What is Litecoin?

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robertstevens

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. Enter Litecoin, a variant of Bitcoin that cut down transaction costs and made the whole thing quicker.

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 March 27, 2022, Litecoin’s market cap sits at $8.5 billion; Bitcoin’s market cap is just around $845 billion. But Litecoin is worth considering in its own right, particularly since it comes with its own market and niche use case.

How Litcoin began

Litecoin (LTC) is widely considered to be the first alternative cryptocurrency (altcoin) and is often called the “little brother” of Bitcoin because it came out three years after Bitcoin’s launch in 2008. It fulfills 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’s source code. That’s when someone copies the source code of a blockchain, which in this case is Bitcoin, and uses it to launch an entirely separate blockchain, often with a few tweaks. It’s very common in the 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 and managing director of the Litecoin Foundation. He created Litecoin while still at Google. After Google, he headed the engineering department of one of the world’s major cryptocurrency trading platforms. Lee was the platform’s fifth employee; the crypto trading platform went public in May 2021, and holds a market cap of $48.8 billion as of March 27, 2022.

Lee managed to get the crypto trading platform (that he worked in) to list Litecoin in the spring of 2017. The price rose by 25%, and Lee 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.

Several years later, Litecoin has a market cap of around $8.5 billion as of March 27, 2022. That makes it the 21st 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 Litecoin works

As Litecoin is a “fork” of Bitcoin’s source code, it uses the proof of work (PoW) mining process. Miners earn LTC tokens by processing Litecoin transactions. Despite the similarities between these two cryptocurrencies, both BTC and LTC employ different mining algorithms. Bitcoin uses the power-intensive SHA-256 hashing algorithm, while Litecoin adopted the Scrypt hashing algorithm, which uses fewer resources (but is still very power-hungry).

Due to Litecoin mining difficulty, miners have to run powerful computers that race to solve difficult puzzles. The process of mining Litecoin 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 computer for creating Litecoin, but you probably won’t get very far. To maximize profits, some miners buy container crates full of specialized mining computers (ASIC mining machines). They are expensive and suck up energy. Most mining takes place in places where electricity is cheap. After China banned crypto in late 2021, the US and Kazakhstan have become the global leader in crypto mining because of their access to renewable energy sources, low electricity prices (especially in Texas), and pro-cryptocurrency policies. Fluctuations in Litecoin’s price can affect the potential profitability of mining Litecoin, 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 LTC 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 Litecoin compares 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 also has low transaction fees. On the Bitcoin network, a user can expect to pay as low as $1.78 and as high as $62 (depending on the network congestion), while an average transaction fee on the Litecoin network ranges from around $0.03 to $0.04.

Despite this advantage, Litecoin never became particularly popular as a means of payment (compared to Bitcoin and Ethereum). 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.

However, with more than 3,000 online merchants like Travala, eGifter, and ShopinBit accepting Litecoin payments, it is now the third-most accepted digital currency among merchants, just after Bitcoin and Ethereum. Paypal users can also pay with Litecoin. The “Checkout with Crypto” feature in PayPal allows you to convert your LTC to fiat currency and complete the transaction.

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 40%. Litecoin, by comparison, commands under 1% of the cryptocurrency market cap.

Another difference is that Bitcoin was created by a pseudonymous developer (or a group of developers, the identity is still unknown) while everyone is familiar with Litecoin’s creator, Charlie Lee.

Apart from that, 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 Litecoin transaction to take place is permission from the two users involved to transfer funds between cryptocurrency wallets, plus miners to process the said transaction.

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 centralized cryptocurrency trading platform. These trading platforms support Litecoin, and it can be bought with a variety of different cryptocurrencies—and in certain jurisdictions, directly for fiat currencies. Upon purchase, Litecoin can be traded against other digital currencies, or stored on the crypto trading platform for a longer-term investment.

You can also move your Litecoin to your 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 for in cheapness and ease of use.

Another way to buy Litecoin is through large financial institutions, such as Wealthsimple. These let you buy and sell and hold Litecoin… kind of. As of March 2022, when you buy Litecoin from these platforms, you buy a sort of IOU, whereby the brokerage buys and stores Litecoin on your behalf.

In most crypto brokerages, you can’t access your 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.

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-sovereignty 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. So far, some crypto brokerages have started to allow limited Bitcoin withdrawals to other cryptocurrency wallets, while some others are planning 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. Right now, only Wealthsimple allows you to withdraw BTC, ETH, LTC, and a few other digital currencies.

Frequently Asked Questions

Since Litecoin is a fork of Bitcoin’s source code, it uses a proof-of-work algorithm to secure its network. Litecoin employs the Scrypt algorithm, which uses fewer resources compared to Bitcoin's SHA-256 mining algorithm. Due to the increasing difficulty of Litecoin mining, you have to buy expensive ASIC mining machines that are built specifically for mining single or multiple algorithms. After getting the required hardware, you have to create a Litecoin wallet, join a Litecoin pool, and you're all set to do LTC mining.

As of March 27, 2022, the market value of Litecoin is $125.91 with a market capitalization of $8.5 billion.

When Litecoin was launched in 2011, crypto enthusiasts were intrigued by its innovative use of Bitcoin's original open-source code to provide speedy transactions at a low cost. But as of March 2022, many digital currencies are offering a lot of advanced features and real-world use cases. However, even after more than a decade, LTC still has the 21st spot in the crypto space with a market cap of $8.5 billion. Remember, before investing in Litecoin or any other digital currency, do your research on the project and assess the risks associated with cryptocurrency investing.

Similar to Bitcoin, Litecoin (LTC) is a peer-to-peer virtual currency, which can be used by individuals and institutions for making transactions all across the globe without relying on any centralized financial institution. Merchants anywhere in the world can accept LTC payments instantly with near-zero costs. Besides this, you can also trade Litecoin or hold it for the long-term just like any other cryptocurrency.

As of March 27, 2022, there are around 69 million LTC tokens in circulation, with a maximum supply of 84 million tokens.

Last Updated June 9, 2022

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