The launch of Bitcoin (BTC) back in 2009 is considered the starting point of the crypto market. BTC was the first successfully launched cryptocurrency, and it remains the crypto market leader, with its huge market cap that outshines all other digital currencies. Although no existing altcoins can even remotely match the popularity and value of BTC, there are a lot of crypto projects that attract colossal attention and bring various functionalities that make them more versatile assets than BTC.
One such project is Litecoin (LTC), one of the first altcoins on the market, created just a couple of years after Bitcoin. Litecoin is often referred to as digital silver compared to Bitcoin, which is considered the gold of the crypto world. There are more than 17,000 cryptocurrencies on the market, and the competition among crypto projects is exceptionally high. The fact that Litecoin managed to survive all this time and maintain a consistent position in the top 30 cryptocurrencies by market cap speaks a lot about the quality of the project.
Let’s take a detailed look at Litecoin, find out how it works, its main innovations compared to Bitcoin, and how long an LTC transaction takes.
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What Is Litecoin?
Litecoin was launched in 2011 by an ex-Google engineer, Charlie Lee. Lee was a passionate online poker player affected by the US crackdown on online betting sites in 2011. The fact that the US government managed to shut down online poker games for American users effectively led Lee to realize how important it is to be able to freely decide what you can do with your money, which subsequently made him a huge Bitcoin advocate. Soon enough, Charlie Lee decided to create a light version of BTC, more suitable for fast, everyday payments such as the quick online purchases of products and services.
That’s how LTC was created in October of 2011. Usually, the creators of a certain crypto strongly advise people to invest in their project. Still, Lee took the unorthodox route and never stopped being a Bitcoin advocate – urging people to invest in BTC as digital gold while referring to LTC as the silver of crypto.
There wasn’t any initial coin offering (ICO) of LTC when it was created. Charlie Lee mined the first three blocks of Litecoin to ensure the system was working, which earned him 150 LTCs because the block reward at the time was 50 LTC per mined block. Neither Lee nor any of the other LTC developers kept any Litecoin for themselves, and there wasn’t any pre-mined amount of coins apart from the first 3 test blocks.
The fact that there wasn’t an ICO meant that an LTC was literally worth 0 USD when it was launched, but the hype around the project and its various functionalities quickly managed to position LTC on the crypto market, right behind Bitcoin.
Apart from being a more convenient version of BTC, with a more accessible price, Litecoin also introduced various features that were later implemented into the BTC programming code.
The Litecoin Blockchain
At the time when LTC was launched, the Bitcoin blockchain architecture was the only network model on the market, so Litecoin took the BTC basics and added a couple of twists to improve the network and offer additional features.
Litecoin’s blockchain is based on a Proof of Work (PoW) consensus algorithm just like BTC. The blockchain is designed in the form of a public ledger of transactions that can be viewed with a blockchain explorer for the LTC network. Data blocks are set in a linear string, from first to the most recent block, and each of them is filled with transaction data. One block can contain an average of 18KB transfer data, which is much less than the 1MB block size of BTC, but Litecoin transactions are also far smaller in size and easier to process.
Like BTC, Litecoin doesn’t have any central authority or central server that handles the approval of transactions. This role is left to miners and their mining rigs. Unlike Bitcoin, which requires a considerable amount of computing power to be mined, LTC was designed to be mineable by average PCs. Still, the mining industry was so competitive, that eventually LTC mining also became a privilege reserved for GPU mining rigs and ASIC miners.
Unlike Bitcoin’s SHA-256 hashing algorithm, LTC uses the Scrypt algorithm to mine coins. This algorithm, along with the far smaller block size of LTC data blocks, enables LTC to conduct transactions at an average duration of 2.5 minutes, which is 4 times faster than Bitcoin’s 10-minute block approval time.
This is what makes the LTC blockchain far more suitable for fast payments since a transaction can get processed in less than 3 minutes. Additionally, the LTC network can handle up to 56 transactions within a single second, which is far more than the 7 transactions per second on the Bitcoin network or even Ethereum’s (ETH) 15 transfers per second.
When you initiate an LTC transfer to a third-party address, such as a crypto wallet or exchange platform account, your new transaction first goes into the mempool (memory pool), where it waits for a miner to pick it up for processing. The transaction fees attached to each transfer are much lower than Bitcoin transaction fees, which makes an LTC transfer a much more attractive choice for payments than Bitcoin.
Once a miner chooses your transfer, they start using their computing power to find the right transaction hash for your transfer, and when they find it, they immediately present it to the rest of the network as proof of work.
Additional miners then re-check the transaction hash, and it might also get checked by full LTC nodes, which are network participants dedicated to double-checking transfers on the blockchain. This is an additional security layer of the Litecoin network which makes it even more difficult for bad actors to pull off a successful 51% attack on the blockchain and take over more than half of the network to steal LTC from users.
After the proof of work is verified as legit, your transfer is added to the new block in the blockchain, and it finally gets to its destination.
Although the process sounds quite complex, it only takes around 2.5 minutes, which is one of the reasons why the number of businesses accepting LTC as payment is constantly on the rise in Europe and the US. There are a lot of cryptos that can process payments faster than LTC, like Ripple (XRP) and Stellar Lumens (XLM), but LTC is much more popular due to its well-established name and identity that people associate with BTC.
The Litecoin Foundation, which manages the project, has proven to be a fearless team in terms of trying out innovations that broaden the functionalities of Litecoin. Some of the key experimental LTC features were even adopted by bitcoin developers, because they realized the vast market potential of these improvements.
Usually, when you want to exchange one cryptocurrency for another, you need to go to a crypto exchange platform like Coinbase or Binance, create a user account, go through the account verification process, and then exchange your crypto. The idea of atomic swaps was adopted to enable users to go around crypto exchange platforms and facilitate exchange deals directly between themselves, without any middlemen charging additional fees.
The first atomic swaps on the crypto market were made between Litecoin, Bitcoin and Decred in 2017, while LTC developers engineered the exchange mechanics. These initial atomic swaps were successful, which resulted in Bitcoin adopting the atomic swaps mechanics. BTC was later followed by numerous cryptocurrencies that included this feature in their blockchain. Nowadays, It’s quite common for top trending crypto networks to enable these types of swaps for their users.
An atomic swap is facilitated by smart contracts which are responsible for making sure that both parties engaged in a swap stick to their end of the deal. The funds in an atomic swap are briefly locked by a smart contract before the conditions of the deal are met by each participant.
LTC Lightning Network
The LTC lightning network is a scalability solution that enables Litecoin to boost transaction per second rates by establishing specific payment channels between users. This makes it possible for multiple transactions to simultaneously take place between two parties without the usual waiting period.
The lightning network feature is a great solution for businesses and platforms that have the need for facilitating bulk transactions between the same parties on a regular basis. Lightning networks don’t burden the blockchain with unnecessary data entries that concern the same two implicated parties. Instead, only the final balances of specific payment channels are entered into the blockchain.
This way, businesses can quickly facilitate huge transaction volumes daily, with only the final amounts of all those transfers between the same parties entered into the blockchain. Therefore, time, fees, and computing power are saved by using a lightning network. It’s no wonder that Bitcoin quickly adopted this mechanism from Litecoin.
The SegWit Protocol
Blockchain technology isn’t perfect, and that’s why excess data often gets included in the transaction data of Bitcoin blocks. Since LTC copied the core blockchain basics from Bitcoin, the same issue soon arose with Litecoin. Since LTC blocks have an average size of only 18KB, the developer team had to solve this issue somehow. That’s how the LTC core team developed the Segregated Witness (SegWit) protocol and implemented it within the LTC code in 2017.
This critical software update enabled the LTC blockchain to automatically prevent excess data from being included in transactions, which meant that suddenly, much more transfers could get included within a single LTC block. Effectively, the LTC transaction processing capacity grew from 28 transfers per second (TPS) to the current 56 TPS, which is a 100 percent increase. BTC implemented the same feature soon after Litecoin, which increased its transfer capacity to 7 transactions per second from the earlier 3 TPS.
Litecoin vs Bitcoin
It’s apparent that LTC and BTC have many similarities, but they also have some key differences that make it understandable why Litecoin is more useful for day-to-day transactions, while BTC is a store of value crypto for investors and long-term holders.
- Both cryptos use a Proof of Work blockchain mechanism, which makes them ideal for mining. Their blockchains work almost identically, except that they use different hashing algorithms. Additionally, the Bitcoin mining process is focused on computing power from GPUs, while Litecoin’s mining mechanism utilizes a lot of computer memory, in addition to GPU processing power.
- The SHA-256 hashing algorithm used by BTC requires vast amounts of computing power, while the Scrypt algorithm used by LTC shifts focus towards memory consumption, which means that it requires less computing power from GPUs.
- The Bitcoin market cap is almost 100 times higher than that of LTC, which clearly illustrates BTC’s market dominance and the user preference of BTC over Litecoin.
- Both currencies have hard caps, which means a finite, total amount of coins can be put into circulation. Bitcoin is capped at 21 million coins, while LTC has a hard cap of 84 million coins.
- LTC transaction speed is 4 times faster than Bitcoin’s 10-minute transfers, which can sometimes even take much longer because of high network traffic during sudden BTC price changes and sell-offs.
A Few Ending Words…
Litecoin definitely isn’t the same as Bitcoin, and it isn’t even trying to be BTC. The whole point of LTC is to provide crypto enthusiasts with a more convenient, lighter version of Bitcoin for everyday use. LTC is in no way a competitor or adversary to bitcoin. Instead, Litecoin is a crypto that’s entirely complementary to Bitcoin, and the fact that it can quickly be exchanged to and from BTC with atomic swaps means that you can keep BTC as a store of value while converting moderate sums into LTC for daily expenses. The fact that more and more businesses are accepting LTC and other selected cryptos alongside fiat money is encouraging for crypto enthusiasts who wish to use digital currency to pay for products and services.