What is Litecoin (LTC)? Is it a good investment?
It is said that litecoin is the silver to bitcoin’s gold. It is more affordable to buy a whole unit of the cryptocurrency, and it has stood the test of time as one of the most popular stores of value and medium of exchange, after bitcoin.
In a technical perspective, litecoin is indeed the “lite” version of bitcoin. It has a much faster transaction time, and is relatively less expensive to mine litecoin. But being a “first generation” cryptocurrency, it shares many similarities with bitcoin.
With so many new cryptocurrencies, is Litecoin still a good investment in 2021? Find out more in this article.
What is Litecoin?
Litecoin is a digital currency that is powered by a decentralised ledger technology called a blockchain. A blockchain records the full history of all transactions made in the cryptocurrency, which acts as immutable proof of ownership and value transfers.
The difference between a blockchain and a transaction ledger that modern banks use is that a blockchain is in possession of not one organization, but is distributed to many diverse parties who do not know or trust each other.
Learn more in detail about blockchains. What Is Blockchain Technology? — A Simple Guide
Therefore, a blockchain is technically a network of computers that keep the same copy of the digital ledger, and that each computer in the network is responsible for updating their own copy of the ledger, independently, rigorously and automatically.
Cryptocurrencies like litecoin is not issued by a central bank or authority, but is ‘mined’ or created out of thin air, and is ‘rewarded’ to special computer nodes called miners that help verify transactions and publish new transaction data across the network. This process requires resources and energy, so new litecoins act as incentives for miners.
Invest in Litecoin: Click here to buy Litecoin (LTC) today.
What is the difference between bitcoin and litecoin?
If you head over to our guide on bitcoin, you may notice that bitcoin and litecoin sort of belong in the same category. Both bitcoin and litecoin are powered by their own blockchains, and that both are decentralised digital currencies that are issued by mining processes.
However, there are a few important differences between them. Let’s take a look at their history and the underlying technology.
Who created Litecoin and why was it created?
Unlike bitcoin, we already know a few things about litecoin’s original creator, Charles “Charlie” Lee. The former Google engineer had created a fork of Bitcoin and in October 2011 launched the source code and mining client of the new cryptocurrency on the Bitcointalk forum.
Litecoin was created to solve two problems — to improve upon bitcoin, and to create a more ‘fair’ cryptocurrency.
Improving on bitcoin
From a technical point of view, it is true that bitcoin has had an issue with scalability, whereby transactions typically take around 10 minutes to confirm (and there is a common practice to wait for at least six more confirmations to be completely sure that the payment has been registered into the blockchain).
Bitcoin uses a hashing algorithm called SHA-256; a hashing algorithm is what keeps the blockchain immutable. Litecoin, on the other hand, uses a different hashing algorithm, called Scrypt, which is (you guessed it) a less complicated algorithm, making the mining process lighter and faster. This allows transactions to be confirmed in about 2.5 minutes, 4 times faster than bitcoin.
Charles Lee also programmed litecoin to have a supply limit of four times that of bitcoin, which is 84 million litecoins. The quadrupling of the supply limit for litecoin was actually an arbitrary feature which does not impact the speed of transactions.
It’s more to do with currency denomination, as Lee thought it would be more enticing to buyers because they could practically buy more whole litecoins for the same price as bitcoin.
Other important features inherited from bitcoin, such as halving, are retained. Halving refers to the halving of the mining reward rate after a certain amount of blocks.
For bitcoin, halving occurs every 210,000 blocks and litecoin every 840,000 blocks — both cryptocurrencies encounter halving once every four years approximately.
Related: Click here to read our guide on Bitcoin.
A more fair and democratic coin, in theory
The other problem identified by Lee was the copious amount of cryptocurrencies being made by developers who were looking to take unfair advantage of the crypto market.
Creating a new cryptocurrency by taking bitcoin’s source code was relatively easy, and some developers would then pre-mine these new variants of coins, before releasing the source code and mining client to the community.
In effect, when the new cryptocurrency caught on and fetched a good price, the developers who pre-mined these coins would then sell their stock, often in large quantities, and make off with a profit, leaving many other investors at a loss as the price dipped.
In an interview by Wharton, Charles Lee said,
“Everyone, including myself, had equal access to mining the coins and also buying it from the exchange. I didn’t pre-mine. I didn’t have a lot of Litecoins. I didn’t just create Litecoins and give a lot to myself.”Charles Lee
At the launch of litecoin, the exact supply was already known. The crypto’s fairness was also apparent because litecoin was mineable using CPU from an ordinary home computer, since it uses the Scrypt algorithm. On the other hand, bitcoin mining must use ASIC machines so that their powerful computational power can make mining a profitable activity.
However, the competitive nature of mining using the proof of work meant that litecoin miners developed ways to outperform their peers’ computational power. Fast forward to 2021, Scrypt-based ASIC machines like Antminer L3+ already require thousands of US dollars in capital to set up.
Given that mining litecoin has become more expensive over the years, mining pools, where users pool in their money to receive shares in mining profit, sprung up to meet the demands. Unfortunately, this has an effect of centralising the network to fewer and fewer groups of mining nodes.
Is there an advantage to using litecoin over bitcoin?
Being a ‘lite’ version of bitcoin, litecoin’s power consumption is comparatively lower than that of bitcoin. Bitcoin requires approximately 707 KWh of energy per transaction, while litecoin consumes 18.5 KWh, which is almost 3% of bitcoin’s energy consumption.
An interesting turn of events happened in May 2021, when Tesla CEO Elon Musk announced in a tweet that Tesla has suspended vehicle purchases using bitcoin due to environmental concerns. He also said that Tesla will be looking for other cryptocurrencies which use less than 1% of bitcoin’s energy per transaction.
Litecoin is indeed a ‘greener’ cryptocurrency when compared to bitcoin. However, as litecoin runs on a proof of work blockchain, its power consumption still exceeds that of Cardano (0.55 KWh) and Ripple (0.0079 KWh), which uses proof of stake and proof of authority algorithms, respectively.
Strangely enough, litecoin mining can be merged with another cryptocurrency that is Scrypt based — dogecoin, which uses just 0.12 KWh per transaction, despite it being mined like bitcoin. Litecoin miners have profited off dogecoin mining as of May 2021.
Price relationship between BTC and LTC
Despite litecoin being almost as old as bitcoin, even much older than ethereum, the two cryptocurrencies don’t share the same price pattern. Litecoin has always been deemed as an altcoin, belonging to the same category as ethereum.
This means litecoin follows a seasonal boom and bust cycle that is shared by ethereum and many altcoins that are not bitcoin. If you look at the price of the LTC/BTC pair and compare that with the LTC/ETH pair in Coingecko, you can see that LTC/ETH seems to look a lot less volatile compared to the former pair.
Holding litecoin can diversify your portfolio, giving some protective advantages for when bitcoin prices start to dip, and when altcoin prices start to rise.
Charles Lee is working full time with the Litecoin Foundation. “I am working full time … on issues like … privacy and fungibility, … partnering with various companies supporting Litecoin, merchants, merchant processors… ” Lee said in an interview with Wharton.
Litecoin is also close to implementing a privacy-enhancing technology called MimbleWimble on the Litecoin blockchain. The team at the Litecoin Foundation were said to have completed the source code and have released it for further auditing and testing in March 2021.
Should you invest in Litecoin (LTC)?
If you are already familiar with bitcoin and wonder if there is a ‘slightly better’ alternative to it, or if you simply want to diversify your portfolio, then litecoin may be perfect for you.
Litecoin inherits many of the important features of bitcoin, such as security, scarcity, and fungibility. Additionally, litecoin has features that allow it to be mined with less energy, and have faster transaction times.
Litecoin may never outcompete bitcoin simply because bitcoin has a ‘better branding’ and the fact that Ethereum is a second-generation network that paved the way for smart contracts.
However, this does not mean that litecoin does not have strong fundamentals, rooted in a strong history of fairness and decentralisation.
Add LTC to your portfolio: Invest in Litecoin today.
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