Litecoin (LTC) has been celebrated as the “silver to Bitcoin’s gold” and grown in popularity internationally with its much faster transactions and scalability. Accepted by PayPal for transactions in 2020, and with the ability to facilitate speedy, cheap transactions, it has developed as a sturdy altcoin to Bitcoin over the past 10 years.
What is Litecoin?
Litecoin is an open-source blockchain native cryptocurrency project whose code is forked from Bitcoin’s source code. The cryptocurrency token is called Litecoin (LTC). The main differences in the code were introduced to tackle issues with transaction speeds and costs as well as the growing inaccessibility for the average miner to Bitcoin mining.
These key differences are a larger maximum supply of LTC (capped at 84 million), a faster block generation schedule (every 2.5 minutes) and the use of the scrypt hash function for the mining algorithm/hashing algorithm. The creator Charlie Lee developed the network to function as a lighter and faster version of Bitcoin, which has led to some people referring to Litecoin as Bitcoin Lite.
Litecoin Use Case: Accessible Mining
Litecoin was designed to deal with concerns of Bitcoin mining becoming inaccessible. Originally Bitcoin was mined by ordinary desktops with normal computer processing units (CPUs). However due to the nature of the Bitcoin hashing function, SHA-256, this was extremely slow.
As mining became profitable, some miners began using specialised expensive hardware called ASICs. This raised concerns of a barrier to new miners or the average person.
The scrypt hashing function was designed to combat this and made it difficult or expensive to use ASIC or similar systems for Litecoin mining. It has been used for proof-of-work in several alternative currencies such as Tenebrix or Fairbrix.
Charlie Lee, previously employed in Coinbase and Google, utilised the scrypt function to create Litecoin in 2011, combining Bitcoin source with some key changes. It was released on Github on October 7, 2011 and went live October 13, 2011.
Popularity grew slowly initially and spiked in 2013 with prices reaching $50. Litecoin price crashed over the next two years due to overall market conditions and the Mt. Gox security breach to about $1. However over the next two years this stabilized to around $3. This started to rise alongside Bitcoin over the next few years and reached a record high of $371 at the end of 2017.
Litecoin Use Case: Faster Transaction Speeds
Litecoin used the source code of Bitcoin, the first and largest cryptocurrency, but introduced some key differences. As a result, it is often used by developers to trial new features on Bitcoin.
This includes the Lightning Network which chose Litecoin for the first Lightning Payment and now is used to carry out Bitcoin transactions in El Salvador, where Bitcoin has been accepted as legal tender. However, there are key differences that separate it from Bitcoin in both purpose and specifics.
Litecoin was introduced for speed and simplicity, Bitcoin was designed with a focus on security over speed. As a “Lite” version, it can verify and process transactions at a much faster rate than the average Bitcoin transaction (9-10 minutes). However, the drawback of this is the lesser security as Bitcoin allows more time for a transaction to be verified over a global network.
The key differences that were implemented in Litecoin’s code are:
- A maximum supply of 84 million LTC (this is a larger supply than Bitcoin which maxes out at 21 million)
- Four times faster block creation (every 2.5 minutes whereas Bitcoin creates a block every 10 minutes). This allows a faster transaction rate as this allows four times more transactions to be processed.
- A proof-of-work that uses the scrypt function over Bitcoin’s SHA-256
However it must be noted as with all cryptocurrencies, innovation is at the heart of growth. If Bitcoin develops as it intends to and manages to speed up transactions rates and continues to be more secure, Litecoin could struggle to keep up.
Another factor to take into consideration is that ASIC miners have managed to overcome the scrypt hashing function issue and now mining Litecoin is becoming as inaccessible as Bitcoin. Litecoin has announced many new plans for it’s future that will hopefully maintain its status as a useful and viable cryptocurrency.
Litecoin Use Case: Medium of Exchange
Litecoin describes itself as “a peer-to-peer Internet currency that enables instant payments with almost zero transaction fees to “anyone in the world” and considers itself to be a “proven medium of commerce complementary to Bitcoin”.
The average transaction fee for Litecoin is around $0.03 USD, and it’s difficult to find cheaper transactions than that in any peer-to-peer cryptocurrency, or with any financial instruments in general. Cheap transactions make Litecoin an ever-viable option for exchanging value in the crypto community.
While it is true that Litecoin has endured as one of the longest-standing cryptocurrencies and has tended to follow the market of Bitcoin closely, time will tell if this can be maintained, as constant innovation and development in Bitcoin continues. Although introduced with the clear use case of being a faster, speedier alternative to and importantly cheaper than Bitcoin, faster cryptocurrencies and new technology are developing that leave Litecoin vulnerable to losing its use case.
Litecoin Moving Forward
It’s important to note, that as digital currency growth currently focuses on decentralised finance and NFTs in 2022, Litecoin could suffer as it is rarely used for exchanges and payments. It is used often as a “testing ground” for Bitcoin developments and has shown the ability to withstand market change and the development of other altcoins.
It also weathered the 2018 market crash, unlike many others. Overall there is potential for Litecoin to grow and it remains one of the most prestigious and successful cryptocurrencies in the industry.