In this “What is Litecoin?” article, we’re going to explore one of the most prominent altcoins in the crypto space. We’re going to discuss the concept of a “fork” and take a look at how the LTC token came to be. Plus, we’ll compare the similarities and differences between Bitcoin and Litecoin.
Moralis Academy is the ultimate Web3 and blockchain education suite online. To understand how blockchain works on a technical level, check out the Blockchain & Bitcoin 101 course at Moralis Academy! Here, we teach students about consensus mechanisms, UTXOs, forks, and more! Plus, this course provides the perfect stepping stone for our more advanced courses. Join our community of over 30,000 students at Moralis Academy!
What is Litecoin?
So, what is Litecoin? Litecoin (LTC) is a decentralized digital currency and one of the earliest Bitcoin-based altcoin-fork projects. Litecoin runs on a public blockchain with no central authority at the helm, similar to Bitcoin. As a fork of the Bitcoin source code, it offers faster transactions with lower fees than the number-one blockchain. To achieve this, Litecoin uses the Scrypt hashing algorithm. Conversely, the Bitcoin blockchain uses the SHA-256 hashing algorithm.
Litecoin was established in 2011 by ex-Google computer scientist and Director of Engineering at Coinbase, Charlie Lee. Also, Litecoin is one of the oldest available altcoins, frequently ranking as the second-largest cryptocurrency by market capitalization. An altcoin is any cryptocurrency that is not Bitcoin. Moreover, altcoins are an alternative to the market leader, hence the name “altcoin”.
What is a Fork?
A fork occurs when a blockchain community changes the parameters or rules of a blockchain protocol. Blockchains are long strings of interconnected transactional data. Each public blockchain like Ethereum or Bitcoin is traceable back to the very first transaction (or block of transactions). Furthermore, the software that powers these blockchains is open-source and relies on community maintenance and upgrades.
When changes are made to the underlying code of a blockchain, it causes the chain to split in two. The second chain will contain all of the same data as the original chain. However, the new chain also implements any changes to the protocol. Sometimes forks are essential for making security upgrades and improvements. Additionally, forks can be a convenient way for development communities to create an entirely new cryptocurrency with a different set of rules and features.
The two main types of forks are soft forks and hard forks. Soft forks work like a software update. If the community of a particular cryptocurrency agrees to the upgrade, any changes will be implemented by that particular coin. The result is a single, unified blockchain that is backward compatible with any blocks made before the split.
A hard fork occurs when the changes to the protocol render new blocks incompatible with previous blocks. When this happens, the chain is split in two, with the new chain carrying the new set of rules and the original chain remaining unchanged. Resultantly, a new cryptocurrency is created.
Litecoin is not the only fork of Bitcoin. In fact, several variations of the original cryptocurrency have emerged using variations of the Bitcoin code. Other prominent Bitcoin forks include Bitcoin Cash, Bitcoin SV, and Bitcoin Gold. Moreover, such forks represent a change in direction from various pockets of the Bitcoin community.
The LTC Token
Litecoin (LTC) is a decentralized, censorship-resistant currency that facilitates low-cost, borderless payments and secure private settlements. Anyone with an internet connection can use the LTC token from anywhere in the world.
Furthermore, the LTC token is one of the original altcoins and the most prominent fork of Bitcoin. LTC is highly-liquid and tradeable on many of the top crypto exchanges. Plus, it can be used for purchasing goods and services from supported merchants. At the time of writing, the LTC token is trading at around $138, with a market cap of $9.6 billion, According to CoinGecko.
Where to Buy Litecoin?
As Litecoin is one of the most-prominent altcoins available, you can purchase it from some of the most reputable centralized crypto exchanges in the industry. This includes FTX, Bitfinex, Kraken, Kucoin, Huobi, Crypto.com, Coinbase, and Binance. Also, there are BEP-20 LTC tokens available throughout the Binance Smart Chain (BSC) ecosystem.
If you’re new to the world of crypto, be sure to check out the Crypto for Beginners course at Moralis Academy! Here, we teach students how to set up a crypto exchange account safely. This course also provides guidance on the safest ways to buy, sell, and trade crypto. Plus, we offer tips on how to recognize and avoid scams! Take your crypto game to the next level with Moralis Academy!
Bitcoin vs Litecoin
Litecoin was created to offset the potential centralization that could occur on the Bitcoin network. Also, Litecoin boasts many of the same features as Bitcoin, including decentralization, a hard-capped supply, and the Proof-of-Work (PoW) consensus mechanism. Accordingly, network participants can dedicate their computers to validating transactions and adding new blocks to the Litecoin blockchain.
Moreover, Bitcoin has a much greater market cap than Litecoin. As such, the demand for Bitcoin remains much higher than it is for Litecoin. Despite this, Litecoin remains one of the most widely-traded cryptocurrencies held by retail and institutional investors. One of the critical distinctions between the two assets is in how they enter circulation. Below, we discuss some of the key differences in the mining process.
Litecoin Mining
The process of bringing new Litecoin (LTC) tokens into circulation is very similar to how Bitcoin (BTC) enters circulation. LTC miners use the Proof-of-Work (PoW) consensus algorithm to solve complex mathematical equations and compete for the right to certify transactions and append new blocks to the blockchain. In return, miners receive LTC as compensation for their work. However, Litecoin uses the Scrypt hashing function, which works in conjunction with the SHA-256 hashing algorithm used by Bitcoin miners.
The crucial difference is that Scrypt has higher memory requirements for PoW mining and requires less computing power. The supposed benefit of this is that it reduces the reliance on GPU arithmetic logic units (ALUs) and ASIC mining machines. Despite this, Scrypt ASIC mining machines are still prominent in the LTC mining community. Also, Litecoin mining tends to require access to large amounts of memory instead of relying entirely on central processing unit (CPU) or graphics processing unit (GPU) computing power.
Furthermore, the maximum supply of LTC that can ever be mined is four times that of BTC. While the BTC supply has a cap of 21 million, LTC has a cap of 84 million. Also, the Litecoin network can finalize transactions around four times as fast as the Bitcoin network. Accordingly, the halving of Litecoin mining rewards occurs every 840,000 blocks, whereas Bitcoin mining rewards are halved every 210,000 blocks (or thereabouts). This reduction in rewards aims to increase the scarcity and maintain the value of these assets.
What is Litecoin? – Scrypt
The Scrypt Proof-of-Work (PoW) algorithm is less resource-intensive than the SHA-256 PoW hashing algorithm. Accordingly, Litecoin requires less computational power for confirming transactions.
Scrypt is a “password-based key derivation function” that was created to make large-scale hardware attacks more challenging. Unlike Bitcoin’s SHA-256 algorithm, Scrypt requires a large amount of random access memory (RAM) to interfere with parallel processing, with much less focus on GPU processing.
New Features
Following a successful launch, the Litecoin community has implemented various new updates to the protocol. Several of these updates mirror what was taking place on the Bitcoin blockchain at around the same time. Furthermore, the aim of these features was to increase scalability without jeopardizing the decentralization or privacy of the network.
Segregated Witness (SegWit) is among the first of these upgrades. The implementation of SegWit took place on the Litecoin network. After finding that there were no significant errors, it was also introduced to the Bitcoin network. Segwit works by separating digital signatures from transactions to make computations more efficient.
The Lightning Network is another example of an upgrade to the Bitcoin network that would pilot on the Litecoin blockchain first. The Lightning Network is a layer-2 scaling solution that acts as an additional layer sitting on top of a blockchain. Also, the network features user-generated payment channels that significantly reduce transaction fees and confirmation times. However, despite the apparent success throughout the Bitcoin community, adoption of the Lightning Network has been relatively slow across the Litecoin community.
MimbleWimble is another notable upgrade to feature both on Litecoin and Bitcoin. The MimbleWimble protocol is an adaptation of the Proof-of-Work (PoW) algorithm that makes it difficult to identify the individual inputs and outputs of transactions to enhance privacy.
Risks
So, now that we have considered the question of “What is Litecoin?”, it’s worth noting some of the potential risks involved. As with any cryptocurrency, Litecoin could go to zero. Investing in cryptocurrencies is inherently risky. As such, investors should always conduct their own research and never invest more than they can afford to lose.
Also, if you’re looking to invest in Litecoin as a decentralized medium of exchange for making payments, it may be worth checking to see how many merchants actually accept Litecoin. The majority of businesses are reluctant to accept crypto as a form of payment. Accordingly, the intended utility of Litecoin (as with many other digital assets) could fall short of what many investors believe to be the long-term goal.
With this in mind, many view Litecoin as having little real-world utility. Moreover, several newer cryptocurrencies lend themselves more readily to payments and offer faster, cheaper transactions than Bitcoin and Litecoin. That said, Litecoin is one of the longest-standing cryptocurrencies in the industry and among the highest-ranking in terms of market cap. Plus, Litecoin is a go-to for many institutional investors and is part of several investment products.
What is Litecoin? – Summary
Litecoin (LTC) shares several economic principles with Bitcoin, including the periodic halving event, the Proof-of-Work (PoW) consensus algorithm, and a focus on decentralization. However, LTC aims to provide higher levels of accessibility and higher transaction throughput than Bitcoin. Accordingly, many in the community see Litecoin as silver to Bitcoin’s gold, or a “light” version of Bitcoin that can process payments more efficiently. Also, because of the similarities between the two cryptocurrencies, some blockchain developers see the Litecoin network as a viable testnet for the Bitcoin network.
Using the memory-intensive Scrypt hashing algorithm, Litecoin was designed to reduce the reliance on GPU and ASIC miners. However, ASIC miners have become a common feature in Litecoin mining. Moreover, Litecoin strives to be a more practical medium of exchange than Bitcoin. Whereas Bitcoin is slower to confirm transactions, Litecoin achieves this in a quarter of the time. Plus, Litecoin has a greater supply than Bitcoin, making it less scarce.
Do you want to learn how to become a Bitcoin or Litecoin developer? After reading this “What is Litecoin?” article, be sure to check out the Bitcoin Programming 101 course at Moralis Academy! Also, don’t forget to follow us on Twitter! We want to hear your thoughts about Litecoin and this “What is Litecoin?” article! Moralis Academy is at the forefront of Web3 and blockchain education. We offer the highest-quality educational content covering the most prominent narratives in the industry.
Furthermore, if you want to learn more about decentralized applications (dApps) and Web3 technologies, check out our “What is web3?” and “What are dApps?” articles. Also, dive into the metaverse and explore the world of non-fungible tokens (NFTs) and crypto gaming with our “What are NFTs?”, “Top Crypto Games”, and “Exploring the Metaverse” articles! Kickstart your Web3 and blockchain education today with Moralis Academy!
