What is Litecoin (LTC) and how it works? Everything you need to know

Litecoin (LTC) is a decentralized cryptocurrency like Bitcoin, designed to facilitate fast, secure, and low-cost transactions globally.

Mar 25, 2024 - 10:57

Apr 3, 2024 - 20:47

Litecoin

What is Litecoin (LTC)?

Litecoin (LTC) emerged in October 2011, crafted by Charles "Charlie" Lee, a former Google engineer. It originates from Bitcoin's open-source code but incorporates several adjustments. Similar to Bitcoin, Litecoin operates on a decentralized global payment network, free from central authority. However, Litecoin distinguishes itself with quicker block generation and the utilization of Scrypt as its proof of work algorithm.

Essential points:

Litecoin, an early alternative cryptocurrency, was created in 2011 by ex-Google engineer Charlie Lee.
It was often referred to as the "silver" counterpart to Bitcoin's "gold" and ranked as the third-largest cryptocurrency by market capitalization during its peak.
Due to its similarity to Bitcoin, Litecoin has served as a test network for implementing enhancements later adopted by Bitcoin.

The history of Litecoin (LTC)

Litecoin, one of the earliest altcoins, stemmed from Bitcoin's original open-source code and initially posed a significant challenge to Bitcoin's dominance. However, amidst the growing saturation and competition in the cryptocurrency market, Litecoin's prominence has diminished somewhat.

Litecoin has consistently been positioned as a response to Bitcoin. In fact, its creator, Charlie Lee, introduced Litecoin on a prominent Bitcoin forum, branding it as the "lite version of Bitcoin." As a result, Litecoin shares numerous features with Bitcoin while also implementing alterations suggested by its development team for potential enhancements.

Litecoin was created by Charlie Lee, an alumnus of the Massachusetts Institute of Technology (MIT) and a former Google engineer. Lee developed an interest in Bitcoin in 2011. Reflecting on his journey, Lee stated, "In October of 2011, I was experimenting with the Bitcoin codebase, essentially attempting to create a fork of Bitcoin. It was primarily a casual side project."

Similar to Bitcoin, Litecoin has a capped maximum supply. The total number of Litecoins in circulation will never exceed 84 million. Every 2.5 minutes, the Litecoin network generates a new block, which contains a record of recent Litecoin transactions. This block undergoes verification by mining software and becomes visible to all system participants. Once validated, the next block is added to the chain, forming a comprehensive ledger of all Litecoin transactions.

Miners are incentivized to participate in this process, as the first miner to successfully verify a block is rewarded with 6.25 Litecoins. Just like with Bitcoin, the reward for mining Litecoin decreases over time due to halving events. The first halving occurred in August 2019, followed by another in August 2023, and these halvings will continue at regular intervals until the 84 millionth Litecoin is mined. The Litecoin Foundation estimates that this milestone will be reached around the year 2142.

Lightning Network

The Lightning Network serves as a secondary technology for Bitcoin, employing micropayment channels to enhance the blockchain's capacity for conducting transactions.

Comparable to the SegWit initiative, the adoption of the Lightning Network on Litecoin served as a trial platform to demonstrate the feasibility of innovations on Bitcoin. Charlie Lee has contended that during times of congestion and high fees on the Bitcoin blockchain, Litecoin provides a convenient gateway for transitioning onto the Lightning Network. Litecoin officially incorporated the Lightning Network in 2018.

Segwit

Segregated Witness (SegWit) was initially introduced for Bitcoin in 2015, aiming to segregate the digital signal data, known as the "witness," from the base block within the blockchain. This segregation was proposed as a solution to Bitcoin's scalability challenge. However, the SegWit proposal sparked significant controversy within the Bitcoin community.

In 2017, Litecoin embraced SegWit, leveraging its similarity to Bitcoin as a testing environment to assess SegWit's feasibility for the broader Bitcoin network. The trial proved successful, leading to Bitcoin's subsequent adoption of SegWit. Concurrently, some opponents of SegWit's implementation, advocating for larger Bitcoin block sizes, initiated a Bitcoin hard fork, resulting in the creation of Bitcoin Cash.

Scrypt proof-of-work algorithm

Bitcoin, Litecoin, and numerous other cryptocurrencies utilize the proof-of-work (PoW) algorithm to uphold their networks. Fundamentally, PoW necessitates one party to demonstrate to all other participants in the network that a certain level of computational effort has been exerted. Unlike Bitcoin, which employs the SHA-256 PoW hashing algorithm, Litecoin utilizes the less resource-intensive scrypt PoW algorithm.

Scrypt functions as a password-based key derivation mechanism. According to Tarsnap, "the scrypt key derivation function was initially crafted for integration into the Tarsnap online backup system and is engineered to offer superior resistance against hardware brute-force attacks compared to alternative functions like PBKDF2 or bcrypt."

Lee specifically devised scrypt to render large-scale, custom-built hardware assaults on the currency more challenging. Bitcoin's SHA-256 algorithm lacks a significant requirement for random access memory (RAM) as a deterrent to parallel processing, whereas Scrypt does.

In the early 2010s, as mining operations introduced specialized hardware—such as application-specific integrated circuits (ASICs) to solve SHA-256 hashing—it seemed that Bitcoin was susceptible to such an assault. By introducing a memory-intensive consensus algorithm for Litecoin, Lee aimed to deter the hardware race. However, in practice, this strategy didn't materialize as the emergence of GPU mining effectively addressed the necessity for increased RAM.

Litecoin (LTC) vs. Bitcoin (BTC)

Litecoin was introduced with the intention of serving as the "silver" counterpart to Bitcoin's "gold." Similar to Bitcoin, Litecoin operates as a peer-to-peer internet currency, functioning within a fully decentralized, open-source, global payment network. Lee initiated Litecoin's development with the objective of addressing Bitcoin's limitations. The table below outlines the key distinctions between the two cryptocurrencies.

	Bitcoin	Litecoin
Creation	2009	2011
Creator	Satoshi Nakamoto	Charlie Lee
Coin Limit	21 Million	84 Million
Block Generation Time	10 Minutes	2.5 Minutes
Algorithm	SHA-256	Scrypt
Initial Reward	50 BTC	50 LTC
Current Block Reward	6.25 BTC	6.25 LTC
Rewards	Halved every 210,000 blocks	Halved every 840,000 blocks

Litecoin is engineered to generate blocks four times faster than Bitcoin (1 new block every 2.5 minutes compared to Bitcoin's 10), with a corresponding fourfold increase in the coin limit. Its primary advantage over Bitcoin lies in its swiftness and accessibility. However, due to its use of the scrypt proof-of-work algorithm instead of Bitcoin's SHA-256, mining hardware such as ASIC miners or GPU mining rigs demands considerably more processing power.

Despite its position as one of the top 15 largest cryptocurrencies in terms of market capitalization, Litecoin's market value remains substantially lower than that of Bitcoin. As of October 2023, over 73 million Litecoin coins were in circulation.

Upcoming initiatives for Litecoin (LTC)

Litecoin has introduced various features since its inception aimed at enhancing transaction speed while maintaining network security and integrity. Among the remaining projects listed on its project page is the integration of MimbleWimble into the blockchain.

MimbleWimble functions as a privacy protocol that enhances confidential transactions by encrypting or obfuscating details such as transaction amounts. Advocates argue that MimbleWimble has the potential to reduce block size and enhance scalability. In early 2019, Charlie Lee announced Litecoin's commitment to developing MimbleWimble, a project that is currently in progress as of October 2023.

What are the applications of Litecoin?

Litecoin serves as a peer-to-peer (P2P) payment method enabling direct transactions worldwide without the need for intermediaries. Additionally, it can be considered both a store of value and a constituent of a diversified cryptocurrency portfolio.

What was the original price of LTC?

At its introduction in April 2013, the value of 1 LTC was approximately $4.30.

What is the peak price that Litecoin has reached?

On May 10, 2021, Litecoin reached its highest recorded value at $359.26. Conversely, its lowest recorded value of $1.37 was observed on Jan. 21, 2015.

What is the schedule for LTC's halving events?

Similar to Bitcoin, Litecoin tokens are generated through a process known as mining, where miners receive Litecoin as a reward for their participation. A Litecoin halving occurs when the reward for mining each block is reduced by half.

The purpose of Litecoin halvings is to maintain the purchasing power of Litecoin. The most recent Litecoin halving occurred on Aug. 2, 2023, reducing the mining reward from 12.5 Litecoins per block to 6.25 Litecoins per block. The next halving is anticipated to take place in 2027.

What are the methods for trading Litecoin?

LTC is offered on numerous cryptocurrency exchanges such as Binance, Coinbase, and Gemini, where it can be traded against other cryptocurrencies like BTC or ETH, as well as national currencies such as dollars and euros. Additionally, purchasing LTC is possible through platforms like Robinhood and PayPal.

The bottom line

Litecoin is a digital currency formed through a fork of the Bitcoin blockchain, incorporating various modifications. It boasts faster transaction speeds, a higher coin supply, and operates on a distinct algorithm compared to Bitcoin.