Overview of Litecoin
Launched in October 2011, Litecoin which is one of the oldest cryptocurrencies in the market is a fork of Bitcoin. It is an open source peer-to-peer internet currency that facilitates instant and near zero-cost transaction fee payments around the world. It’s founder, Charlie Lee, an ex Coinbase employee has called it the “digital silver” to Bitcoin’s gold. While Bitcoin moves towards becoming a store of value like gold, Litecoin’s aim is to be used for smaller everyday transactions such as paying for a cup of coffee, or a movie ticket, etc.
As a fork of Bitcoin, Litecoin shares similar characteristics with Bitcoin, like being decentralized. However, it is faster, lighter, and has a shorter block generation time of around 2.5 minutes. This allows for faster transactions and lesser fees in comparison with Bitcoin.
Litecoin is a derivative of Bitcoin, so what are some of the differences between both projects?
Similar to Bitcoin, Litecoins are generated through a mining process. However, one of the key differences is that while Bitcoin takes 10 minutes to generate a block, Litecoin does it in just 2.5 minutes. By implementing frequent block generation, and other features like Segregated Witness (SegWit), and Lightening, the Litecoin network supports high volumes of transaction. Thus, making it more efficient for customers and merchants.
Another key difference which favors miners is the fact that Litecoin uses a slightly different proof of work protocol. Whereas Bitcoin uses SHA-256 hashing algorithm, Litecoin uses a Scrypt algorithm. Scrypt allows for a greater degree of parallel processing and is generally more accessible to new miners. By using this algorithm, Litecoin has reduced the need for ASIC-based technology (which is to blame for bitcoin’s exponential increase in difficulty levels).
Scrypt incorporates the SHA-256 algorithm and favors larger amounts of high-speed RAM, rather than raw processing power alone. Miners get 25 new Litecoin per block – an amount which is halved at every 4 years.
Finally, while Bitcoin has a max supply of 21 million coins, Litecoin is scheduled to produce 84 million coins, making it more readily available for daily transactions instead of being hoarded.
It is important to note that Litecoin has not been created to compete with Bitcoin or even knock it off the market (well, that’s according to its founder, Charlie). Litecoin is complementary to Bitcoin and in light of this, Charlie believes that while Bitcoin should be used for larger purchases like houses or cars because it is expensive and takes longer to confirm, Litecoin can be used for everyday purchases like gas, meals, and groceries.
Nonetheless, the fact that Litecoin has been pitched as an alternative to Bitcoin does not in any way limit its potential to grow in influence and value.