What is Litecoin (LTC) and how does it work?
Litecoin (LTC) is widely considered to be the first alternative cryptocurrency. It was launched on October 13, 2011, to be “the silver to Bitcoin’s gold,” and is still one of the largest peer-to-peer (P2P) cryptocurrencies by market capitalization. It uses blockchain technology to keep track of all transactions in a decentralized, public ledger.
Just like Bitcoin (BTC), Litecoin runs on an open-source blockchain that isn’t controlled by any central authority. Every Litecoin node operator has a copy of each blockchain to ensure that new transactions do not contradict its transaction history, and miners help process new transactions by including them in newly mined blocks.
Both BTC and LTC can be mined, which can result in orphaned blocks. Orphaned blocks are formed when two miners mine a block at nearly the same time, both of which are initially accepted by the chain, which then rejects one. Segregated Witness (SegWit) is used to limit the number of orphaned blocks caused by the low block confirmation time.
Atomic Swaps is another Litecoin concept that adds interoperability to the blockchain, allowing for trading multiple cryptocurrencies without actually having to exchange them.
Litecoin and Bitcoin do have a few key differences. Transactions are faster on Litecoin and the cryptocurrency has a larger supply. It uses a different hashing algorithm to keep mining fair for everyone, and these differences are believed to have helped LTC succeed and remain one of the top cryptocurrencies throughout the years.
In this article, you will find answers to various questions surrounding Litecoin, such as how do you buy, store and mine Litecoin? Is Litecoin proof-of-work (PoW) or proof-of-stake (PoS)? And is Litecoin a good investment?
Is Litecoin truly decentralized?
No central authority can freeze your money in Litecoin because it is an entirely decentralized network. Only users have control and decision-making authority over their money.
As a result, Litecoin can be used as a peer-to-peer (P2P) payment system to pay people all over the world without the need for an intermediary. It can also be used as a haven or as part of a diversified cryptocurrency portfolio.
But, is Litecoin safer than Bitcoin? It certainly is! Because no one is doing forks of Litecoin without relay protection, it is probably safer than Bitcoin. However, liquidity is essential for grown institutions, and Bitcoin is far more liquid than Litecoin.
Litecoin history: Who created Litecoin and why?
Litecoin was created by Massachusetts Institute of Technology graduate Charlie Lee. Lee is a former Google engineer who became interested in Bitcoin in 2011 and would, after creating Litecoin, join cryptocurrency exchange Coinbase as director of engineering in 2013.
After joining the crypto exchange, Lee largely set aside the development of Litecoin. At the time, he said he believed it was important to help people “own Bitcoin and hold Bitcoin” as Litecoin “wasn’t ready” to grow.
In late 2017, Lee left the company to pursue LTC’s development full time. Now, he serves as the managing director of the Litecoin Foundation, a non-profit dedicated to supporting the cryptocurrency.
In December 2017, he revealed that he was selling and donating all of his LTC, as he was often accused of tweeting about the cryptocurrency for personal benefit. Litecoin was then trading at an all-time high at around $350, and Lee’s move was widely criticized.
But why was Litecoin created? In an announcement by Litecoin’s creator published in October 2011 on the Bitcointalk forum, Lee noted that he wanted “to make a coin that is silver to Bitcoin’s gold,” using the best innovations of Bitcoin and other alternative cryptocurrencies active at the time.
The cryptocurrency came to be after Lee was “playing around with the Bitcoin codebase” in a bid to create a fork of the Bitcoin blockchain. According to him, it was “mainly a fun side project” at first, but it evolved later on.
Litecoin stood out from other alternative cryptocurrencies because of its innovations, including a combination of faster block propagation speeds and the use of the Scrypt hashing algorithm. It also largely avoided something called a premine, which allows the creators of a blockchain-based cryptocurrency to mine coins before the project is launched to the public. Premining was originally used as a way to reward the project’s creators and to fund its development.
At the time, a lot of community members wanted alternative currencies with a fair launch, similar to the launch Bitcoin had. When Litecoin launched, Lee addressed these concerns, saying that one person or a group controlling a large number of coins and using them as they see fit “is against the decentralized vision of Bitcoin.”
A week before LTC launched, Lee released its source code and binary so people could test mining it before it went live. The time of launch was decided through a poll on the Bitcointalk forum so members could choose the time “that best” suited them. Everyone was able to start mining at the same time, as they knew the launch date and only had to make a simple change to their files to start mining real LTC.
Still, Litecoin came with a small premine. A total of 150 LTC were premined as the genesis block — the first one on the network — and two subsequent blocks to confirm were initially mined its validity. When Litecoin launched, the reward for mining one block was 50 LTC, which was essentially worthless at the time.
Is Litecoin proof-of-work (PoW) or proof-of-stake (PoW)?
As mentioned before, Litecoin is a mining-based altcoin, and such coins use the PoW consensus method to validate their transactions.
Essentially, PoW requires one party to demonstrate to all other network participants that a certain amount of computing effort has been undertaken. Unlike Bitcoin, which employs the SHA-256 PoW hashing method, Litecoin uses the Scrypt PoW technique, which is less resource-intensive.
Scrypt’s key derivation function was, according to Tarsnip, developed “for use in the Tarsnap online backup system and is designed to be more secure against hardware brute-force attacks than alternative functions.”
Litecoin vs. Bitcoin: What’s the difference?
While Litecoin was launched to be the digital “silver,” just like BTC, it’s a blockchain-based P2P cryptocurrency that was designed to address some perceived shortcomings in Bitcoin.
It aimed to make it easier for merchants to accept LTC payments by making transactions faster than on the Bitcoin blockchain. On average, one Litecoin block takes two and a half minutes to be mined, a quarter of Bitcoin’s 10 minutes. This means that merchants that take only secure transactions do not have to wait a full hour for six confirmations on the network.
While there is a security trade-off here, merchants can also wait for additional network confirmations to be more secure while using Litecoin. Because blocks are four times faster on Litecoin, the difficulty of mining on its network adjusts faster, roughly every three and a half days.
To mimic Bitcoin’s generation trajectory, Litecoin’s halving events were altered as well. While Bitcoin generation halves every 210,000 blocks, Litecoin generation halves every 840,000 blocks. Similarly, to ensure that the last Litecoin is mined at the time the last Bitcoin is mined, LTC’s supply is capped at 84 million coins.