What is Litecoin? – Blockchain beginner’s guide
Showing itself to be faster and cheaper than Bitcoin, Litecoin has enjoyed a period of growth. Let’s take a closer look at why.
Litecoin was created in 2011 as a fork of Bitcoin. Since then, it has grown from a price of zero to a multi-billion dollar project.
This guide explains what Litecoin is, how it works and what makes it different to Bitcoin.
What is Litecoin (LTC)?
|Icon||Symbol||Initial release date||Algorithm type||Max. supply|
|LTC, Ł||7 October 2011||scrypt||84 million LTC|
Litecoin has attracted a lot of attention as one of the world’s best-performing cryptocurrencies, price-wise.
Unlike most other alternative cryptocurrencies, or “altcoins”, Litecoin prices outperformed Bitcoin for several years after its launch, cementing its position as one of the world’s best-known cryptocurrencies.
Functionally, it can be succinctly thought of as a Bitcoin quarter. Its total supply is four times higher than Bitcoin’s, but it is created four times faster.
The functional result is a cryptocurrency that’s about four times faster to transact with than Bitcoin, with fees that are often a quarter as much as Bitcoin’s.
A brief history of Litecoin
Litecoin was created by ex-Google engineer Charlie Lee in October 2011, with the goal of creating a more efficient version of Bitcoin. At the time of its creation, he described it as “the silver to Bitcoin’s gold”.
To create it, he forked Bitcoin. Essentially, Lee modified the Bitcoin DNA and then released his new creation into the wild for people to start mining if they thought it had a future.
First, Lee quartered Bitcoin by raising its supply and reducing its block time to create a faster and cheaper coin.
Second, he changed Bitcoin’s mining algorithm to a new system called scrypt (pronounced ess-crypt). Litecoin was the third cryptocurrency to ever use scrypt. The first was a long-dead cryptocurrency called Tenebrix, whose creators “pre-mined” the coin in an effort to accumulate a large portion of it for themselves before releasing it publicly.
The second was called Fairbrix, in a nod to its predecessor. It was also created by Lee, but it was plagued by technical problems.
Litecoin was Lee’s next attempt, which successfully solved the technical problems of Fairbrix and created the first fair and functional scrypt cryptocurrency.
Today’s Litecoin price
Litecoin’s two innovations explained
Litecoin brought two key innovations to the table when it emerged in 2011.
- It reduced block times and increased total supply compared to Bitcoin.
- It used a scrypt mining algorithm.
The first change was very simple. It required no particular innovations and was almost as easy as simply substituting some numbers in the Bitcoin code. The second innovation – the use of scrypt – was more complex.
Why Litecoin uses scrypt?When Bitcoin was first created, people would mine it with home computers. But over time, people started making high-powered, specially designed machines specifically for mining Bitcoin.
Miners using these specially-made machines started outcompeting home crypto miners and began “professionalising” the cryptocurrency mining business. This didn’t sit well with people who felt that crypto mining should be for everyone, not just for well-funded professional miners.
At the same time, there were growing concerns about how much energy Bitcoin mining would require if it grew into an enormous global currency.
Scrypt was intended to solve both of these problems.
- It let you profitably mine cryptocurrency at home. Scrypt mining is deliberately memory-intensive. At the time of Litecoin’s creation, it was much more difficult and expensive to create a specialised cryptocurrency mining machine with enough memory to outperform home computer mining
- It’s more energy-efficient than Bitcoin mining. Scrypt mining is energy efficient, in that it allows for the creation of more “mining power” for the amount of energy consumed than Bitcoin does.
The problems with Litecoin
The benefits Litecoin enjoyed in 2011 don’t apply today, and with the passing of time, both of scrypt’s advantages have disappeared.
- People created specialised scrypt miners. The deliberately memory-intensive design of scrypt only delayed, rather than prevented, the industrialisation of Litecoin mining. It’s no longer realistically possible to profitably mine Litecoin at home.
- Receive payment in Litecoin. In the real world, energy-efficient crypto mining just means miners end up using more machines to consume the same amount of energy, instead of consuming less energy.
As for Litecoin’s other advantage – a faster block time – this is completely arbitrary. There’s nothing stopping another cryptocurrency from “improving” on that with an even faster average block time.
But even though Litecoin’s initial points of difference are no longer relevant, there are still reasons people like Litecoin.
- Despite its volatility, Litecoin has consistently retained a healthy price tag. Litecoin is an undeniably cheap and fast way of transferring monetary value anywhere in the world.
- There are plans to develop Litecoin further and to introduce useful new features.
- Litecoin has a much longer history than most other cryptocurrencies in existence today.
Ongoing development of Litecoin
Charlie Lee maintains that Litecoin development is ongoing, that it’s serving a valuable purpose as the silver to Bitcoin’s gold and that he’s still committed to and working on Litecoin full time despite having sold all his LTC holdings in December 2017, right as LTC prices were near their all-time high.
Litecoin’s primary developments appear to be focused on securing additional partnerships and increasing acceptance of Litecoin as a payment mechanism, but there are also some technical improvements in the works.
For example, Litecoin is working on implementing a privacy feature called confidential transactions, along with wallet improvements and lightning network integration.
But it’s not clear how far along any of these improvements are or whether they will ever happen. On 3 August 2019, the Litecoin Foundation said it needed donations to cover the cost of improvements, but as of late September, it had only received 52 Litecoin, collectively valued at about US$3,000 as of late September 2019.
Lee and other Litecoin aficionados say development is ongoing, but at the same time, the Litecoin Foundation says it needs more funds for development.
What to consider before buying Litecoin
Before buying Litecoin, you may want to consider the following:
- Whether it will be able to develop fast enough to remain at the forefront of the cryptocurrency space.
- Whether Litecoin’s foundations – a fast block time and scrypt mining – are still relevant today.
- Whether being “the silver to Bitcoin’s gold” is enough to justify Litecoin’s current price.
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