Litecoin (LTC) Definition
Litecoin (LTC) is an alternative cryptocurrency created in October 2011 by Charles “Charlie” Lee, a former Google engineer. Litecoin was adapted from Bitcoin’s open source code but with several modifications. Like Bitcoin, Litecoin is based on an open-source global payment network that is not controlled by any central authority. Litecoin differs from Bitcoin in aspects like faster block generation rate and use of Scrypt as a proof of work scheme.
It is considered to be among the first altcoins, derived from Bitcoin’s original open source code.
Initially, it was a strong competitor to Bitcoin. However, as the cryptocurrency market has become much more saturated and competitive in recent years with new offerings, Litecoin’s popularity has waned somewhat.
Litecoin has always been viewed as a reaction to Bitcoin. In fact, when Lee announced the debut of Litecoin on a popular Bitcoin forum, he called it the “lite version of Bitcoin.” For this reason, Litecoin has many of the same features as Bitcoin, while also adapting and changing some other aspects that the development team felt could be improved.
As of November 2021, 1 LTC is worth around $215, making it the 14th-largest crypto with a market cap of just under $15 billion.
🔑 KEY TAKEAWAYS
- Litecoin is an early altcoin developed by former Google engineer Charlie Lee in 2011.
- It had once been called the silver to Bitcoin’s gold, and at its height was the 3rd largest cryptocurrency by market cap.
- Because its structure is similar to Bitcoin’s, it has been used as a testnet or testing ground for improvements that later were applied to Bitcoin.
📚 Understanding Litecoin (LTC)
Like other decentralized cryptocurrencies, Litecoin is not issued by a government, which historically has been the only entity that society trusts to issue money. Instead of being regulated by a central bank and coming off the press at the Bureau of Engraving and Printing, Litecoins are created by an elaborate cryptocurrency procedure called mining, which consists of processing a list of Litecoin transactions.
Litecoin was developed by Charlie Lee, a graduate of the Massachusetts Institute of Technology (MIT) and a former Google engineer who became interested in Bitcoin in 2011. According to Lee, “In October of 2011, I was playing around with the Bitcoin codebase, and I guess the short of it was that I was just trying to create … a fork of Bitcoin. It was mainly a fun side project.”
Like Bitcoin, the maximum number of LTC is fixed. There will never be more than 84 million Litecoins in circulation. Every 2.5 minutes, the Litecoin network generates a new block–a ledger entry of recent Litecoin transactions throughout the world. The block is verified by mining software and made visible to any system participant (called a miner) who wants to see it. Once a miner verifies it, the next block enters the chain, which is a record of every Litecoin transaction ever made.
There are incentives for mining Litecoin: the first miner to successfully verify a block is rewarded with 12.5 Litecoins. As with Bitcoin, the number of Litecoins awarded for such a task reduces with time. In August 2019, it was halved, and the halving will continue at regular intervals until the 84,000,000th Litecoin is mined. The Litecoin Foundation estimates that it will be around 2142 when the maximum of 84 million Litecoins will be reached.
📚 Scrypt Proof-of-Work Algorithm
Bitcoin, Litecoin, and many other cryptocurrencies use the proof-of-work (PoW) algorithm in order to secure their networks. Basically, PoW requires that one party proves to all the other participating parties in the network that a required amount of computational effort has been expended. Unlike Bitcoin, which uses the SHA-256 PoW hashing algorithm, Litecoin uses the less resource-intensive Scrypt PoW algorithm.
Scrypt is a password-based key derivation function. According to Tarsnip, “the scrypt key derivation function was originally developed for use in the Tarsnap online backup system and is designed to be far more secure against hardware brute-force attacks than alternative functions such as PBKDF2 or bcrypt.”
Scrypt was developed by Lee specifically to make large-scale, custom-built hardware attacks on the currency more difficult. Bitcoin’s SHA-256 algorithm does not require a lot of random access memory (RAM) as an impediment to parallel processing, whereas Scrypt does.
At the beginning of the 2010s, as mining operations developed specialized hardware, like the application-specific circuit (ASIC) to solve SHA-256 hashing, it appeared that Bitcoin was vulnerable to such an attack. By making Litecoin’s consensus algorithm memory intensive, Lee sought to thwart the hardware arms race, though in practice that didn’t happen as the rise of GPUs answered the need for greater RAM.
📚 How Is Bitcoin (BTC) Different From Litecoin (LTC)?
Litecoin was launched with the aim of being the “silver” to Bitcoin’s “gold.” Like Bitcoin, Litecoin is a peer-to-peer internet currency. It is a fully decentralized, open-source, global payment network. Lee developed Litecoin with the aim to improve on Bitcoin’s shortcomings. The broader differences between the two cryptocurrencies are listed in the table below.
Litecoin is designed to produce four times as many blocks as Bitcoin (1 new block every 2.5 minutes to Bitcoin’s 10), and it also allows for 4x the coin limit, making its main appeal over Bitcoin to do with speed and ease of acquisition. However, because Litecoin uses Scrypt (as opposed to Bitcoin’s SHA-256) as a proof-of-work algorithm, the use of mining hardware such as ASIC miners or a GPU mining rig requires significantly more processing power.
Litecoin ranks in the Top 15 largest cryptocurrencies in terms of market capitalization (though still remaining far below that of Bitcoin), and as of November 2021, it had more than 69 million coins in circulation.
$14.5 Billion — Litecoin’s market value as of November 2021, per CoinMarketCap.
📚 Future Plans for Litecoin (LTC)
Litecoin has implemented several features since its launch intended to improve its transaction speed without compromising the security and integrity of the network.
SegWit or Segregated Witness was first proposed for Bitcoin in 2015. It works by “segregating” the digital signal data (the “witness”) outside the base block in the blockchain. SegWit was developed to address Bitcoin’s scalability issue, but the proposal created deep controversy within the Bitcoin community.
In 2017, Litecoin adopted SegWit, and because of Litecoin’s similarity to Bitcoin, it worked as a testing ground or testnet for SegWit’s viability on the larger Bitcoin network. The test was a success, and Bitcoin adopted SegWit thereafter. Some opponents of the SegWit adoption who advocated for larger Bitcoin block sizes created a Bitcoin hard fork that resulted in Bitcoin Cash.
The Lightning Network is a second-layer technology for bitcoin that uses micropayment channels to scale its blockchain’s capability to conduct transactions.
Similar to the SegWit example, the implementation of the Lightning Network on Litecoin has been a testnet to prove innovations are possible on Bitcoin. Charlie Lee has also argued that when “the Bitcoin blockchain is congested and the fees are high, it’s easy to use Litecoin to onboard onto the Lightning Network.”
MimbleWimble is a privacy protocol that builds on confidential transactions that encrypt or obscure information like transaction amounts. It is argued that MimbleWimble can decrease blocksize and increase scalability. Charlie Lee announced in early 2019 that Litecoin would pursue MimbleWimble development, and as of 2021, development is underway.
What Is Litecoin and How Does It Work?
Litecoin is a peer-to-peer (P2P) virtual currency, which means it is not governed by a central authority. Litecoin’s network offers instant, near-zero cost payments that can be conducted by individuals or institutions across the globe. Bitcoin, Litecoin, and many other cryptocurrencies use the proof-of-work (PoW) algorithm in order to secure their networks. Basically, PoW requires that one party proves to all the other participating parties in the network that a required amount of computational effort has been expended. Unlike Bitcoin, which uses the SHA-256 PoW hashing algorithm, Litecoin uses the less resource-intensive Scrypt PoW algorithm.
What Is Litecoin Used For
Litecoin can be used as a P2P method for paying people anywhere in the world without an intermediary having to process the transaction. It can also be viewed as a store of value, or as a component of diversified crypto portfolio.
What Was LTC’s Original Price?
When it debuted in April 2013, 1 LTC was worth around $4.30.
What Is the Highest Litecoin’s Price Has Been?
On May 10, 2021, LTC hit an all-time high of $410.26. Its all-time low of $1.15 was recorded on Jan. 14, 2015.
What Is LTC’s Halving Schedule?
Like Bitcoin, the creation of Litecoin tokens involves a process called mining. For participating in the act of mining, miners are rewarded with Litecoin. A Litecoin halving refers to an instance of halving the amount of Litecoin rewards that miners are given for each block.
Litecoin halvings aim to preserve Litecoin’s purchasing power. The last Litecoin halving took place on August 5, 2019. On this date, the mining reward was reduced from 25 Litecoins per block to 12.5 Litecoins per block.
The next halving is expected around August 2023.
How Many Litecoins Are There?
There will ultimately only be 84 million Litecoins in circulation. In November 2021, there were just over 69 million Litecoins in circulation. That leaves less than 15 million LTC left to be mined.
How Can I Trade Litecoin?
LTC is available on most crypto exchanges (e.g., Binance, Coinbase, Gemini, FTX) against both other cryptos like BTC & ETH, as well as national currencies like dollars and euros. You can also buy LTC using Robinhood and Paypal.
References and Disclaimer
Frankenfield, J. (2021, November 19). Litecoin (LTC) definition. Retrieved from https://www.investopedia.com/terms/l/litecoin.asp
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