What is Litecoin? An Early Bitcoin Fork Nearly Identical to the Original Chain
In the world of blockchain and cryptocurrencies, there is a large number of forked protocols that inherit the majority of their properties from the parent blockchain networks. Litecoin is one such network forked from Bitcoin, the largest and most popular blockchain protocol in the world. It comes as no surprise that Litecoin’s technical details are slight modifications of Bitcoin.
What is Litecoin?
In the simplest of terms, Litecoin is one of the earliest Bitcoin forks. It is a peer-to-peer cryptocurrency created by Charlie Lee, an ex-Google employee and former Coinbase engineering director, based on Bitcoin code. Litecoin was released as an open-source software project on GitHub in the last quarter of 2011. At the time of writing, Litecoin is the sixth largest cryptocurrency with a market cap of $4.8 billion, according to CoinMarketCap data.
Litecoin vs. Bitcoin
The best way to understand Litecoin is to compare it with Bitcoin. If Bitcoin is a soda drink, then Litecoin is a diet soda.
While Bitcoin is groundbreaking, it has some major flaws and almost every cryptocurrency in existence was designed to address the flaws found in the popular digital currency. Lee modified Bitcoin’s code in an attempt to reduce the block size and create new protocol he believed was conducive for large scale adoption.
Bitcoin has a block confirmation time of 10 minutes but this was reduced to 2.5 minutes in Litecoin, making the latter 4 times faster than the former. This essentially means that a Litecoin block is mined every 2.5 minutes.
The second notable difference between Litecoin and Bitcoin is the total supply. Bitcoin is hard capped at 21 million (and all these coins will not be mined until 2140) while Litecoin has a total supply of 84 million.
The reason for the hard cap has everything to do with supply and demand – one of the most well-known economics principles. In principle, an asset is more valuable if it is in short supply. In the real world, fiat currencies lose their value when governments print more money.
One of the fundamental differences between Bitcoin and Litecoin is how they are mined. The two blockchain networks employ the Proof-of-Work (PoW) consensus algorithm for their procedure. The miners (entities responsible for maintaining the networks and minting new coins) use their computational power to solve very difficult mathematical puzzles and rewarded with new coins for their efforts.
While the two cryptocurrencies essentially employ the same mining principles, they approach it in different ways.
Bitcoin utilizes the SHA-256 hashing algorithm. This allows miners to pool together their mining resources and form mining pools in order to increase their chances of solving the puzzles. The SHA-256 algorithm requires a lot of power. This resulted in the mass production of the more expensive and crypto mining focused Application-Specific Integrated Circuits” ASICs.
While this is efficient, it goes against the principles of decentralization that aims to provide an equal opportunity for everyone to equally take part in the creation of new coins. Initially, anyone with a computer could take part in Bitcoin mining but the advent of ASICs centralized the whole process.
The Bitcoin network is now controlled by a few mining pools and if a single pool manages to control more than half of the network’s hashrate, they can re-write the blockchain in what is known as a 51 percent attack.
Bitcoin mining is considered to be wasteful as it requires a lot of electrical energy.
Litecoin tries to address these challenges by using the Scrypt algorithm. The Scrypt algorithm makes use of the SHA-256 algorithm but does not allow parallel transactions. This means that it cannot carry out transactions simultaneously but have to be carried out one after the other.
This was done in order to democratize the mining process and depart from Bitcoin’s more centralized mining process. However, some companies are developing specific Scrypt ASICs and this could change Litecoin’s mining democracy.
Litecoin has implemented a number of innovative solutions such as Atomic Swaps and Segregated Witness (SegWit).
Litecoin Atomic Swaps
Litecoin has introduced what is known as Atomic Swaps. This innovative solution allows two entities to swap coins without using a third party.
For example, if you have one Bitcoin (BTC) and want 50 Litecoin (LTC) in return, you would traditionally sell the BTC on an exchange and then buy BTC. You incur fees on this transaction and the value of your digital holdings is diminished.
With Atomic Swaps, you can easily swap your BTC with someone who has LTC without using an exchange.
Litecoin adopted SegWit in May 2017. SegWit is a sidechain that reduces the load on the main chain and increases transaction speed.
How to buy and sell Litecoin
You can buy and sell Litecoin at well-known exchanges that include Coinbase, Huobi, Bitfinex, Changelly, Poloniex, Kraken, Binance, and more.
There are now several crypto ATMs that allow you to buy Litecoin with fiat. You can also buy Litecoin using cash at various platforms that include Coinmama, 247exchange, Litecoinlocal.net, Cryptex24, etc.
Coinmama, Coinbase, 247exchange, and Indacoin allow you to use a credit card to buy Litecoin.
A cryptocurrency wallet is a pre-requisite for anyone who wants to own digital currencies such as Litecoin. There are several types of wallets that include hot and cold wallets. Each has its own advantages and disadvantages.
Hardware wallets are regarded as safe although they cannot be completely trusted. You can use Trezor or Ledger Nano S to safeguard your Litecoin.
These wallets are similar to a USB stick. However, it is advisable to buy a new hardware wallet instead of opting for a second hand one.
You can also make use of desktop wallet such as Exodus to store Litecoin. These wallets are an example of a hot wallet but are only accessible from a device that they were installed on.
Mobile wallets are another way to go. They are very convenient because they give you access to your Litecoin as long as you have your smartphone with you.
Here is a list of wallets that support Litecoin:
- Ledger Nano S
- Electrum LTC
- Atomic Wallet
- Litecoin Core
The popularity of Bitcoin and the need for the growing demand for alternative cryptocurrencies has contributed to the wider adoption of Litecoin. The digital asset has become more popular as companies adopt the digital currency and accept it as a means of payment. Litecoin’s future looks brighter after Lee stated that he wants to add fungibility and privacy to the cryptocurrency.