What is Litecoin?
Litecoin (LTC) is one of the first altcoins to be created. The project was brought to life in October 2011 by Charlie Lee, an ex-developer from Google. Litecoin is similar to Bitcoin in many ways, but a few interesting parameters have been changed. They have allowed Litecoin to find its audience and remain firmly established in the cryptoasset landscape.
Litecoin has its own blockchain and sports the slogan “Silver to Bitcoin’s gold”: if Bitcoin is considered digital gold, Litecoin on the other hand tries to fulfill the role of digital money (metal).
1. The main principles of Litecoin
Like Bitcoin, Litecoin is primarily intended to be a digital currency that can be exchanged peer-to-peer, untrusted and securely, very quickly and at minimal cost. Charlie Lee himself describes it as complementary to Bitcoin.
The modifications that were made to the Bitcoin blockchain to give rise to Litecoin’s blockchain required only minor efforts in terms of computer development, with most of the innovation coming from Bitcoin. Nevertheless, the strength of Litecoin lies in the fact that these changes are few but significant:
- A ”proof of work” that uses the Scrypt hash function rather than SHA-256 for Bitcoin
- Four times faster block creation with an average interval of 2.5 minutes instead of 10 minutes
- A total number of units four times larger with 84 million instead of 21 million
- Mining difficulty that changes every two and a half days instead of two weeks
- On the other hand, as with Bitcoin, the issuance of new litecoins is halved every 4 years (the halving): since August 2019, miners receive 12.5 litecoins as a reward for each validated block.
2. The origins of Litecoin
The Litecoin network was actually launched on 13 October 2011. On that date, only eight altcoins existed: Namecoin, Ixcoin, I0coin, Solidcoin V1 & V2, GeistGeld , Tenebrix and Fairbrix. All but Namecoin were Bitcoin forks, i.e. projects that largely took the Bitcoin source code and offered slight changes.
The asset soon had the same problem as Bitcoin in fulfilling the function of a digital currency, namely its high volatility: large price swings up and down. But with an image as Bitcoin’s “little brother” and Charlie Lee’s influence on social networks, Litecoin has built a community that believes in its potential and long-term price appreciation.
Before 2014, the vast majority of altcoins had one goal: to replicate the success of Bitcoin by attempting, for example, to change the average time it takes to discover a new block or simply the transaction fees. In reality, 99% of these projects failed to outperform Bitcoin and have now disappeared. At most, they only caused competition between miners: people contributing the computing power of their computers to run and secure blockchains. But Litecoin is an exception.
3. How to buy Litecoin?
Litecoin is one of the most popular cryptocurrencies and is present on most exchange platforms. You can buy it on Coinhouse with Euro or by using our stablecoin backed by the value of the Euro: EURL.
You can then store your litecoins directly on our platform with our integrated wallets, linked to your account and secured with Ledger technology. Litecoin being very well known, its storage is also possible on most of the personal wallets and on the ”hardware wallets” (physical wallets) of which the most famous is the one of the French company Ledger.
4. What are the advantages of Litecoin?
- Litecoin has been around since 2011 and is one of the best known cryptocurrencies along with Bitcoin and Ethereum.
- It has an active community and almost all exchange platforms offer it.
- It’s blockchain has been running without major problems for 9 years and therefore has a proven track record in terms of security.
- The transaction fees of its blockchain are lower than on Bitcoin.
- His creator, Charlie Lee, is well identified, which personifies the project and reassures that it is serious. The developments undertaken on the blockchain are also most serious.
5. What are the advantages of Litecoin?
The price of Litecoin had already appreciated sharply, during the 2017 bull market, rising from around $5 to a record $350 in December 2017. Its value then fell by 93% during the 2018 crash to stabilise around $30. Charlie Lee was in fact heavily criticised at this time, as he sold all of his litecoins during the market peak.
Since November 2020, Litecoin has also benefited from the new bull market. Its price has already appreciated by 170% between January and May 2021, returning close to its all-time highs at $350. If the overall market continues its uptrend in 2021 and Litecoin’s price rises above $350, then the upside potential on the asset’s price will be significant.
6. Litecoin, a faster but less secured than Bitcoin?
On the Litecoin blockchain, a block is discovered every 2.5 minutes on average, compared to every 10 minutes on Bitcoin. This rule allows for faster transactions and higher transaction volumes. As the maximum block size is 1 MB, this allows four times more transactions compared to Bitcoin. This choice is supposed to provide a good compromise for transaction confirmation.
7. The disadvantages of Litecoin
Litecoin is struggling to differentiate itself from Bitcoin and prove its true usefulness in the market. If Bitcoin continues its developments and succeeds in improving the speed of its transactions, then Litecoin’s value could be seriously questioned.
Most of the new blockchains use the ‘proof of stake’ as a consensus algorithm. This technology is less energy intensive and allows for faster transactions compared to the proof of work used on Litecoin. Development on Litecoin is slow compared to new projects in 2021, especially those in the Ethereum ecosystem and related to decentralised finance.
Litecoin is not one of the cryptocurrencies driven by the major trends of 2021: decentralised finance, NFTs, etc. In fact, it is hardly ever used for exchanges or payments.
8. Mining, a fundamental difference on Litecoin
We recall that ”Proof-of-Work” represents the calculations 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 impose a different mining algorithm than Bitcoin for Litecoin. Thus, to validate transactions on the Litecoin blockchain and earn rewards by receiving newly generated Litecoins, different hardware is required. The ”Scrypt” algorithm was chosen for two reasons:
- Avoiding the risk of centralized mining that remained possible in the early days of Bitcoin, especially because of GPUs (the central processors of computers) and ASICs which 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. With the Litecoin algorithm, mining was accessible to most people with a simple computer.
- Not competing with Bitcoin miners with very powerful hardware, which had notably caused the demise of the Namecoin altcoin.
It should be noted, however, that Litecoin mining is no longer available to the average person today. Specific mining software for the Scrypt algorithm has been developed and even dedicated machines (ASICs) for Scrypt, although they are not as widespread as those dedicated to Bitcoin.
In any case, Litecoin mining has also become industrialized, with mining ”pools”, i.e. groupings of professionals who pool their computing power to increase their chances of finding a block and thus collecting Litecoin rewards.
9. Litecoin, between projects and community
Charlie Lee, while less active on social media in 2021, has been very active in the past and has helped maintain an interest and community actively supporting the project. In April 2017, he created the Litecoin Foundation, to fund, among other things, the IT development and adoption of Litecoin.
This foundation has the merit of bringing transparency around the project: first of all, it is open source like Bitcoin, meaning that anyone is free to come and contribute. Also, the most eminent members of the Foundation are known, their photos and names are accessible on the internet. The Litecoin Foundation also funds a number of full-time developers to work on the evolution of the project.
10. Litecoin, a testing ground for Bitcoin?
Because of its many similarities to the Bitcoin blockchain, Litecoin quickly became a kind of test protocol for Bitcoin. Thus, its blockchain was used to integrate several features before they were actually applied to Bitcoin. We can mention for example the “Lightning Network”, whose aim is to bring an overlay to the main blockchain to speed up the speed of transactions, or “Segregated Witness” on 10 May 2017, whose aim was to optimise the amount of data present in a block.
In autumn 2019, the Litecoin Foundation proposed to integrate MimbleWimble, a process to achieve better transaction privacy and at the same time improve the fungibility of Litecoin. One of Charlie Lee’s wishes is to make tokens completely interchangeable against each other. The blockchain’s traceability may indeed make some tokens “undesirable” because of their history, which Charlie Lee sees more as a disadvantage.
Litecoin is one of the oldest cryptocurrencies and is therefore well established in the digital asset space. Even if it is less in the market spotlight in 2021, the fact that it survived the 2018 crash and its value has recovered to historic highs makes it seem like it will remain in the industry for a long time. If founder Charlie Lee’s recent plans, including his ambition on token fungibility, come to fruition, Litecoin could remain of interest.
But, very similar to the way Bitcoin works, the project constantly needs to innovate if it is to survive in this increasingly competitive ecosystem. The projects of 2021 offer more advanced features and benefits to token holders than Litecoin can offer. The project is struggling to innovate and the future of digital assets seems to lie more in smart contract blockchains. Litecoin’s price is surely supported by speculation alone. It is therefore not one of the stocks that we advise to put in priority in the bottom of a portfolio.