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Litecoin: a cryptocurrency worth understanding

Litecoin (LTC) was one of the first altcoins to be created. The project was launched in October 2011 by Charlie Lee, a former Google developer. Although Litecoin is similar to Bitcoin in many ways,. some interesting aspects have been changed. This has helped Litecoin to find its audience and to become a key part of the cryptoasset world.

Litecoin has its own blockchain and the slogan “Silver to Bitcoin’s gold”. While Bitcoin can be described as digital gold, Litecoin tries to fulfil the role of digital (metal) money.

1. How Litecoin works.

Litecoin is an open-source cryptocurrency which was created in 2011. Like Bitcoin, Litecoin is primarily intended to be a digital currency which can be traded peer-to-peer without an intermediary, securely, very quickly and at minimal cost. This makes transactions very fast and very affordable. Charlie Lee, its founder and a former Google employee, describes it as a complement to Bitcoin.

The modifications which were made to the Bitcoin blockchain to give rise to the Litecoin blockchain required only minor efforts in terms of development, with most of the innovation coming from Bitcoin. However, Litecoin’s strength lies in the fact that these few changes are particularly significant.

Litecoin is a cryptocurrency which works in a relatively simple way by making use of blockchain technology. It shares the same principles as Bitcoin but makes up for some of its shortcomings. Indeed, Charlie Lee developed Litecoin to address Bitcoin’s weaknesses:

  • A “proof of work” which uses the Scrypt hash function rather than Bitcoin’s SHA-256;
  • Block creation which is four times faster, with an average interval of 2.5 minutes instead of 10 minutes;
  • A total number of units which is four times higher, with 84 million instead of 21 million;
  • A mining difficulty which changes every two and a half days instead of two weeks;
  • However, as with Bitcoin, the issuance of new Litecoins is halved every 4 years (this is known as halving): since August 2019, miners receive 12.5 Litecoins as a reward for each validated block.

Litecoin also works by creating tokens through mining. These tokens are then traded like Bitcoin. About 10 million Litecoins were traded every day in 2016, with some 7,500 daily transactions. Every transaction passes through a pool for the miners to handle. Once the transaction has been completed, miners receive their reward in LTC.

2. The creation of Litecoin.

The Litecoin network was launched on 13 October 2011. At that time, only eight altcoins existed: Namecoin, Ixcoin, I0coin, Solidcoin V1 & V2, GeistGeld, Tenebrix and Fairbrix. Excluding Namecoin, all these altcoins were Bitcoin forks: projects which were largely based on Bitcoin’s source code and featured slight changes.

Litecoin soon had the same problem as Bitcoin in its role as a digital currency: high volatility with huge changes in price, both upwards and downwards. Litecoin also initially encountered some problems in making a name for itself. When it was launched, cryptocurrency enthusiasts were loyal to Bitcoin. But by taking advantage of its image as “Bitcoin’s little brother” and Charlie Lee’s influence on social media, Litecoin managed to develop a community which believes in its potential and long-term price appreciation.

Before 2014, the vast majority of altcoins had a single objective: to replicate the success of Bitcoin with minor changes, such as attempting to change the average time it takes to discover a new block or reducing transaction fees. In fact, 99% of these projects failed to outperform Bitcoin and no longer exist. At most, they have created competition between miners: people who contribute the computing power of their computers to run and secure blockchains. However, Litecoin is an exception.

The 111 North Bridge Road Singapore Foundation has promoted Litecoin since April 2017. As a result of its work, the Litecoin exchange rate was included on the Bloomberg Terminal. More importantly, Litecoin is now included in the Google tool for currency conversions. Fans of the American football team the Miami Dolphins can now buy their game tickets in LTC: this is real-world proof of Litecoin’s success. Indeed, Litecoin became the official cryptocurrency of the Miami Dolphins in 2019.

Litecoin is one of the oldest cryptocurrencies and is therefore well established in the digital asset world. Although it’s not in the headlines as much today, the fact that it survived the 2018 crash and that its price has returned to historical highs suggests that it will be a long-term player within the industry. If Charlie Lee’s recent plans, which include making tokens fungible, come to fruition, Litecoin could continue to be an interesting investment.

3. How can users buy Litecoin?

Litecoin is one of the most famous cryptocurrencies and is found on the majority of trading platforms. You can buy them on Coinhouse with euros or trade cryptos for Litecoin.

You can then store your Litecoins directly on our platform with our integrated wallets, linked to your account and secured with Ledger technology. Because Litecoin is so well known, it can also be stored in most personal wallets and hardware wallets. The French company Ledger is the most famous provider of these wallets.

Would you like to buy Litecoin? Invest quickly and easily on the Coinhouse platform. You’ll find the steps to follow and the best expert advice by clicking here.

4. What are the advantages and disadvantages of Litecoin?

Litecoin has many compelling advantages which make it an appealing cryptocurrency in which to invest. Here are the main benefits:

  • Litecoin has been around since 2011 and is one of the most popular cryptocurrencies, along with Bitcoin and Ethereum;
  • It has an active community and almost all trading platforms offer it;
  • Its blockchain has operated without any major problems for 9 years and has therefore proved itself in terms of security;
  • Transaction fees on its blockchain are lower than Bitcoin’s transaction fees;
  • Its creator is Charlie Lee, rather than some anonymous individual; this adds a human element and shows that Litecoin is a serious project. The developments on the blockchain are also very promising.

Litecoin has other advantages too. Its price rose sharply during the 2017 bull market, from around $5 to a record $350 in December 2017. Its value then fell by 93% during the 2018 crash to stabilise at around $30. Charlie Lee was heavily criticised at the time because he sold all his Litecoins at the peak of the market.

Since November 2020, Litecoin has also benefited from a bull market. The price of Litecoin increased by 170% between January and May 2021, reaching a price close to its all-time high of $350. If the market’s upward trend continues and Litecoin’s price rises above $350, then the potential increase will be significant.

However, there are some disadvantages which should be taken into account before investing in Litecoin. While this cryptocurrency is attractive to both miners and investors, it has its own shortcomings. Firstly, Litecoin struggles to distinguish itself from Bitcoin and to prove its utility. If Bitcoin continues its development and further improves the speed of its transactions, Litecoin could be seriously undermined.

Something else to consider: most of the new blockchains use “proof of stake” as a consensus algorithm. This technology is less energy intensive and enables faster transactions, in comparison to the “proof of work” used on Litecoin.

What’s more, development on Litecoin is slow in comparison to new projects launched in 2021, including those in the Ethereum ecosystem and related to decentralised finance.

In addition to these various disadvantages, there’s another: Litecoin is not a cryptocurrency which is driven by the major trends of 2021 for decentralised finance, NFTs, etc. In fact, Litecoin is hardly ever used for exchanges or payments. Certain aspects of this cryptocurrency are appealing but its various issues should not be ignored.

5. Litecoin and Bitcoin: what’s the difference?

Although Litecoin is based on Bitcoin, the two cryptocurrencies are different in many ways.

A block is discovered on the Litecoin blockchain every 2.5 minutes on average, compared to every 10 minutes on Bitcoin. This ensures a higher volume of faster transactions. With a maximum block size of 1 MB, four times more transactions are possible than on Bitcoin. This is supposed to provide a good compromise for the confirmation of transactions.

Does faster block discovery mean weaker blockchain security? Not necessarily, as proved by Vitalik Buterin, the creator of Ethereum; his comprehensive analysis shows this with a comparison between the average time to discover a block on the Bitcoin network (600 seconds) and on the Ethereum network (17 seconds).

In reality, a blockchain’s security is judged by its hashrate: a technical unit of measurement which shows the network’s activity and the computing power which is actually allocated to run the blockchain. Litecoin’s hashrate is pretty good, as the Bitinfochart site shows. Of course, it doesn’t rival the Bitcoin network but it’s much better than many other altcoins.

In addition, there are several other differences between Litecoin and Bitcoin:

  • Bitcoin has a maximum token limit of 21 million, as opposed to 84 million for Litecoin;
  • Bitcoin uses the SHA-256 algorithm, Litecoin is based on Scrypt;
  • Miners receive 25 BTC for Bitcoin and 50 LTC for Litecoin;
  • The purchase price of a BTC is much higher than that of a Litecoin and its price is generally more stable.

Because of its similarities to the Bitcoin blockchain, Litecoin has quickly become a kind of test protocol for Bitcoin. For instance, its blockchain was used to integrate several features before they were actually applied to Bitcoin, including:

  • the “Lightning Network” which aimed to provide an overlay to the main blockchain to accelerate the speed of transactions;
  • the “Segregated Witness” which aimed to optimise the amount of data present in a block.

In autumn 2019, the Litecoin Foundation proposed the implementation of MimbleWimble, a process to achieve better transaction privacy while simultaneously improving Litecoin’s fungibility. Charlie Lee wants to make tokens completely interchangeable. The traceability of the blockchain may make some tokens “undesirable” because of their history, something which Charlie Lee sees as a disadvantage.

The Litecoin project, which works in a very similar way to Bitcoin, constantly needs to innovate if it is to survive in this increasingly competitive ecosystem. The most recent projects provide token holders with more advanced features and benefits than Litecoin can offer. The project is struggling to innovate and the future of digital assets seems to lie more in smart contract blockchains. The Litecoin price is sustained by speculation alone. Consequently, it’s not one of the investments we recommend as a priority for inclusion in your portfolio.

6. Mining, a fundamental difference on Litecoin.

Remember that “proof of work” describes the calculations which miners make with their computers to validate transactions and ensure that all the rules of the blockchain are followed.

Charlie Lee made the key decision to use a different mining algorithm for Litecoin. As a result, different hardware is required to validate transactions on the Litecoin blockchain and to be compensated with newly generated Litecoins. The Scrypt algorithm was chosen for two reasons:

  • To avoid the risk of centralised mining which was still possible in the early days of Bitcoin, particularly because GPUs (the central processors of computers) and ASICs are the most efficient dedicated processors for mining Bitcoin. Part of the community was concerned because ASICs were very expensive and the first large Bitcoin mining farms were being created. Litecoin’s algorithm made mining accessible to most people with an average computer.
  • To avoid competing with Bitcoin miners with very powerful hardware; this caused the demise of the Namecoin altcoin.

It should be noted, however, that Litecoin mining is no longer accessible to average individuals. Specific mining software for the Scrypt algorithm has been developed, along with dedicated machines (ASICs) for Scrypt, although they are not as widespread as the machines used for Bitcoin.

In any event, Litecoin mining has also become industrialised, with mining “pools” (groups of professionals who pool their computing power to increase their chances of finding a block and collecting Litecoin rewards).

7. Litecoin, from projects to community.

Charlie Lee has been very active on social media in the past (although he has had less of a presence since 2021) and has helped to encourage an interest and to develop a community which actively supports the project. In April 2017, he created the Litecoin Foundation to fund the development and adoption of Litecoin, among other things.

This foundation makes the project more transparent: like Bitcoin, Litecoin is open source, meaning that anyone is free to contribute. The most prominent members of the Foundation are publicly identified: their photos and names are available on the Internet. The Litecoin Foundation also funds a number of full-time developers to work on the project’s evolution.

8. What future for Litecoin?

Litecoin has a maximum supply of 84 million tokens. About three-quarters of these tokens are already in circulation today (64 million). This limited stock makes it a safe haven, especially in the event of inflation or a recession. This could make LTC an attractive option in the future, particularly as it offers fast, secure and cheap money transfers. Although Litecoin’s performance is intriguing, this serious competitor to Bitcoin still has some disadvantages. Despite being an interesting investment, it would be best to prioritise other cryptocurrencies in your portfolio.