What is Litecoin?

What is Litecoin?

Litecoin (LTC) was one of the first coins to break away from Bitcoin and was launched in 2011 as the new ‘digital silver’. Its envisioned purpose was to function as a payment method for daily payments. Hence, Charlie Lee, Litecoin’s inventor, has always argued that Litecoin should not be regarded as a Bitcoin competitor; its role is supplemental. Whereas Bitcoin works well for relatively large transactions and boasts a reliable fair value reserve, Litecoin is better equipped to handle smaller purchases, like the paying of groceries.

Litecoin is indeed a Bitcoin split-off, which means that its source code is based on a copy of the Bitcoin source code. However, Litecoin has subsequently altered the source code, which means it now differs from the original source code in some of its core characteristics. For instance, Litecoin introduced a coin cap of 84 million, which is four times higher than Bitcoin’s arsenal of 21 million coins. Besides, the Litecoin blockchain also expands four times as fast as the Bitcoin blockchain. Whereas the Bitcoin blockchain obtains a new block every 10 minutes, Litecoin’s blockchain is supplemented every 2,5 minutes. Litecoin will thus eventually boast four times more coins and expands four times as fast. This is also why Charlie Lee named the currency ‘Litecoin’, as it could be considered a light version of Bitcoin.

Who came up with Litecoin – LTC?

Litecoin was first conceived in 2011 by Charlie Lee, a computer scientist who since then has become a popular figure within the crypto community. Lee had been fascinated with technology all his life. Aside from obtaining a graduate degree in Computer Science at MIT, he also worked for Google and other tech companies. Lee first came into contact with Bitcoin while working for Google. It was then that he became convinced of the potential of decentralised digital coins. Just like many tech aficionado’s, Lee first decided to mine cryptocurrencies, but it was not for long before he got in touch with a couple of developers part of the Bitcoin core team, which got him more interested in development. Not much later, Lee commenced with the development of his very first project, called Fairbix. It was by no means a success. Due to a couple of software bugs, the coin was not able to defend itself against a 51% attack, which led to its demise.

But Lee swiftly moved on, and a couple of weeks after the Fairbix disaster, he launched Litecoin, Bitcoin’s little brother. Two years after launching Litecoin, Lee started working at the famous Coinbase exchange platform, where he worked as a Lead Engineer until 2017. Eventually, however, he quit his job at the American cryptocurrency exchange because he wanted to invest all his time in the development of Litecoin. It is unclear how long the project leader will continue his engagement with Litecoin, as Lee has already stated on several occasions that in the long term, it is better to develop a decentralised digital currency with no identifiable leader.

History of Litecoin and the Litecoin price

As mentioned before, the Litecoin blockchain was one first successful clones of the Bitcoin source code, of course with a few crucial amendments. On October 7, 2011, Charlie Lee published the Litecoin source code on Github. Four days later, the network went live. Its first significant success in terms of price evaluation arrived in November 2013. The Litecoin price new highs brining it’s total market value to 1 billion dollars.

Development also continued after the network had been launched, and in May 2017, Litecoin became one of the first coins in the global top five to implement Segregated Witness (SegWit). SegWit removes the unlocking signature from transactions, which mitigates the block size limitation problem. It ensures that the limited space in every block can be used more efficiently and that the blockchain can process more transactions per second. May 2017 was generally a special month for Litecoin because it also marked the first time that a cryptocurrency successfully handled a Lightning Network transaction. In less than a second, 0.00000001 LTC was transferred from San Francisco to Zurich. The Lightning Network is regarded as one of the most exciting possible solutions for the blockchain scalability problem.

Why do people buy Litecoin?

Litecoin aims to become the single most important payment method for day-to-day payments. This vision is clearly visible in the various design choices Charlie Lee has implemented. The relatively fast implementation of efficiency mechanisms has helped Litecoin become the first successful Bitcoin split-off. The forward-looking mindset of its ‘great leader’, Charlie Lee, also serves as a reason why many investors are eager to buy Litecoin and back Litecoin’s development.

How does Litecoin work?

As mentioned before, Litecoin is a Bitcoin split-off. Its source code is thus very similar to that of the mother of all cryptocurrencies. The main difference can be found in its algorithm, which forms the foundation of the transaction verification process, the so-called mining of both coins. Bitcoin employs the well-known and CPU-intensive SHA-256 algorithm. For Litecoin, however, Charlie Lee opted for the RAM-intensive scrypt algorithm. When Bitcoin was first launched, the average CPU’s and GPU’s had no problem mining the coin. But as the network’s total computing power rapidly increased, more and more products appeared on the market for mining Bitcoin. These devices are costly and require a lot of electricity, which means that those who were able to afford such devices easily obtained a monopoly within the Bitcoin mining community. To ensure that Litecoin would not fall into the same trap, Charlie Lee decided to employ the scrypt algorithm instead. This algorithm requires a relatively large amount of RAM, which most Bitcoin-oriented devices lack. Hence, it is not advantageous for owners of such equipment to put these devices to the task of mining Litecoin. This makes this particular cryptocurrency more accessible to everyone, and it also contributes to a more decentralised world.

Which problem does Litecoin solve?

Charlie Lee has always argued that Litecoin should not be regarded as a director competitor to Bitcoin, but as a supplement to Bitcoin instead. Whereas Bitcoin is considered the digital gold, Litecoin aims to become the digital silver. The coin was designed as a lightweight version of Bitcoin, and in theory, it should be able to process transactions faster, more often, and cheaper than Bitcoin. And whereas the capacity of the Bitcoin network is limited to one additional 1MB block every ten minutes, Litecoin expands its blockchain with the same magnitude every 2,5 minutes.

Theoretically, the Litecoin blockchain holds more capacity, which allows it to process more transactions than the Bitcoin blockchain, but in practice, this has not been tested yet. It is caused by the fact that the Litecoin user base is a lot smaller than the Bitcoin network. Despite its firm position in the cryptocurrency brand value top 10, Litecoin’s user base is still lagging far behind that of Bitcoin. The coin’s additional capacity remains interesting nevertheless, but its application will still need to be demonstrated in practice.

What are the pros and cons of Litecoin?

Cheap transactions

Litecoin was designed to be the light version of Bitcoin. On paper, it boasts more capacity to process transactions. However, this capacity is not fully utilised yet, which means it is of little added value in practice. Litecoin’s relatively modest popularity does entail the advantage of cheap transactions, especially when compared with the Bitcoin blockchain, which is almost always filled up by other users.

Quick transactions

Due to its shorter block time, the Litecoin blockchain can process up to 56 transactions per second, which is quite impressive. It might not be much compared to Visa, which on average processes 1700 transactions each second, but it already forms a considerable improvement compared to the seven transactions per second that Bitcoin can handle. But if Litecoin indeed still aims to become the leading platform for daily payments, then it will still need to improve its processing capacity. Charlie Lee is convinced that the Lightning Network technology will help achieve this.

A small blockchain, for now

Litecoin was very quick to implement SegWit, and Charlie Lee managed to embed an effective spam filter already in an early stage of development. These two factors, combined with the low number of transactions, have played an essential role in limiting the size of the Litecoin blockchain. The Litecoin blockchain currently weighs only 23.44 GB. As such, it weighs much less than the Bitcoin blockchain, which already amounts to 251.4 GB.

Potentially, a relatively big blockchain

A disadvantage of the shorter block time on the Litecoin blockchain is that its capacity will expand much more rapidly when it becomes fully utilised. It would grow four times as fast as the Bitcoin blockchain. The Bitcoin blockchain is still much smaller than the Litecoin blockchain, but this is primarily due to the fact that Litecoin has processed far fewer transactions for now. Nowadays, about 15,500 Bitcoin transactions occur every hour. In contrast, there are only 1,000 Litecoin transactions per hour. This means that there are not enough transactions to fill up the Litecoin blockchain, which helps to keep its size more manageable.

What makes Litecoin unique?

The Litecoin source code is basically a copy of the Bitcoin source code with a couple of alterations. It being a copy makes it more difficult for people to assess Litecoin’s unique qualities. Many analysts think that the arrival of the Lightning Network will ultimately kill off Litecoin, as this would allow nearly instantaneous and unlimited trading on the Bitcoin network. What would be the purpose of Litecoin were this to happen? Charlie Lee is convinced Litecoin would still be able to exist next to Bitcoin. Even with the Lightning Network, Bitcoin would only be able to serve 500 million users, according to Lee. The transactions costs on the Bitcoin Lightning Network would then still eventually reach a level at which it would become advantageous to start using the Litecoin Lightning Network. A more complex procedure would even allow Bitcoin payments through the Litecoin Lightning Network, but this is a more suitable subject to discuss in a future article. The right of existence of crypto and the importance of currency differentiation remains a fascinating topic to reflect on.