How does Litecoin work?

    Simar Marwaha
    Simar Marwaha
    Published on December 27, 2022 6:14 AM

    Updated on January 16, 2023 8:43 AM

    Even while Litecoin may not make headlines as frequently as Bitcoin, it is still one of the most well-known cryptocurrencies. Let's talk about how it functions today.
    How does Litecoin work?
    Source: Unsplash

    In 2011, Charlie Lee, a previous Google developer, developed Litecoin (LTC). It was the original Bitcoin competitor. Litecoin and Bitcoin are comparable in many respects. Later, we shall talk about that. Litecoin is a peer-to-peer cryptocurrency, like many others. In that aspect, there is not much of a difference. Additionally, it was built using the Bitcoin Blockchain. The fundamental objective was to make it possible for institutions or individuals to transact quickly and inexpensively.

    It is possible to mine both BTC and LTC, which may leave certain blocks abandoned. When two miners create blocks at approximately the same moment, the chain initially accepts both, then only accepts one, leaving the other orphaned. To reduce the number of orphaned blocks brought on by the slow block confirmation time, segregated witness (SegWit) is implemented.

    Atomic Swaps is another Litecoin idea that enhances blockchain interoperability and enables the trade of several cryptocurrencies without actually exchanging them.

    Litecoin and Bitcoin do vary in a few important ways. Litecoin has a higher supply of cryptocurrency and transactions happen more quickly. It utilizes a distinct hashing algorithm to keep mining equitable for everyone, and these variations are said to have contributed to LTC's success and ability to hold its position as one of the top cryptocurrencies throughout time.

    Five transactions per second are the sluggish transaction processing speed of bitcoin. On the Bitcoin blockchain, creating new blocks might take up to 10 minutes.

    Merchants who wish to accept Bitcoin as payment are frustrated by this poor transaction speed. The six confirmations needed for a Bitcoin transaction might take up to an hour on average. Imagine using your credit card to make an online purchase and spending an hour on the "your transaction is processing" page.

    On the other hand, Litecoin can handle 54 transactions per second, and new blocks may be added to the network every 2.5 minutes. Peer-to-peer (P2P) cryptocurrency payment networks may frequently settle Litecoin transactions relatively instantly, even though most exchanges still need a minimum of six confirmations for Litecoin transactions to be declared irrevocable.

    It was intended to demonstrate to merchants that they no longer need to be annoyed by Bitcoin's lengthy settlement time through the increased transaction speed. Instead, companies might take Litecoin, settle payments more rapidly, and do business at rates that are comparable to those of other digital payment systems.

    Working of Litecoin

    Litecoin and Bitcoin have a lot in common. Both initiatives employ proof of work to validate transactions and are open-source projects.

    But Litecoin also stands itself from Bitcoin in a few key ways. Along with processing speed, supply is a concern. Litecoin's supply is limited to 84 million coins, compared to Bitcoin's 21 million-coin ceiling.

    How to Mine Litecoin

    Hash-based calculations are difficult mathematical puzzles that Litecoin miners must solve to be granted permission to add new transactions to the network.

    Once a block is closed, the blockchain cannot be changed. The miner earns 12.5 LTC as compensation for being the first miner to successfully solve the hash associated with a transaction using the proof of work consensus technique.

    You won't generally find Litecoin mining activities taking place on a PC in a person's living room. Hashing demands a tremendous amount of computer power, which uses up a lot of space and energy.

    In actuality, mining farms and pools of cryptocurrency miners employing high-tech machinery are responsible for the lion's share of Litecoin mining.

    The Litecoin Halving

    Like Bitcoin, Litecoin is divided in half to help regulate its supply.

    The total number of Litecoins in circulation is 84 million. However, miners are paid with newly created LTC when they add a new block to the Litecoin blockchain. If there were no halving, this might raise the quantity of Litecoin forever.

    The miner reward for successfully adding new blocks to the Litecoin network is periodically reduced (halved) by halving. It occurs every 840,000 transactions in the case of Litecoin. As a result, 50 LTC was the miner reward when Litecoin initially started off for adding a new block to the blockchain. That incentive has been reduced over the previous several years by halves to 12.5 LTC as a block prize.

    The next LTC halving is anticipated to take place in 2023.

    What is the function of Litecoin?

    One of the earliest successful alternative cryptocurrencies was Litecoin, which over time came under fire for having an unclear value proposition. It has drawn consumers because of its limited quantity and positioning as the "silver to Bitcoin's gold."

    A halving method is used to curb the inflation of Litecoin. Since its creation in 2011, its blockchain has shown to be sufficiently safe to fend against 51% assaults, which happen when a mining company or entities manage to control more than 51% of the processing power securing the network and use it to change the blockchain's history.

    One of the key factors working in its favor is its dependability. It is considered to be a trustworthy cryptocurrency that can be used to transact at a reasonable cost because it hasn't had any significant exploits, and in that respect, it is the "silver" of the cryptocurrency world.

    The cryptocurrency is now also well-liked by traders and investors who make price predictions using its restricted supply and issuance restrictions. LTC may be utilized in a portfolio to provide investors exposure to the swings of the cryptocurrency market without any unpleasant surprises because of its dependability.

    Since there are lower transaction fees on the Litecoin network than on networks with larger transaction fees, maintaining anonymity is significantly simpler. It is accepted by the majority of cryptocurrency payment processors and is used to pay for products and services as well.

    Due to its strong liquidity and availability on the most significant cryptocurrency exchanges, Litecoin is the perfect cryptocurrency for traders. Some people even use it to transfer money between loan platforms or exchanges in order to avoid paying hefty transaction fees on networks like Bitcoin or Ethereum since transactions on its network are reasonably inexpensive.

    The daily transaction volume on the Litecoin network generally exceeds 100,000, and there are often between 200,000 and 300,000 active addresses. Although it is less well-known than the Bitcoin network, its usefulness is apparent.

    What is the best way to buy and store Litecoin?

    Create an account with the exchange of your choice if you intend to purchase Litecoin rather than mine it from sites like Coinbase or Binance. You may evaluate a variety of factors before selecting an exchange, including security, costs, and convenience of usage.

    Make your LTC purchase decision when your account has been validated. The purchase process and allowed payment methods (such as debit/credit cards, and bank transfers) are determined by the exchange you select. Once the funds are available, choose Litecoin from the "Buy" option.

    To see the charges and the amount of Litecoin you'll receive, enter the desired purchase amount and look at the transaction preview. If everything is satisfactory to you, confirm the transaction.

    To keep your bitcoin, you may wish to research crypto wallets. Many investors choose to keep their cryptocurrency on the exchange they bought it from, but moving it to a crypto wallet offers more protection. To manage your LTC, you may, for instance, install the Litecoin wallet on your Android or iPhone device.

    The Litecoin PoS network, a novel take on the Bitcoin codebase with considerable efficiency and consensus improvements, was introduced in 2020. Due to the fact that LTCP uses a proof-of-stake algorithm, validators must stake matured coins. The staked coins also need to be compatible with each other's addresses and transaction types.

    You'll need a network account and a wallet with some LTC in it to start staking your coins, both of which are free. On exchanges that offer staking services, you may stake your coins by adding them to a staking pool. You'll be able to verify blocks as a consequence and gain newly minted Litecoin.

    Litecoin FAQs

    Is Litecoin still a good investment?

    Litecoin does, in fact, have a bright future in the cryptocurrency industry if you believe the majority of the experts. Despite not ranking among the top 10 most traded or popular cryptocurrencies, it is universally accepted and simple to trade.

    Is Litecoin better than Bitcoin?

    A new block is generated by Litecoin at a rate of 54 TPS and takes around two and a half minutes. Litecoin transactions happen almost four times as quickly as Bitcoin transactions. Because of this, Litecoin is frequently seen as a medium of exchange for everyday transactions, whereas Bitcoin is seen as more of a store of wealth.

    Can I get rich off Litecoin?

    Litecoin may be a very successful long-term investment, as shown by all the positives, so you might want to start paying attention to it. Litecoin has the potential to make you wealthy in the future as it expands and is accepted by more businesses and financial institutions.

    Is Litecoin a risky investment?

    Few companies accept Litecoin or any cryptocurrency, which reduces the usefulness of Litecoin as conventional cash. Owning Litecoin poses a risk to investors since it can eventually lose all of its value.

    Why is LTC so cheap?

    Because of its higher supply and lesser demand compared to other cryptocurrencies, Litecoin has a lower LTC/USD exchange rate and weaker buying power. This is mostly a result of investor and consumer perspectives: if a medium of exchange can be used to buy more products, it has a higher value.

    Why is Litecoin so special?

    Block generation for Litecoin occurs every two and a half minutes, which is four times quicker than block mining for Bitcoin, which takes ten minutes. As a result, Litecoin's network can handle more throughput.