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What is Litecoin (LTC): principle of work and cryptocurrency features
What is Litecoin_
Cryptocurrency
15.09.2021
Updated 12.03.2022
7:28

The cryptocurrency market has been successfully operating for more than ten years. The capitalization of BTC in early January 2021 was 750 billion dollars. Apart from Bitcoin, there are also a lot of other cryptocurrencies. Some of them are less widespread, while some are in great demand. And one of the prosperous currencies in the market remains Litecoin.

LTC takes the fifth place by the capitalization level in the market of cryptocurrencies. Many specialists note that the principal task of this currency is to imitate the concept of Bitcoin. Even though these two cryptocurrencies are pretty similar, still, there are clear differences between them. Let’s consider what the advantage of Litecoin is.

Litecoin fundamentals

Litecoin is a peer-to-peer cryptocurrency operating in the network of an eponymous public blockchain. Its basis resembles Bitcoin a lot, but a completely different algorithm of operation processing is used. That is the reason why LTC has got a significantly higher percentage of processed transactions. In doing so, far less time to generate a block is required. And that is not to mention the fact that the fees for executing transactions in this network are noticeably cheaper than existing analogs.

All of that is achieved due to the use of a Proof of Work (PoW) algorithm. The speed and efficiency are produced by means of less powerful equipment, compared to the same Bitcoin. That’s why equipment even of a regular consumer will do for cryptocurrency mining. The main principle of work emphasizes specifically speed, while miners ensure safety.

Litecoin may be used for:

And that isn’t a complete list of opportunities. LTS is called ‘silver’ in the world of cryptocurrency, while Bitcoin possesses the status of ‘gold’.

General info about Litecoin

This cryptocurrency was created as opposed to Bitcoin to solve some of its problems. For instance, Litecoin significantly saves time of each block verification while providing a high degree of safety. In the case with Bitcoin, it is often required to wait an hour or more to simply approve the transaction. The use of Litecoin reduces waiting time by 78%.

Further, the currency has undergone some changes:  Lightning Network and Segregated Witness functions were implemented. A huge team of professionals has been working on LTC development that makes the cryptocurrency up-to-date even after a while. <

By the way, Litecoin has often become the foothold for many other cryptocurrencies. For example, at first, some updates were implemented for this currency, and only after the successful test were implemented to the Bitcoin protocol. The same Segregated Witness initially was added to LTC and only later on to BTC.

Thanks to a special mechanism of work, a larger number of people can mine Litecoin compared to Bitcoin. All of that is due to the lack of the need of expensive equipment that not everyone can afford from the start. Such a scenario ensures the popularity of the currency in the market. To date, Litecoin capitalization exceeds 9 billion dollars.

History of creation

Litecoin cryptocurrency was developed in 2011. Charlie Lee, who had worked in Google corporation before, decided to create a currency designed to become not a competitor of Bitcoin, but its analog. His project was intended to become more scalable, and transactions to be executed quickly. At that moment, the code of Bitcoin blockchain was the most popular – that’s why it became the basis for the new cryptocurrency.

After the project’s success, Lee joined Coinbase – the largest cryptocurrency exchange in the US. He worked there till 2017 and sold all his assets after that. The official version reported a conflict of interests: Lee was often criticized for his harsh opinions on social media, which often affected the final price of Litecoin.

However, Charlie Lee still remains the head of Litecoin Foundation. As a creator of the currency, he continues to support and improve it. But this time, there is no need to consider the interests of Coinbase.

A brief history of currency in a retrospective looks like this:

  1. 2011 – creation and launch of Litecoin.
  2. 2013 – Charlie Lee started working in Coinbase. The cost of LTC increased from 3 to 30 dollars.
  3. 2017 – Coinbase officially registered Litecoin. It resulted in the growth of the price that continued till 2020. The maximum price was 360 dollars.

Along with a sharp increase in the price, in 2020, Litecoin conducted a number of updates, which allowed it to increase the transaction speed even more.

Mechanism of work 

As stated above, LTC takes an updated version of the Bitcoin code as a basis. It means that both currencies use cryptography. Such an approach allows ensuring a safe exchange and storage. All the operations ever conducted by LTC owners are saved in a special register of the currency. The transactions are located in chronological order.

For Litecoin, each block is created and processed only by miners. The block itself is created within 2-3 minutes, which is much faster than Bitcoin does. The latter requires 10 minutes for creating and verification of one block.

The cryptocurrency has a maximum offer of 84 million coins, but the fullness of the market is only 79%. It means that 67 million coins are in circulation.

Despite a pretty strong demand in the PoW market, Litecoin was created as an analog of Bitcoin so that people without expensive equipment could become miners. The approach had little success, and large miners have always been and will remain on top.

Comparison: Litecoin vs. Bitcoin vs. Ethereum

To better understand how Litecoin works, it’s essential to compare this currency to other two currencies comparable by capitalization level. For comparison, we’ve picked Bitcoin and Ethereum that also was created as a Bitcoin alternative. Further, we will see what they have in common and what distinguishes them greatly.

Mining

Bitcoin and Litecoin operate based on PoW. As for Ethereum, it works with the help of a Proof of Stake (PoS) algorithm. That is their key distinction. In the first two cases, miners check the blocks, for which they get rewards in the network. The processing and verification of the Ethereum blocks are supported by validators. It’s required to deposit 32 ETH to become a validator. For an average miner, such a sum may turn out to be inaccessible. A similar situation is with Bitcoin; not everyone has enough resources to invest in the initial equipment for mining. But Litecoin miners don’t face limitations like that, and mining of a block takes fewer resources and funds.

Safety level 

All the above cryptocurrencies are characterized by a high level of security. BTC, ETH, LTC — all of them are not often subject to attacks 51%. However, hacking by hashrate or banned resources may take place in the case with ETH and LTC.

In 2016, the DAO app was hacked, and attackers took 3,6 million ETH. This event is considered to be the largest attack of cybercriminals on this currency.

Scalability

It’s vital to find out how many transactions each blockchain may process.

  1. Bitcoin – 7 transactions per second.
  2. Ethereum – 15 transactions per second.
  3. Litecoin – 56 transactions per second.

Many expect the upcoming update Ethereum 2.0. If it works with PoS, it will become ten times more scalable than BTC and LTC blockchains.

Offer in the market

It was already said that the maximum volume of release for Litecoin is 84 million tokens. 64 million out of them have already been released. Bitcoin has a limitation of 21 million being set at the beginning of the protocol work. Ethereum doesn’t have limitations, and today more than 14 million tokens are available in the market.

The capitalization of these currencies is:

  1. Bitcoin – more than 700 billion dollars.
  2. Ethereum –128 billion dollars.
  3. Litecoin – 9 billion dollars.

Litecoin mining

A hash algorithm underlies Bitcoin. How does it work? Each miner must solve a mathematical task created for every block separately. It won’t be possible to proceed to the next block until the task is solved. The reward will be counted after the task is 100% solved. An identical algorithm is applied to LTC as well.

But the differences are still present. If Bitcoin engages SHA-256 for the hash, Litecoin uses a Scrypt algorithm. The principal value of this algorithm for a cryptocurrency is the possibility to mine at high speed. It will take only two and a half minutes to process a block. It allows to mine LTC 4 times faster than BTC. The only controversial thing here is the price since the effort required on Bitcoin and the final profit will be much higher.

Why do many prefer Litecoin?

Despite its features, this currency is so popular among miners not in vain:

  1. Litecoin is reliable. The currency has been in the market for many years, which means that you can trust it.
  2. It’s less volatile compared to other cryptocurrencies.
  3. Cheap in mining and doesn’t require expensive equipment.
  4. Convenience of work allowing to quickly understand the basics of Litecoin mining.
  5. Trading Litecoin is possible at all key cryptocurrency exchanges in the world.

For many, one more advantage is that Litecoin’s offer is limited. All the predictions say that the limitations will remain in the coming years. Only that will help to maintain the cryptocurrency stability and make it grow in cost under some circumstances.

Limitations

Litecoin is often criticized for the absence of the real aim. Initially, the cryptocurrency was supposed to go global and take the leading position in the market. Using LTC, cheap transactions would be provided, while the openness of the currency for the average miner would maintain interest in the market. But instead of Litecoin, this place was taken by stablecoins.

A high level of anonymity also worked against it. Litecoin is pretty popular in the darknet, and it became the reason for criticism against LTC, and now some users don’t want to deal with Litecoin on principle.

And the last disadvantage is a high level of decentralization. It exceeds even the Bitcoin indicators. A hashrate comparable with the relevant PoW network doesn’t foster the interest of miners in the currency.

What to do with LTC?

  1. To purchase Litecoin at licensed cryptocurrency exchanges.
  2. One more option is to trade the Litecoin derivatives. It’s recommended to thoroughly study the question of trading and making deals and to stick to proven strategies.
  3. Classical mining. Would work if there’s no costly equipment.

Making conclusions

It’s unlikely that Litecoin will ever overshadow Bitcoin, but at the same time, it steadily holds the position in the market. For many years, this currency has been on top by its capitalization. Litecoin is very similar to BTC in terms of principles of work, but still, it is important to understand the main distinctions in order not to lose funds on mining.