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    What is Litecoin(LTC) Cryptocurrency? How does it Works

    Simar Marwaha
    Simar Marwaha
    Published on January 16, 2023 6:58 AM

    Updated on January 16, 2023 7:54 AM

    Litecoin Cryptocurrency: what is litecoin used for and its working, history, investment risks, and advantages and disadvantages of litecoin and its future?
     What is Litecoin(LTC) Cryptocurrency? How does it Works
    Source: Unsplash

    Litecoin was launched in 2011 In order to carry out cryptocurrency transactions rapidly and affordably. One of the earliest altcoins—a word used to describe all cryptocurrencies other than the market leader Bitcoin—was created using a copy of the source code for Bitcoin. Those seeking an inexpensive Bitcoin substitute sometimes choose Litecoin because of how close it is to Bitcoin.

    A decentralized open-source blockchain is used by Litecoin to conduct its operations. To guarantee that new transactions do not contradict the blockchain's transaction history, each Litecoin node operator has a copy of each blockchain, and miners assist in processing new transactions by adding them to recently mined blocks. If you're thinking about buying Litecoin, keep reading to find out all you need to know - Litecoin history, how it works and uses, investment risks, and the future of litecoin.

    What is Litecoin?

    Charles "Charlie" Lee, a former Google programmer, launched the alternative cryptocurrency Litecoin (LTC) in October 2011. The open-source code of Bitcoin was used to create Litecoin, although changes were made. The foundation of Litecoin is the same as that of Bitcoin: an open-source, decentralized global payment network.

    The adoption of Scrypt as a proof-of-work algorithm and the quicker block creation rate are two ways that Litecoin differentiates from Bitcoin. It is regarded as one of the earliest alternative coins, created using Bitcoin's initial open-source technology.

    It was at once a serious rival to Bitcoin. Litecoin's popularity has, however, started to diminish as the cryptocurrency industry has grown considerably more saturated and competitive in recent years with new offers. Always seen as a response to Bitcoin, Litecoin.

    In fact, Lee referred to Litecoin as the "lite version of Bitcoin" when he announced its launch on a well-known Bitcoin forum. As a result, Litecoin shares a lot of characteristics with Bitcoin while also modifying some additional elements that the development team thought may be enhanced.

    Unlike other decentralized cryptocurrencies, Litecoin is not created by a government, which has historically been the only institution that the public has confidence in to create money. Litecoins are produced via a complex cryptocurrency process called mining, which involves processing a list of Litecoin transactions, as opposed to being controlled by a central bank and coming off the press at the Bureau of Engraving and Printing.

    Like Bitcoin, there is a set maximum for LTC. The total number of Litecoins in existence will never exceed 84 million.

    History of Litecoin

    Charlie Lee, a graduate of the Massachusetts Institute of Technology, invented Litecoin. After inventing Litecoin in 2013, Lee, a former Google engineer who first got interested in Bitcoin in 2011, joined the cryptocurrency exchange Coinbase as director of engineering.

    Lee basically abandoned the development of Litecoin once he joined the cryptocurrency exchange. He declared at the time that he thought it was critical to assist individuals in "owning Bitcoin and holding Bitcoin" since Litecoin "wasn't ready" to expand.

    Lee quit the business in late 2017 in order to devote all of his attention to LTC's growth. He now holds the position of managing director for the Litecoin Foundation, a nonprofit organization devoted to advancing cryptocurrency.

    He disclosed in December 2017 that he was selling and giving away all of his LTC after coming under fire for allegedly tweeting about the cryptocurrency for his own gain. Lee's decision was roundly condemned at the time when Litecoin was trading at an all-time high of almost $350.

    However, why was Litecoin made? In a statement posted in October 2011 on the Bitcointalk forum, Litecoin's founder, Charlie Lee, stated that he wished to "create a currency that is silver to Bitcoin's gold," utilizing the greatest technologies of Bitcoin and other competing cryptocurrencies than in use.

    After Lee "played about with the Bitcoin coding" in an effort to split the Bitcoin network, cryptocurrency was born. He claimed that initially, it was "primarily a fun side project," but it gradually changed.

    Because of its innovations, such as a combination of quicker block propagation speeds and the usage of the Scrypt hashing algorithm, Litecoin stood apart from other alternative cryptocurrencies. A premine, which enables the developers of a blockchain-based cryptocurrency to mine coins before the project is made public, was also mostly avoided. Premining was first used to pay the project's founders and finance its creation.

    A tiny premine came with Litecoin. The genesis block, which is the first one on the network, was premined with a total of 150 LTC, and two further blocks were mined to ensure its legitimacy. The payout for mining one block when Litecoin was started was 50 LTC, which was basically useless at the time.

    How Does Litecoin Work?

    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.

    To gain the opportunity to add new transactions to the blockchain, Litecoin miners must solve difficult mathematical puzzles called hashes. 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.

    Is Litecoin a proof-of-work (PoW) or proof-of-stake (PoS) cryptocurrency?

    Since Litecoin is a mining-based alternative currency, it uses the PoW consensus algorithm to verify transactions. In essence, PoW requires one party to prove to all other network users that a specific amount of computational work has been done. In contrast to Bitcoin, which utilises the SHA-256 PoW hashing algorithm, Litecoin uses the less resource-intensive Scrypt PoW algorithm.

    According to Tarsnip, Scrypt's key derivation function was created "for use in the Tarsnap online backup system" and is intended to be more resistant to hardware brute-force assaults than other techniques.

    Scrypt is a key derivation function that uses passwords. The scrypt key derivation function, which Tarsnip claims was initially created for use in the Tarsnap online backup system, is intended to be significantly more secure against hardware brute-force assaults than competing methods like PBKDF2 or bcrypt.

    Lee created Scrypt primarily to make sophisticated hardware assaults on the money more challenging. Unlike Scrypt, the SHA-256 algorithm used in Bitcoin does not need a significant amount of random access memory (RAM), which is a barrier to parallel processing.

    Difference Between Litecoin and Bitcoin

    Litecoin and Bitcoin vary most noticeably in their hashing algorithms. Bitcoin employs SHA-256, which is very fast computed on the ALUs of graphics processing units.

    Market Capitalization: The total dollar market value of all issued coins is a further area where Bitcoin and Litecoin differ greatly from one another. Because it can be mined by big farms and mining pools and because there is such tremendous demand for it, the conversion rate of bitcoin to dollars is much higher, bitcoin is more widely used. Because of Bitcoin's smaller supply and higher demand, it has a substantially smaller market cap.

    Transactional Speed: Although in theory transactions on the Bitcoin and Litecoin networks happen instantly, it takes some time for those transactions to be validated by other network users. Transaction speed was a priority when Litecoin was created. The average confirmation time for a transaction on the Bitcoin network (the length of time it takes for a block to be validated and added to the blockchain) is about nine minutes. However, depending on the network load, this might vary greatly. For Litecoin, the corresponding time is around 2.5 minutes.

    Distribution: The total amount of coins that each cryptocurrency may manufacture is one of the key distinctions between Bitcoin and Litecoin. In this respect, Litecoin stands apart. In contrast to Litecoin, which can support 84 million coins, the Bitcoin network can never support more than 21 million coins. This appears to be a big advantage for Litecoin in principle, but in practice, pricing for goods and investments is often determined by supply and demand, as well as investor and consumer mood. Bitcoin's price reflects that since both parties seem to think it reflects their interests, beliefs, and financial objectives.

    What is the Use of Litecoin?

    One of the first prominent alternative cryptocurrencies, Litecoin, was criticised over time for not having a distinct value proposition. It has drawn users since it has a limited quantity and has been positioned as the "silver to Bitcoin's gold."

    A halving method is used to curb the inflation of Litecoin. Its blockchain has been demonstrated to be safe enough since it was founded in 2011 to fend off 51% assaults, which happen when a mining company or entities manage to control over 51% of the computer power that protects the network and use it to change the blockchain's history.

    One important feature working in its favour is its dependability. It is considered to be a trustworthy cryptocurrency that can be used for transactions 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 utilised 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.

    Halving of Litecoin

    During a Litecoin halving event, the quantity of newly minted Litecoin rewards for every block is cut in half. The halving of the Litecoin currency, which occurs about every four years, preserves the money's purchasing value because there are only 84 million coins in existence.

    The first price halving for Litecoin occurred in August 2015. The mining incentive for Litecoin was reduced from 50 LTC to 25 LTC and then to 12.5 LTC in August 2019. The mining reward was initially 50 LTC. The incentive is predicted to be cut in half once more on August 6th, 2023, dropping from 12.5 to 6.25 LTC.

    Events like the Litecoin halving are expected to have an impact on miners' motivation for mining because many popular Litecoin mining equipment will struggle to produce enough LTC to pay for energy costs. The halving procedure may also have a substantial impact on the price of Litecoin. LTC's market value will often increase if the supply is reduced and vice versa.

    How to buy Litecoin

    You may purchase Litecoin directly using other payment applications like Venmo and PayPal or wallets designed specifically for the cryptocurrency, like the Android app Litewallet, which is available through Google Play. You can probably get away with a payment app or Litecoin-specific software that allows you to purchase and sell Litecoin if you're an all-digital person at heart and want to utilize Litecoin for payments.

    Opening an account at a cryptocurrency exchange will probably be best for you if you intend to use Litecoin as an investment. Additionally, you should confirm that the cryptocurrency exchange you select supports Litecoin, which shouldn't be too hard given how widely used it is. Beyond accessibility, you should contrast the top cryptocurrency exchanges based on features like costs, security, and ease of use.

    You'll need to pick how to pay for your purchase once you've chosen an app or exchange for buying Litecoin. You can add a bank account or debit card to your account to add money if you're using a payment or Litecoin-specific app.

    You are now prepared to make your first Litecoin purchase after funding your account. The buy transaction may only need a click, depending on the app or exchange you're using, or you may need to input the ticker (LTC) and specify the desired purchase amount. You can have partial or full ownership of Litecoins when your transaction is complete.

    You might not be used to having options for where to "save" an asset if you're new to cryptocurrency. With Litecoin, though, you have a few options. You may save your Litecoin and other cryptocurrency purchases in the built-in digital wallets found on the majority of well-known cryptocurrency exchanges. 

    To keep their cryptocurrency safe from hackers, some people opt to store it in a separate digital wallet that is not connected to the internet. You could decide to keep your Litecoin in one of these offline wallets even though the big exchanges offer insurance against hacking incidents and other such situations.

    The following are some methods for keeping your LTC:

    Hardware wallets: These are a popular technique for storing digital assets, allowing you to interact with the wallet without disclosing your personal information. Hardware devices are used to hold the owners' private keys to their assets. To conduct LTC transactions, these devices can connect to your computer, phone, or tablet. LTC is supported by a few hardware wallets, including Leger, Trezor, and BitBox.

    Paper wallets: To transmit money using paper wallets, you need a private key. Simply print your private keys and recovery passphrases on a sheet of paper for your paper wallet, and then put it somewhere secure. This is referred to as a "cold wallet."

    Desktop/Mobile Wallets: Popular "hot wallets" that are recognized for being user-friendly include desktop and mobile wallets. However, hot wallets might be subject to internet assaults, so it's crucial to look into the standing of the wallet where you intend to keep your cryptocurrency. Edge, Mobi, and Exodus are a few mobile wallets that enable you to store LTC.

    Crypto Exchanges: You may store your cryptocurrency on several exchanges that deal in LTC. Several cryptocurrency exchanges exist, including Coinbase and Uphold.

    Litecoin investment risks

    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.

    Every cryptocurrency has the danger of losing all of its value, but Litecoin doesn't presently have any obvious applications. Many cryptocurrencies have subsequently surfaced that are either quicker or more affordable to process than Litecoin, despite the fact that it was first offered in 2011 as an alternative to Bitcoin with faster and lower transaction fees. 

    Recently, Litecoin has gained a reputation for being a simpler imitation of Bitcoin. Charlie Lee, the company's creator, sold all of his Litecoin in December 2017 during a cryptocurrency bull market. Lee stated that the transaction was made to prevent any perceived conflicts of interest, but many cryptocurrency investors saw the action as a sign that Lee was losing faith in Litecoin's long-term viability, and that notion has persisted to this day.

    Litecoin's Advantages

    1. Strong network effects and great liquidity are two characteristics of Litecoin, which is also listed on almost all exchanges.

    2. Because of its tight links to Bitcoin, widespread media attention, and extensive history since its 2011 introduction, Litecoin has a leading position in terms of brand awareness.

    3. Because Litecoin and Bitcoin are so similar, new technical developments may be "tested" on Litecoin before being adopted by Bitcoin. Top Bitcoin developers were also inspired by this to contribute to the Litecoin community and codebase over time.

    4. In comparison to Bitcoin, Litecoin is a quicker and more affordable way to transmit money.

    Litecoin's Disadvantages

    1. As Litecoin cannot match the security and Store of Value (SoV) characteristics of Bitcoin or the stability and speed of future stablecoins, its use case within the cryptocurrency sector remains fragile.

    2. If scaling problems are effectively resolved by Bitcoin, the appeal of Litecoin as a quicker, less expensive substitute would decline.

    3. The use case for Litecoin as a reliable medium of trade is threatened by the rise of stablecoin initiatives.

    4. In contrast to Bitcoin or Bitcoin Cash, wealth concentration is higher.

    5. ASIC resistance was one of Litecoin's early selling factors, however, it has subsequently given up on that objective. It now displays a hash rate distribution resembling that of Bitcoin, but with far less security.

    6. In comparison to other top initiatives, the project's development has stagnated.

    Future of Litecoin

    The future of Litecoin as a cryptocurrency is dependent on a few variables. The pace of user adoption is important, and Litecoin's value is expected to rise if more individuals purchase it as a means of money transfer or a store of wealth. A benefit of Litecoin is that it may be found on multiple significant exchanges. However, there isn't much coverage of Litecoin in the media, and a cryptocurrency's popularity has a big impact on its potential to appreciate in value over time.

    Additionally, governments are currently debating how to regulate cryptocurrencies, and new rules may result in significant price changes for all cryptocurrencies, including Litecoin.

    Litecoin might not be the ideal option for investors because it offers nothing in the form of a competitive edge. Other digital currencies could be preferable if you want to possess cryptocurrencies as a store of wealth.

    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?

    The maximum number of tokens for Bitcoin and Litecoin is both capped at 21 million for Bitcoin and 84 million for Litecoin. Litecoin's network has more liquidity than Bitcoin's since there are four times as many tokens available. Bitcoin's rarity, however, increases its value.

    Can I get rich off Litecoin?

    There are no hard and fast rules when it comes to cryptocurrency. Therefore, even if Litecoin appears to be a potential investment vehicle, there is no assurance that it will make you wealthy. But if you play your cards well and know what you're doing, you may stand to gain significantly.

    Why is Litecoin so cheap?

    Due to its higher supply and lesser demand compared to other cryptocurrencies, Litecoin has a lower LTC/USD exchange rate and weaker buying power. This is primarily because, from the investor's and consumer's point of view, an exchange is more valuable if it can purchase more.

    Can Litecoin go up to 1000?

    Therefore, according to Trader's Union, the network's market cap must reach $74 billion for LTC to cost $1,000 within the next five years. Accurately making such forecasts is challenging, though. Because of the erratic nature of cryptocurrencies, it is impossible to gauge investor enthusiasm. However, we may take into account elements like supply and past price movements.

    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.