really go hand in hand.
The reason that Litecoin is likened to silver is that silver is very fast and easy to move, and has more real world applications than gold.
Gold, on the other hand, is very good as a store of value but has little industrial or real world application. It is more expensive and difficult to trade gold, with less liquidity.
And the same can be said of Litecoin v Bitcoin, where Litecoin has a great utility and is easy to move around. Essentially, it’s just Bitcoin with an altered design, even though they are similar in so many ways.
What is the Difference Between Bitcoin and Litecoin?
The technical details of Litecoin are nearly identical to Bitcoin in nearly every way. Both obviously record transactions on the Blockchain, which is an online distributed ledger of transactions.
Both use a Proof of Work (POW) methodology to validate transactions on the Blockchain. This is essentially the process where miners verify transactions on the Blockchain by solving solutions to cryptographic puzzles using specialized hardware.
It is very energy intensive and the miners get rewarded with Litecoin/Bitcoin for their work in securing the system. The difference lies mainly in the details.
The main difference between Bitcoin and Litecoin is that the Litecoin network aims to process a block every 2.5 minutes. This can be contrasted to the Bitcoin network, where blocks are processed every 10 minutes. This means that transactions are confirmed faster.
A block is a group of transactions, and a transaction is a movement of cryptocurrency from wallet A to wallet B. This block of transactions represent a computational puzzle which the miners solve using the hashing power of their computers, at trillions of hashes per second.
In order to maintain a steady block processing time, the network difficulty gets adjusted every 2 weeks. The benefit of having a 2.5 minute block speed is that transactions are confirmed faster, meaning that Litecoin is quicker.
Another difference between Litecoin and Bitcoin is the way the Blockchain is encrypted. The Bitcoin network/Blockchain uses Secure Hash Algorithm 256 (SHA 256) to secure itself.
Miners then use hardware designed to crack SHA 256. Litecoin uses Scrypt. Scrypt is easier to mine than SHA 256, which means it takes less processing power.
Aside from the hashing algorithm and the block speed, there are few real differences between the two cryptocurrencies.
Both networks half the block reward every 4 years, and Litecoin miners are awarded 25 LTC until 2019 when this will be cut to 12.5. Litecoin has a supply limit of 84 million LTC while Bitcoin has a supply limit of 21 million BTC.
Without getting too granular, you can see that the two are fairly similar and overall accomplish many of the same goals.
Where Can I Buy and Store Litecoin?
Litecoin is the easiest coin to buy aside from Bitcoin. As one of the oldest cryptocurrencies and one of the biggest, it has a high trade volume.
Like Bitcoin, Litecoin can often be bought directly, which is not the usual case, aside from Bitcoin and possibly Ethereum. When you are storing Litecoin you will need a Litecoin wallet. You have the option of choosing your own wallet or keeping it on an exchange.
Generally speaking, keeping money online is not a good idea and your LTC is safer on your computer in your local wallet. So once you purchase your LTC on an exchange it would be a good idea to transfer it to your local wallet stored on your computer, where it is safer.
One of the best places to buy Litecoin is directly from Coinbase, one of the world’s biggest cryptocurrency exchanges. Like all exchanges you will have to register an account and submit identity verification.
Coinbase is one of the most secure places to both buy and store Litecoin, as well as Ethereum and Bitcoin. They are closely watched and as online wallets go, your money is as safe on Coinbase as it is anywhere else.
The charges are not over the top either, with a 3.99% fee per purchase with your debit card. Credit card has the advantage of being faster than wire transfer.
If you do buy your Litecoin from Coinbase using a bank account, then the fees can be reduced to 1.49% per purchase. ACH transfer takes 5-7 days while SEPA transfer takes 1-3 days. Coinbase is available to customers in the US, Canada, Europe, Singapore and Australia.
Unfortunately Coinbase recently suffered from a credit card processing glitch resulting in repeat transactions for many customers, which has severely damaged its credibility.
One well run but not well known exchange where you can get Litecoin is Litebit.eu. This exchange is based in the Netherlands and offers more than 40 cryptocurrencies, many of which are simply not available anywhere else.
And they supply the wallet for cryptocurrencies where good wallets are difficult to find, albeit the funds are still kept online. Litebit.eu even links to the official wallets of all listed cryptocurrencies along with a short description. The disadvantage?
All coins are bought and sold with a 4-7% markup. They are most certainly making a gigantic profit. The fees are near zero, on the upside. In total you end up paying between 4-8% regardless of when you buy on any type of exchange.
For ordinary investors, Litebit.eu is a brilliant exchange, but for traders investing thousands of dollars, Kraken or some other large online exchange will reduce costs. Litebit.eu does not accept credit card payments or ACH transfers.
Aside from Coinbase and Litebit.eu there are a number of ways to purchase Litecoin. Local Bitcoins is an established platform where you can filter for your seller and initiate the trade based on the contract stipulations.
And there are a large number of alternative places to purchase Litecoin, including Shapeshift, Poloniex, Bitfinex, Bitstamp, Changelly and Bitpanda. All have their advantages and disadvantages. There is no shortage of options to purchase Litecoin; it is more important to find the cheapest and safest way to acquire it.
In terms of security it is not good practice to store your wallets online. It is always best to attain your own wallet, no matter the reputation of any online wallet. Electrum-LTC is probably the best local wallet which you can acquire from the official site.
It is very important to download official wallets from official sites. Fake sites will let you download fake wallets which take all of your funds.
Aside from Electrum-LTC you can use Exodus, a secure multi coin wallet, as well as Loafwallet, a mobile wallet storage solution. This wallet was developed by Charlie Lee, the inventor of Litecoin. For the ultimate in storage, consider a Trezor or a Ledger Nano, which are hardware wallets that only you have the pin and passcode to.
If these are too expensive, consider a paper wallet where you can get nearly the same level of security as long as you remember the passcode. Because these types of wallets are not stored online there is almost nothing to fear from hackers.
It is true that there are cryptocurrencies out there which are technically faster than Litecoin in many ways. But aside from Bitcoin, Litecoin is one of the most well known and integrated cryptocurrencies.
And because Bitcoin is not currently workable due to its slow speeds, it is possible that Litecoin could be the first cryptocurrency widely integrated into mainstream society. It has been around a long time and is well backed with a solid team of developers and gets rid of the primary problem associated with Bitcoin, namely a slow speed and high fees.
And what’s really cool about Litecoin is all the projects they are working on, many of which are coming to fruition much faster than expected.
2 down, 2 to go! 🚀
— Charlie Lee [LTC] (@SatoshiLite) March 15, 2018
One indicator of the level of adoptability is the number of ATMs which support Litecoin. The first half of 2017 saw a huge surge in the amount of Litecoin ATMs, mainly due to Bitcoin ATM vendors integrating Litecoin support.
These are terminals where you can buy and sell both Bitcoins and Litecoins. This has a huge marketing advantage as it represents an easy entry point to both of these currencies.
And while it can take about eight hours to get your Bitcoins (you key in a code and get give the address to your wallet when you come back) it can take less than five minutes for Litecoin purchases.
The Block Size Issue
No issue is discussed as passionately in the Bitcoin and Litecoin community than the great block size debate. Both Bitcoin and Litecoin have a block size limit of 1 MB.
It was initially 32 MB, but this was reduced by Satoshi Nakamoto to combat spam attacks down to 1MB. A 32 MB block size is completely unnecessary at this time; however, there are some issues with a 1MB block size.
The block size issue relates to the speed and the amount of transactions. The aim of Bitcoin and other technologies is primarily to displace fiat money and the financial system through a decentralized Blockchain. The existing Visa credit card network processes more than 20 million purchases per day, and the Blockchain network (Litecoins and Bitcoins) is nowhere near ready to accommodate this, due to the 1MB capacity.
Essentially, a bigger block size would result in faster times and lower fees with the risk of increased centralization at the miner level. There is already risk at the miner level as mining is so expensive, and in the world of Bitcoin mining, governments and huge multinationals are getting in on the race.
Which does not exactly bode well from a decentralization standpoint. The other disadvantage to going ahead with a block size increase is that it would result in a hard fork.
A hard fork means a quick and permanent change to the Blockchain that is not backwards compatible. This can be compared to a soft fork, where there are essentially two Blockchains and the network gets to implement the new rules or not based on user adoption, much like a vote. A hard fork would set bad precedent moving forward, as it can be considered somewhat undemocratic.
Both Bitcoin and Litecoin opted against the block size increase on the basis that there are better options, that it would set a bad precedent and that it could potentially result in miner centralization. The block size issue has been more or less resolved for now with a work around. And this workaround is called Segregated Witness (SegWit), along with Lightning Network (LN).
Segregated Witness & Lightning Network.
SegWit represented a soft fork on the Litecoin Blockchain. Essentially, SegWit means that more transactions can be included in a block without increasing the block size.
In other words, it does the same thing increasing the block size would do, without actually increasing the block size. The capacity of the block has increased. SegWit was introduced in April 2017 for Litecoin and it has been a tremendous success.
The price of Litecoin rose rapidly in the following months and the technology paves the way for other implementations which will bridge the gap between technical experimentation and real-world use. And the most notable of these implementations by far is called Lightning Network. LN enables instant transactions and is a massive solution to the scaling problem plaguing both Bitcoin and Litecoin.
LN relies on SegWit to complete the transactions. It includes a peer to peer (P2P) system for making micro payments of tokens through a network of bi-directional payment channels without giving the custody of funds or any form of power to third parties.
The payment speed would be measured in milliseconds when it comes into force, without worrying about block confirmation times. It would be low cost and solve the scalability issue, as well as enabling the processing of micro payments.
Even more exciting for all Bitcoin developers and speculators, is that LN could potentially kill off many Bitcoin competitors, as they no longer have the advantage of quicker and faster payments, nor the advantage of being able to send micro payments.
However, LN is not operational for either Bitcoin or Litecoin, and it may take some time before it is up and running. In the meantime, Bitcoin transactions remain high and slow, while Litecoin is faster and cheaper, but still not the fastest on the market.
In a sense, Litecoin is like a miniature testing ground for Bitcoin procedures. The two networks are virtually identical, except Litecoin is smaller and quicker, and SegWit was implemented with Litecoin before being adopted by the Bitcoin community.
But the question that remains is that if Bitcoin becomes cheap and instantaneous, what is the point of Litecoin? The answer is that Litecoin will still be a little cheaper, and even with LN, Bitcoin will not be able to service more than 400 Million users at 1MB.
Aside from this nobody knows what the future holds or what developers will implement in response to problems. There is doubtless a place for both cryptocurrencies and they will work in tandem with two Lightning Networks.
What is more certain is that if LN becomes fully operational, the banks will most definitely lose out on a global basis, perhaps completely. Why would people pay fees and wait when they simply don’t have to?
The implementation of SegWit caused quite a stir in the Bitcoin and Litecoin ecosystem, and ultimately resulted in a new cryptocurrency called Bitcoin Cash, as well as the lesser known Bitcoin Gold.
Bitcoin Cash is extremely fast with extremely low fees, and this could pose a threat to Litecoin, as it aims to remedy exactly what Litecoin aimed to remedy: the slow speed and high fees of Bitcoin. Time will tell what cryptocurrency will win out, though each will surely have its place.
Mining Litecoin is easier than mining Bitcoin. This is mainly due to the fact that Litecoin uses scrypt to secure its Blockchain while Bitcoin uses SHA 256.
At present, it is more profitable to mine Litecoin than to mine Bitcoin, generally speaking. This is because the Bitcoin mining sector is incredibly specialized and competitive.
What was once a hobby has now become a commercial industry, with many major players entering the arena. However, this does not mean that Litecoin mining is easy, and it has followed Bitcoin in terms of its difficulty to mine, like it has followed Bitcoin in many other sectors.
To mine Bitcoins, an Application Specific Integrated Circuit (ASIC) is needed. These are pieces of hardware designed for one specific application, and one specific application only – Mining Bitcoins.
This is also the case for mining Litecoins. Until quite recently, Graphics Processing Units (GPU’s) could be used to mine Litecoins profitably, but this is no longer the case.
Good Litecoin ASICs cost money and include the Innosilicon A4+, the best ASIC available for the purpose of mining scrypt. Another good option is the Bitmain Antminer L3+.
It could be a good idea to wait a few months as more ASICs enter the market, as many large companies and even governments seem to be entering the cryptocurrency hardware mining industry. These ASICs usually run around $2,000 or so, which can put many individuals out of the picture, unless they really know what they are doing.
After you have your Litecoin ASIC you will then need to connect to a mining pool. Cryptocurrency miners nearly always join mining pools unless they are running a large industrial operation, in which case they are really their own mining pool.
This reduces the variance. If you have 100 machines at work, the reward is going to be more consistent than mining on your own, where you might see nothing for one or two years and then get rewarded with 25 Litecoin.
Mining software can help you to get connected to a mining pool, and many of the software that connects Bitcoin mining rigs to pools can also be used to connect Litecoin mining rigs to Litecoin mining pools. Some of the more popular Litecoin mining rigs include CPU Miner, BFG miner, SG Miner and CG Miner.
Always bear in mind that cryptocurrency mining is an industry, not a set and forget get rich quick scheme.
It is constantly changing so you must be constantly looking for ways to optimize and reduce overhead. Cryptocurrencies are incredibly volatile and you really need to stay ahead of the game.
The mining difficulty, exchange rate and price of electricity are in flux, and even with the best setup you could lose money. You will also be in competition with governments and corporations. It is no longer a niche market where you can get ahead of the game without huge resources.
In many ways, Litecoin is simply a better version of Bitcoin with less marketing and establishment. But it is really the little sister of Bitcoin.
If Bitcoin goes down then Litecoin is nearly sure to follow. They are a duo and Litecoin actually addresses all of the concerns people currently have about Bitcoin.
Taken together, this team could possibly be perfectly integrated into society as a form of currency. Litecoin has an active community of developers implementing innovative solutions such as SegWit and LN. It is not going to fail and it is not going anywhere.
While Bitcoin is implementing both these features, there is more than enough market share to go around for two of the world’s biggest cryptocurrencies. And as both develop there will no doubt be advantages and disadvantages to each as they integrate new features.
Bitcoin and Litecoin are completely intertwined. ATMs offering Bitcoin also offer Litecoin. Bitcoin mining software also offers Litecoin mining compatibility.
The code is identical; their aims are the same. Where Bitcoin goes, Litecoin follows. It is not a “one or the other” situation. The world needs both gold, and silver.