Litecoin is a blockchain-based peer-to-peer cryptocurrency created in 2011 by former Google employee Charlie Lee. Since Bitcoin was made as an open-source platform by Satoshi Nakamoto in 2009, anyone can use and adjust its code for its own purposes, which is how Litecoin came into being. It split off the Bitcoin Core client and was thus essentially developed to be a cryptocurrency similar to the older Bitcoin platform, but improved in a number of ways. It is set apart particularly by its decreased block generation time, increased number of coins and different hashing algorithm.
Litecoin (LTC) Chart
As opposed to Ethereum and like its parent platform Bitcoin, Litecoin is primarily a cryptocurrency, meant to replace fiat currencies (such as the US dollar) with a new and improved, decentralised system.
Cryptocurrencies are digital currencies that use particular encryption methods in order to regulate transactions and, as such, function independently from any central authority (such as banks). No physical coins are in existence, and all transactions are logged on a publicly available ledger, called the blockchain.
This has a number of advantages; firstly, the blockchain system stores its sensitive information – in this case the transactions performed using Litecoin – across a network of computers rather than in one specific place, which means that the information can be protected and verified by many users at once. In this way, fraud can easily be detected, and users’ investments are therefore kept secure. Additionally, however, because the system is decentralised and entirely digital, users are also able to carry out financial transactions anonymously; they must not submit any personal information in order to create an account and can only be identified with a user address.
A further advantage, however, which sets apart Litecoin from Bitcoin, is the speed at which it can confirm transactions. This essentially comes down to one of the key characteristics of the Litecoin platform, which is the fact that it can process a block every 2.5 minutes, whereas the the Bitcoin processes a block every 10 minutes. This is important because it was a part of the system from the beginning, which means it is much easier to maintain than it would in the case of Bitcoin, which would need 95% of its extensive user base to agree before such a change could be put in place.
This higher volume of blocks does have some disadvantages, primarily that the Litecoin blockchain will be much larger than Bitcoin’s. This also means it will take wallets which are full clients longer to load the full blockchain.
Because Litecoin processes blocks faster, however, it can tackle the issue of scalability better than Bitcoin. This is connected to the fact that blockchain technology is still not capable of processing as many transactions as fast as traditional financial services such as banks or PayPal. In this regard, Litecoin, with its 2.5 minute verification time, is much faster than Bitcoin.
As with many cryptocurrencies, acquiring Litecoin can be done in two different ways: users can either buy or mine LTC. Buying is more expensive than mining, but it has the advantage that one does not need any particular technical equipment and that one can get hold of LTC faster.
When users consider buying LTC, they must first acquire a wallet. This is an application that generates a user’s Litecoin address, which he will use to conduct transactions, and that will manage the purchased currency afterward. It is thus the basic tool for any beginning investor. It is important to remember that because LTC is not as established as BTC, this will impact a user’s choice of available wallets.
Once the user has selected and installed a wallet, he must choose an exchange, which is a website through which to exchange traditional currency (or different cryptocurrencies, such as Bitcoin) for Litecoin.
Selecting an exchange
There are many different cryptocurrency exchanges, and a number of different factors must be borne in mind when choosing one. These include the exchange reputation, the security protocols it uses, and whether it can be accessed from the user’s own country. However, in the case of Litecoin, users must also ensure their exchange of choice allows for the purchase of Litecoin, and verify which payment methods they can use to purchase LTC.
Purchasing LTC can be more complex than buying BTC, which can be done using credit cards, PayPal, or cash. Users may choose to buy Bitcoin first and then trade the Bitcoin for LTC using another exchange.
Finally, users must also consider the fees each exchange charges per transaction, since these can vary sharply from exchange to exchange.
Different types of exchanges
Exchanges come in two different formats: trading platforms and brokers. A trading platform tends to be cheaper, but takes more time: here, the system automatically connects each buyer with a seller who is selling a number of LTC at a price acceptable to the buyer. This means orders might not be able to be fulfilled immediately, since the system needs to locate a matching seller for each transaction.
Brokers, on the other hand, tend to charge larger fees than trading platforms, but allow users to buy coins directly from them at a fixed price. This means LTC will always be available when a user is ready for a transaction.
Once a user has selected an exchange – whether trading platform or broker – that sells LTC at a price acceptable to him, he will then register on this exchange. This requires the submission of some personal information to the system, which will vary depending on the jurisdiction involved. At this point, the user can start buying LTC or a fraction of one LTC, since the currency can be subdivided up to eight decimals.
Whatever funds a user purchases are initially stored within the user’s account on the exchange system. It is important to transfer these coins from the exchange to the user’s wallet’s address, so the coins cannot be stolen if the exchange were to be hacked. This transfer may also incur a fee, but from this point onward, the LTC are entirely controlled by the user, protected by the wallet’s own security protocols.
The second way to acquire LTC is through mining. In this context, miners are users who put some of their processing power at the disposal of the network in order to help process and secure the transactions of the blockchain; individual users do this most often by running a specific mining application using their CPU (personal computer) or GPU (graphic card). Users essentially help resolve complex mathematical problems that assist in maintaining the network’s security, and in return, they gain compensation in the form of LTC. Users can then either use these LTC to purchase goods or services, or sell them on for profit.
As with Bitcoin, LTC miners receive a set amount of LTC per block verified; this is set to halve every time 840,000 blocks are mined, in order to eventually stall LTC mining and achieve a stable total balance of 84 million LTC (four times the number of total projected BTC). The mining reward was initially 50 LTC per block at Litecoin’s inception, but was reduced to 25 LTC when block 840,000 was mined in 2015.
Difference with Bitcoin
A key difference between LTC and BTC mining is the use of a different proof-of-work algorithm and thus a different way of verifying blocks altogether. Bitcoin uses the SHA-256 hashing algorithm, which involves calculations that can be greatly accelerated in parallel processing. To achieve such parallel processing, an arms race in ASIC technology has erupted, which has vastly increased the basic level of technology needed to successfully mine Bitcoin.
Litecoin, however, uses the Scrypt algorithm, which incorporates the SHA-256 algorithm, but its calculations are much more serialised. Scrypt favours large amounts of high-speed RAM, rather than raw processing power alone; because of this, the ASIC developments given rise to by Bitcoin do not apply to Litecoin. It is therefore still possible to successfully mine LTC either using one’s personal computer (CPU) or, ideally, one’s graphics card (GPU), which can be over 200 times faster than a CPU.
The purpose of mining is, of course, to earn more money than the user spends on electricity during the mining process, which is what makes the process profitable. Profitability calculators are available online, so users can estimate their projected costs and earnings.
Since the rise in cryptocurrency popularity has sharply driven up the price of solo mining, many users choose to gather in mining pools, where each user puts his computing power at the disposal of the pool, which jointly mines for LTC and then allows each contributor to share in the profits. In this way, users can reap smaller, but more consistent and cheaper rewards than through solo mining.
One key factor in deciding whether or not to invest in LTC is, of course, its price and the fluctuations of this price. This page will give a brief overview of the evolution of LTC’s price, as well as the impact of some key concepts such as volatility on the decision whether or not to invest.
As with all cryptocurrencies, Litecoin’s prices tend to be impacted by real-world events of all kinds; one example would be the 2017 election of Donald Trump, which caused instability in traditional financial markets and caused cryptocurrency prices to surge, as many people chose to invest in resources considered more stable than traditional currencies, such as gold and cryptocurrencies (including LTC).
Similarly, Litecoin in particular benefited from the Bitcoin price surge in November 2013, when speculators chose to invest in the more affordable Litecoin. Prices have since largely evolved in parallel, which will likely remain the case in the near future, with Litecoin remaining the cheaper of both currencies; it is often described as the “silver” to Bitcoin’s gold.
This may also, however, make it more attractive to beginning investors, which is really a key part of its appeal; Litecoin’s relatively diminutive price, along with the relative ease of mining the cryptocurrency and the fact that far more Litecoin than Bitcoin will ultimately be in existence, make it an interesting option.
However, LTC’s price changes also emphasise a key issue often raised in terms of the price of particular cryptocurrencies: their volatility, consisting of very rapid inflation followed by brief “crashes”. Throughout their brief history, they have proven to be far more volatile than traditional currencies, which means users can quickly gain, but also quickly lose, money as their investments are impacted by this. As an example: between 2010 and 2014, the annual year-to-year volatility of Bitcoin was over 100%, which is eighteen times greater than that of the US dollar. Since LTC has followed the evolution of Bitcoin over the past few years, it, too, is a volatile currency.
Such heavy price fluctuations have also given rise to rumours about cryptocurrencies, including Litecoin, as an economic bubble. An economic bubble is a situation in which the price of a particular product or service sharply exceeds its intrinsic value, often due to the excessive optimism of initial investors and their belief in transformative technology. This then causes the price to rise and rise until it inevitably collapses and leaves investors facing a loss of funds.
Such rumours lead investors to sell their LTC at lower prices in order to recoup some of their expected future losses, which in turn leads to a devaluation of the currency itself.
A cryptocurrency wallet is a digital wallet where cryptocurrency – such as Litecoin – is stored, much like a physical wallet may be used to store traditional currency. Such a digital wallet is essentially a software program that keeps track of a user’s LTC; the LTC are not stored here, instead the wallet serves to transfer a secret code to the system, which then gives a user access to his Bitcoin balance. Because the wallet mainly exists to transmit a code to the blockchain, it can take a number of different forms, such as a desktop application, a mobile application, a web application or a hardware device. Each has its advantages and disadvantages.
Desktop and mobile wallets
A desktop wallet is an application installed on a desktop computer and provides complete control over the wallet, but requires some work to install or maintain; the user has complete control, but also complete responsibility for the security of his Ether. Users can create an Ether address to manage their Ethereum transactions and store a private key to access this address.
A mobile wallet is an application installed on, for example, a smartphone, which can be handy when one is out and about but needs access to one’s LTC.
Much like a mobile wallet, a web wallet can also be accessed from anywhere; here, one does not even need a particular device to access one’s LTC. It also requires less setup, since a web wallet is hosted and maintained by a provider. At the same time, because of this third-party hosting, this means the user must trust the provider to maintain high-level protection for his funds.
Hardware wallets are specific, small devices a user can purchase for the express purpose of maintaining and managing his Bitcoin transactions. In this way, the user’s credentials are stored offline, which makes them harder to steal, thus providing additional security. It must however be borne in mind that as opposed to many other non-physical wallets, hardware wallets are not free and can cost upward of $100.
Because the range of Litecoin wallets is still relatively limited, users can also consider keeping their LTC in a paper wallet. This is basically a piece of paper that contains the keys to a user’s wallet, potentially encoded in a QR-code for easy scanning, or in a different way for security purposes. On the one hand, this means a user’s funds are essentially protected only by a fragile piece of paper, but at the same time, such a wallet is both unhackable and free. Paper wallets can be generated online via a number of different websites, then printed and kept secure in a physical form.