In a world of $8,747 bitcoin and $854 Ethereum (as of February 13, 2018 – Coinmarketcap.com), it’s easy to overlook other cryptocurrencies, even those that may rank in the top 10-15 by market capitalization.
One crypto that has seen absolutely tremendous growth in the past year or so is Litecoin. Indeed, its growth has been anything but “lite.” On January 1, 2017, the price of a single Litecoin was $4.51 (Coinmarketcap.com). On December 18, 2017, the price of a single Litecoin hit $371.99 (Coinmarketcap.com), an incredible 8,148% or 82x return on one’s investment in less than a year.
Naturally, people have started asking questions and want to know what Litecoin about.
- 1 Litecoin History
- 2 Litecoin vs. Bitcoin: Key Differences
- 3 SHA-256 and the Rise of the Bitcoin Mining Cartel
- 4 Scrypt: No Parallel Processing
- 5 Litecoin: Faster Block Times
- 6 Atomic Swaps
- 7 Protection Against Flood Attacks
- 8 Where to Buy Litecoin
- 9 How to Store Litecoin
- 10 Conclusion
Although the origin of bitcoin is largely wrapped in mystery with no one knowing who founder(s) Satoshi Nakamoto is/are, Litecoin has a more accessible background story. In fact, Litecoin founder Charlie Lee is one of the more visible figures in the cryptocurrency space and is very active on social media platforms like Twitter.
Lee had a long career in tech and blockchain both before and during his time working on Litecoin. He worked at Google for about 6 years as a software engineer and worked on projects like YouTube Mobile, Chrome OS, and Play Games.
After his stint at Google, he was an Engineering Manager and later director of engineering at Coinbase, one of the world’s largest cryptocurrency exchanges. It wasn’t until June 2017 that Lee left Coinbase to work on Litecoin full time.
A long-time member of the crypto community, Lee first released Litecoin on October 7, 2011, about 2 years after the release of bitcoin, via an open-source client on Github. It wasn’t until October 13, 2011 that the network went live.
Today, Litecoin is seen as the “silver” of cryptocurrency while bitcoin is seen as the “gold.” Bitcoin, while originally created as a “peer-to-peer digital currency,” has become more a store of value than a day-to-day currency because of its high transaction fees and long transaction times.
On the other hand, Litecoin, due to its lower transaction fees and faster transaction times, has overtaken bitcoin’s original purpose and is more often used for day-to-day transactions.
Although Litecoin’s code is a fork (or split) of bitcoin’s code and thus similar in many ways, Litecoin does have some key differences that separate it from bitcoin.
Litecoin vs. Bitcoin: Key Differences
Litecoin Transaction Fees vs. Bitcoin Transaction Fees
Perhaps the biggest differences between Litecoin and bitcoin are their respective transaction fees and times.
As of February 12, 2018, the average Litecoin transaction fee is $0.25. In comparison, the average Bitcoin transaction fee as of February 12, 2018 is $3.25 (and has been as high as $54.90 – December 21, 2017), which makes bitcoin impractical for everyday small purchases.
A classic example people like to use is a cup of coffee – a cup of coffee can cost $3.25 (or less), which means that it wouldn’t make sense to pay for a cup of coffee with bitcoin if the transaction fee will be just as much as the coffee, if not more.
Lower transaction fees, as well as faster transaction times make Litecoin much more practical as an everyday currency or means of exchange.
Litecoin Transaction Times vs. Bitcoin Transaction Times
As of February 12, 2018, the average bitcoin block confirmation time (a single block contains multiple transactions) is 179 minutes, or about 3 hours. Since blocks have to be confirmed 6 times before they are usually considered valid, an average bitcoin transaction takes 18 hours to be validated [(3 hours/1 confirmation) * 6 confirmations = 18 hours].
Litecoin, on the other hand, has an average block confirmation time of 2.5 minutes as of February 12, 2018. Given that 6 confirmations are required before a block is usually considered valid, that means an average Litecoin transaction takes 15 minutes to confirm.
While not lightning fast, Litecoin transactions are obviously much faster than those of bitcoin, thus making Litecoin much more practical for everyday use.
Greater Supply of Litecoin than Bitcoin
Another difference that separates Litecoin from bitcoin is total supply.
When bitcoin was created, its total supply was set at 21 million. Many like to draw comparisons between bitcoin and gold: Gold, too, is scarce, however, the supply of it is not known for certain.
For example, while this scenario may be unlikely, it is possible that there are yet-to-be discovered, large deposits of gold, which, if found, would lower the scarcity of gold as well as its price. On the other hand, bitcoin, due to the supply being both known and scarce, gives it an image of being valuable, which has been one of the factors driving its price so high.
Though Litecoin’s total supply is also known (84 million), its supply is 4 times that of bitcoin’s, making it less scarce. This has an effect on price, as it would take a lot more demand for Litecoin to drive its price to the levels of bitcoin’s.
Another fundamental difference between Litecoin and bitcoin is the way that “mining,” or how cryptocurrency transactions are validated, works for each of them.
Both Litecoin and bitcoin use what’s called Proof-of-Work to validate transactions and add them to the blockchain, or ledger of all transactions. In essence, “miners,” or people who validate cryptocurrency transactions using their computers or specialized mining rigs, use computational power to solve cryptographic puzzles.
Once these puzzles are solved, transactions are validated and added to blocks, which are then added to the entire blockchain (chain of blocks, which are series of transactions). In return for their work, miners are rewarded with cryptocurrency.
SHA-256 and the Rise of the Bitcoin Mining Cartel
While Litecoin and Bitcoin both use Proof-of-Work mining, bitcoin uses the SHA-256 algorithm for its mining. The problem with SHA-256 is that bitcoin miners realized that by combining their computational power and forming what are known as “mining pools,” they could increase their mining power and successfully solve more cryptographic puzzles and earn more cryptocurrency as a result.
Bitcoin miners were able to achieve this by performing parallel processing, which splits mining program instructions amongst multiple mining computer or device processors.
Of course, parallel processing and mining pools are good for the miners themselves, but these practices largely go against the ethos of bitcoin and cryptocurrency as a whole, which is one of democratization and decentralization.
Long gone are the days where an average person can mine bitcoin using their personal computer or laptop. Specialized bitcoin mining devices called application specific integrated circuits (ASICs) are required to make bitcoin mining a profitable venture.
These days, a few large mining pools with entire farms or plants of bitcoin ASICs control the majority of bitcoin mining power, which means that bitcoin mining is centralized and that those mining pools have a significant influence over both the bitcoin community and development process as a whole.
Scrypt: No Parallel Processing
In order to combat mining centralization, Litecoin uses the Scrypt algorithm for mining in place of SHA-256.
Due to the way that Scrypt works, parallel processing, and the formation of large mining pools, is largely impractical when it comes to Litecoin mining.
While with SHA-256, miners can split mining program instructions amongst their device processors, the same process does not work for Scrypt because Scrypt is more dependent on memory than processing power. Though it is technically possible to run memory-dependent processes in parallel, like it is to run processing power-dependent processes in parallel, this is largely impractical because it is more expensive to produce large amounts of memory than it is to produce specialized SHA-256 processing chips.
This memory cost factor, in tandem with the fact that your average person can buy memory cards easier than they can specialized mining ASICs, makes Litecoin mining less prone to centralization.
However, Litecoin mining, while not nearly as centralized as bitcoin mining, does face challenges as recent developments have resulted in companies being able to produce specialized Scrypt mining ASICs, which could lead to Litecoin mining centralization down the line.
Litecoin: Faster Block Times
Faster Block Times, More Mining Rewards, Less Mining Centralization
As discussed before, Litecoin blocks confirm much faster than those of bitcoin. This means that Litecoin miners, who validate or confirm the blocks, have more opportunities to solve cryptographic puzzles and be rewarded for their work in the form of Litecoin, as faster confirmation times means that there is less time between blocks vs. with bitcoin, where miners might have to wait hours before a new block is created (less opportunity to solve puzzles and win cryptocurrency).
In a sense, this increased opportunity for mining rewards also may promote mining decentralization, as miners have more chances to win Litecoin for validating the Litecoin blockchain.
Faster Block Times, More Orphaned Blocks, More Strain on the System
However, while faster block times can lead to more opportunities for mining rewards in the Litecoin ecosystem, it can also lead to more orphaned blocks.
Orphaned blocks occur when more than one miner comes up with the solution to a block’s cryptographic puzzle, resulting in more than one instance of a block that can be added to the blockchain. Ultimately, the network decides on which block to add to the blockchain. Nevertheless, the other block is ALSO added to the blockchain as an empty block with no transactions in it.
While this doesn’t seem like a huge problem, orphaned blocks place a strain on the blockchain because mining resources still have to be allocated to them, drawing important resources away from non-orphaned blocks, which has the ultimate effect of increasing block times and transaction fees.
Atomic swaps are one of the more interesting developments in Litecoin and cryptocurrency as a whole.
Simply put, atomic swaps will enable the exchange of different cryptocurrencies without a third party (e.g. a cryptocurrency exchange like Coinbase or Binance). This not only makes cryptocurrency exchange peer-to-peer but also gets rid of transaction fees that would be paid to middlemen. While cryptocurrency exchange fees generally aren’t high compared to those of other financial platforms, transactions still aren’t free, and some cryptocurrency exchanges can charge somewhat high fees (at least relative to their competitors).
If atomic swaps become fully implemented and operational, cryptocurrency users could swap or exchange bitcoin and Litecoin (just as one example) with each other without having to sign up for a cryptocurrency exchange, trade bitcoin or Litecoin for Litecoin or bitcoin (depending on what they have and what they want) and pay the exchange’s fees.
The way that atomic swaps work is through the use of hashed time lock contracts (HTLCs), which are a form of smart contract, or self-executing contracts made of computer code.
HTLCs allow two parties to transfer funds between each other prior to an agreed-upon deadline. Once funds are transferred, payments are acknowledged through the submission of cryptographic proofs.
The atomic swap is not complete until both parties transfer funds, which prevents any one party from running off with the other’s cryptocurrency before the completion of the swap. Furthermore, HTLCs allow parties to give up payments and refund them to payers if desired.
Atomic swaps are a huge development in cryptocurrency as there are so many cryptocurrencies, and atomic swaps would make it much easier to transact using different cryptocurrencies instead of having to sign onto a cryptocurrency exchange and trade crypto x or fiat currency for crypto y (while also paying exchange fees).
So far, successful atomic swaps involving Litecoin that have happened include Decred/Litecoin (September 2017) and bitcoin/Litecoin (November 2017).
Protection Against Flood Attacks
Flood attacks can cripple cryptocurrencies as they are attacks where a cryptocurrency network is flooded with a bunch of spam transactions, which leads to immense strain on the blockchain, bringing transaction times to a halt and driving transaction fees up astronomically.
In July 2015, bitcoin itself suffered a flood attack and had a transaction backlog of around 80,000, showing the danger of these kinds of threats.
Litecoin protects itself from flood attacks by making them economically infeasible. With Litecoin, senders of tiny transactions (spam transactions) are charged fees for each small transaction.
Sending many small or spam transactions would mean that the attacker would have to pay a large sum in order to launch a flood attack on the Litecoin network.
Where to Buy Litecoin
Litecoin is available for purchase on a variety of exchanges.
Perhaps the easiest way to purchase Litecoin is via Coinbase, which introduced Litecoin to its platform in May 2017 (Litecoin’s price surged afterwards).
What makes Coinbase listing Litecoin special is that Coinbase allows users to purchase cryptocurrencies like bitcoin, Ethereum, and Litecoin with fiat currency instead of solely with other cryptocurrencies (which are first bought with fiat like the dollar or euro), effectively making it 1 step easier to purchase Litecoin than other cryptocurrencies.
In fact, Coinbase even allows users to purchase cryptocurrencies with credit cards, which is often much faster than purchasing cryptocurrency through an ACH transfer from one’s bank account (can take days or weeks for the transfer to clear).
However, since Litecoin is among the most popular cryptocurrencies, it is available on tons of exchanges and not just Coinbase. Featured exchanges on Litecoin’s website include
- GDAX (owned by the same people who run Coinbase)
- BTC China
For a more comprehensive list of exchanges that offer Litecoin, visit Litecoin’s list of exchanges.
How to Store Litecoin
Litecoin can be stored in a variety of ways as official Litecoin wallets are available for web, computer, tablet, and phone.
Supported systems include Windows, Mac OSX, Linux, Android, iOS, and Blackberry.
Third-party wallets include Electrum (software wallet for Windows, Mac OSX, and Linux), LiteAddress (paper wallets, brain wallets, and vanity wallets), Trezor (hardware wallet), and Ledger Nano S (hardware wallet).
While Litecoin has been around since 2011, making it one of the oldest cryptocurrencies in active use today, its future looks bright. Though it already had a huge 2017 and more and more cryptocurrencies emerge in response to bitcoin’s slow transaction times and high transaction fees as the “cryptocurrency for everyday transactions”.
Litecoin seems like it will continue to benefit from innovative developments like atomic swaps and LitePay, a payment infrastructure for Litecoin that will allow businesses to accept Litecoin payments more easily as well as immediately convert Litecoin into fiat currency for a small 1% fee, and users to make payments using VISA-powered Litecoin debit cards.
While cryptocurrencies like bitcoin seem to be marred by severe issues like high transaction fees and long transaction times, Litecoin seems to be pushing ahead.