Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.
Bitcoin may be the largest cryptocurrency by market capitalization, but its huge success has bogged down the network and made transactions expensive. In October 2011, software developer Charlie Lee conjured up a way forward; a variant of Bitcoin that cut down transaction costs and made the whole thing quicker. He called it Litecoin.
Litecoin isn’t a direct competitor to Bitcoin—it was designed to process smaller transactions than Bitcoin. And it’s far less successful. As of May 2021, Litecoin’s market cap sits at just below $18 billion; Bitcoin’s market cap is just over a trillion US dollars. But Litecoin’s worth considering in its own right, particularly since it comes with its own market and niche use case.Buy and Sell Bitcoin, Ethereum, and over a dozen other cryptocurrencies with Wealthsimple. Sign up and Trade here.
What is Litecoin?
Litecoin is often called the “little brother” of Bitcoin because it came out three years after Bitcoin’s launch in 2008. It fulfils a similar purpose—to process payments on a decentralized, peer-to-peer network—but is quicker and better suited to small transactions.
The Litecoin blockchain is what is known as a “fork” of Bitcoin. That’s when someone copies the source code of a blockchain, in this case Bitcoin, and uses it to launch an entirely separate blockchain, often with a few tweaks. It’s very common in blockchain-world, and is one of the main ways that battling communities settle disagreements. Not a fan of how a blockchain operates? Leave, and start your own.
Litecoin is the creation of Charlie Lee, a former Google employee who contributed to the Chrome OS. He created Litecoin while still at Google. After Google, he headed the engineering department of Coinbase, one of the world’s largest cryptocurrency exchanges. Charlie was Coinbase’s fifth employee; the exchange went public in May 2021, and holds a market cap of $60 billion.
Charlie managed to get Coinbase to list Litecoin in the spring of 2017. The price rose by 25%, and Charlie quit two months later. He managed to sell his holdings in December of that year, right as Bitcoin hit highs of $20,000 and before it came crashing down months later. Reporter Jeff Roberts writes in Kings of Crypto that Charlie made $20 million from the sales.
Several years later, Litecoin has a market cap of just below $18 billion. That makes it the tenth-largest cryptocurrency by market cap, and the second-largest Bitcoin spinoff (discounting Dogecoin, a highly-volatile meme coin that is itself a spinoff of Litecoin).
How is Litecoin created?
Litecoin is created through a process known as mining. Miners earn Litecoin by processing transactions. To do so, they run powerful computers that race to solve difficult puzzles. This process consumes a lot of energy and requires special hardware. But it’s worth it for the best miners: If these computers win the race, they are rewarded with new Litecoin.
You can use your own computer to mine Litecoin, but you probably won’t get very far. These days, the best performing computers will have incredibly strong (and expensive) graphics cards.
To maximise profits, some miners buy container crates full of specialized mining computers. They are expensive and suck up energy. Most mining takes place in places where electricity is cheap, such as China or Kazakhstan. Fluctuations in Litecoin’s price can affect the potential profitability of mining, as a lower price reduces the reward in terms of US dollars, even if the amount of Litecoin stays the same.
Only 84 million Litecoin can ever be in circulation. That’s a hard limit; once all the Litecoin has been mined, no more can be created. Similar to Bitcoin, the amount of Litecoin released as a reward decreases over time to ensure that the supply never eclipses 84 million.
How does Litecoin compare to Bitcoin?
Bitcoin and Litecoin are fairly similar. Both are based on blockchains, and use cryptography to power a network of anonymous and transparent transactions.
One of the main differences between Litecoin and Bitcoin is that the Bitcoin blockchain takes 10 minutes to process a single block, while on Litecoin it takes just 2.5 minutes. Blockchains process transactions in batches, known as blocks. These blocks are “chained” together to form a wider, publicly available ledger. This means that everyone knows how much Litecoin everyone else owns.
Since Litecoin processes blocks quicker than Bitcoin, it is, theoretically, more useful for everyday purchases. For instance, buying a coffee could be processed relatively quickly via Litecoin, whereas it would take far longer for the Bitcoin blockchain to clear the transaction. Litecoin is also far cheaper. It can cost up to $70 to process a transaction on the Bitcoin blockchain; On Litecoin, transactions rarely cost more than $0.1.
Despite this advantage, Litecoin never became particularly popular as a means of payment. Litecoin ran a short-lived mobile app called LitePay a few years ago, which functioned as a crypto competitor to Apple Pay. It didn’t pan out and was ultimately discontinued.
Litecoin is also significantly smaller than Bitcoin, both in market cap and coin price. Bitcoin continues to dominate the cryptocurrency market. Its domination over the market rarely falls below 50%. Litecoin, by comparison, commands under 1% of the cryptocurrency market cap.
Apart from that difference, Litecoin is pretty much the same as Bitcoin.
Just like Bitcoin, Litecoin is decentralized. No single entity maintains the Litecoin network by processing transactions or producing more Litecoin. This means that the token is divided between a potentially unlimited number of users, none of whom have ultimate control over the system.
And, just like Bitcoin, Litecoin is a peer-to-peer currency. It requires no central authority, such as a bank, to act as an intermediary between two parties. All that is needed for a transaction to take place is permission from the two users involved to transfer funds between wallets, plus miners to process said transaction. (A wallet is a hardware or software tool to store Litecoin. Intermediaries, such as cryptocurrency exchanges, do exist, but these aren’t strictly necessary).
The decentralization of the network, plus its peer-to-peer nature, makes Litecoin borderless. It’s possible to transfer Litecoin from one account to another without considering the nationality of those accounts or the identities of the account holders; Litecoin pays no heed to international sanctions or money-laundering regulations. Once transactions are processed, they are irreversible and can’t be scrubbed from the blockchain.
How to buy Litecoin
There are many different ways to buy Litecoin. The most common is to buy it on a cryptocurrency exchange, such as Coinbase or Binance. Both of these exchanges support Litecoin, and it can be bought with a variety of different cryptocurrencies—and in certain jurisdictions, directly for fiat currencies. Upon purchase, the Litecoin can be traded against other cryptocurrencies, or stored on the exchange for a longer-term investment.
You can also move your Litecoin to your own wallet. These wallets can be either hardware or software wallets. Hardware wallets are generally more secure, as they can be disconnected from the internet entirely. However, they cost at least $40, with prices stretching into the $100s for higher-end models. This means a user needs to hold a fair amount of Litecoin to justify buying a hardware wallet. Software wallets are the free alternative to hardware wallets, and what they lack in security they make up in cheapness and ease of use.
Another way to buy Litecoin is through large financial institutions, such as PayPal, Wealthsimple, Robinhood, or Revolut. These let you buy and sell and hold Litecoin… kind of. As of May 2021, when you buy Litecoin from these platforms, you buy a sort of IOU, whereby the brokerage buys and stores Litecoin on your behalf.
You can never access this Litecoin directly, withdraw it to an external wallet or plug it into the wild world of decentralized finance. You often can’t use it to pay for things, and if you can, it’s usually converted into a currency first.
Really, buying Litecoin this way is for investment purposes only. The main reason these services don’t let you withdraw crypto is because of stringent anti-money laundering regulations; it’s simply not worth the hassle to let their customers send crypto to anonymous wallets. This has attracted criticism from the hardcore crypto crowd, who champion autonomy and self-soverignty above all else. But for the rest of us, it’s a convenient way to invest in Litecoin.
However, as demand for crypto ramps up, these platforms may one day allow you to withdraw Litecoin to other wallets. In May, 2021, Revolut started to allow limited Bitcoin withdrawals to other cryptocurrency wallets, Robinhood plans to do this ASAP, and Visa’s CEO said in an earnings call that he’s very interested in facilitating instant conversions into crypto and bolting a crypto wallet onto its services. Alas, until those dreams come true, larger financial institutions will remain a place to invest in crypto, but little else.
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