Among the many cryptocurrencies in the market, there’s one that has always remained in the top 10 for its market cap: Litecoin (LTC).
Let’s see together how it works, and what are the main differences with Bitcoin.
The Litecoin protocol was released in October 2011 by Charlie Lee, a Google employee whose goal was to improve Bitcoin. While Litecoin basic structure and operation is the same as Bitcoin, there are some key differences between Bitcoin and LTC.
Like Bitcoin, Litecoin was born to create a decentralized and secure currency, whose transactions are validated by decentralized subjects called miners. Miners “discover” the blocks in which transactions are entered and are paid each time a new block is discovered.
However, there are some significant differences:
Ps: Before continuing, remember that you can find some more general information about Litecoin HERE
1) Time between Litecoin blocks
The time between Litecoin blocks is a quarter of that of Bitcoin: one block is produced every 2.5 minutes instead of 10. This makes the transactions confirmed more quickly. This is a factor that makes Litecoin much more efficient as a currency, giving the possibility to manage a number of transactions equal to 4 times those managed by Bitcoin. Because of this, Litecoin has often been perceived by the market as a “better copy” of Bitcoin. It has often been imagined that Litecoin could be Bitcoin’s successor, given its greater efficiency as currency. This was seen in particular in December 2017, when Bitcoin network clogging led many users to use LTC, with a huge price increase. This was the proof that the market perceives a rather important potential in LTC.
However, Litecoin has never managed to reach the same level of adoption as Bitcoin, and in the last two years its market value has dropped sharply following the trend of all other ” alternative coins”. As a result, it’s difficult today to have a clear idea of its future potential as a reference cryptocurrency, althougth is seem to have a greater potential for a greater adoption
The shorter time between one block and the next also means that every time a miner discovers a block, the others have less time to “update” on the new block and start looking for the next. This potentially creates a competitive disadvantage for the “weaker” ones, but this is a difficult factor to assess.
1.2) Different inflation
Another effect is that the LTC coin offer is higher than Bitcoin: 4 LTC are produced for each BTC, due to the different production speed of the blocks (see here for more information). As a result, the maximum supply of Litecoin is 84 million, compared to 21 million Bitcoin. The difference, however, can be seen at the trend level: the first Litecoin block was discovered on October 7, 2011, while the Bitcoin “genesis block” arrived on January 3, 2009. This delay of almost 3 years ago means that, basically, Litecoin is “lagging behind” almost a halving compared to Bitcoin: from August 2019, each Litecoin block will produce 12.5 LTC, while from the beginning of May, with the next Bitcoin halving, 6.25 Bitcoins will be produced.
As a result, Bitcoin’s supply is expected to increase in the future by about 14% (from 18.3 to 21 million), while LTC supply will grow by 30% (from 64.5 to 84 million): in other words, LTC will have more inflation than Bitcoin. This is a rather important potential disadvantage: the ‘oversupply’ in the LTC market will be proportionally twice as high as in the Bitcoin market. This could have more than proportional effects on the price, depending on the liquidity of the market.
More technical details about these aspects can be found also on Litecoin Website
2) Asic resistance in Litecoin
To “discover” a block, miners use a special “hashing” algorithm that allows them to solve the cryptographic problem underlying mining. In order to have more computing power for the Bitcoin algorithm, miners have started using special circuits, the so-called “Asic”, which are much more efficient than the other alternatives for mining (CPUs and GPUs).
The miners holding an Asic can easily knock out the other ones, creating a strong asimmetry and, in some cases, also creating risks of network centralization. Litecoin adopts a different algorithm called Scrypt that was theoretically created to exclude the use of Asics through some particular technical features, although at the time of the birth of Litecoin Asic were not yet widely used in Bitcoin.
However, gradually, some Asics have been developed specifically for Litecoin, making this distinction less relevant than before.
In terms of mining, Bitcoin and Litecoin share an important advantage over other cryptocurrencies: the risk of an “external” attack to assume control of mining is nearly irrelevant. BTC uses Sha-256 as the mining algorithm, LTC uses Scrypt, and, in both cases, most of the miners of these scripts are already in the two cryptocurrencies, not elsewhere. There is no “reserve of miners” that mine other chains and might overtake Bitcoin or Litecoin. They are the greatest adopters of their mining algorithm, and this is a great advantage.
Conversely, cryptocurrencies that have the same Algorithm as LTC or BTC but are smaller could be attacked by the miners of either of these two coins. This is a common problem for all small coins that use mining algorithms not “exclusive” but shared with larger coins.
Bitcoin and Litecoin: a long story.
That said, the relationship between BTC and LTC is quite old and absolutely complex.
We can identify two points:
1) Litecoin as digital silver: LTC is less “trendy” than BTC. It has less attention from investors. At the same time, it’s more efficient for transfer value. This has given rise to a current of thought (supported by Litecoin founder himself) that if Bitcoin is the “digital gold”, Litecoin can be a sort of “digital silver”, less used as a commodity/value reserve, but more used for transfers. Of course, this view implies that Litecoin would remain – from a market point of view – in the shadow of Bitcoin. As previously said, this theory has gained traction also because Litecoin is faster in confirming transactions – overall, it can be seen as plausible, despite the fact that Bitcoin greatest notoriety would be a problem also for any monetary use of LTC – as we have said, it would be, from a certain point of view, in the shadows. You can find HERE more informations about scaling and adoption
In this perspective, all the assumptions on the interoperability between Bitcoin and Litecoin (i.e., the possibility of connecting the two blockchains) can also be considered: for example, there’s the possibility of using Litecoin in order to enhance the usability of Bitcoin lightning network.
2) Litecoin as an “open lab” for Bitcoin: Litecoin is basically identical to Bitcoin, except for the points listed above. This has made it possible to experiment in parallel different solutions for both LTC and BTC. In 2017 Litecoin was the first one to adopt Segwith (a technology designed to improve scalability and make new applications possible), and the experimentation of Lightning Network is underway also for LTC.
More generally, the development synergies between BTC and LTC make possible a more stable relationship between the two cryptocurrencies and continuously open doors to new perspectives for them.
Of course, there would be much more to write about, but we think that these aspects are the most important to understand the future of Litecoin and have an idea of what to look at when following the LTC market.
And you, what do you think of this cryptocurrency? Do you like it better than Bitcoin as currency, or do you think that the two cryptocurrencies can develop more organically?