If you know a thing or two about Litecoin, you must have come across people referring to the coin as “the silver to Bitcoin’s gold” or “Bitcoin lite” (not to be mistaken with BTC Lite).
There’s truth to these names, as Litecoin was indeed envisioned as a lighter version of Bitcoin. The idea of its developer was for Litecoin to be used side by side with the most popular cryptocurrency and not to compete against it.
Where the first one would be used as a store of value and a longterm investment, people would use LTC to make small transactions and complete everyday purchases (like doing their grocery shopping, for example). Gold and silver were used for the same purpose in the past, hence the analogy.
In this guide, we cover the history behind the Litecoin project and discuss in more depth what places this cryptocurrency among the best ones on the market.
The History of Litecoin
Many of you remember 2009 as that groundbreaking year that called into question the idea that our financial system could only function in a centralized manner, regulated by financial institutions, and using currencies that had been issued by our governments.
The world’s first digital coin, Bitcoin, and the blockchain technology that has brought it to life, introduced us to a decentralized peer-to-peer network that relies on trust in mathematical algorithms instead of the human factor for validating transactions and protecting users’ funds.
Ever since its launch as opensource software, developers have tried incorporating the technology in various crypto-related projects. One of them was Charlie Lee, an American computer scientist who has worked for numerous tech companies, including Google.
Through his work, Lee learned about Bitcoin and started researching the technology. Once he learned a bit more about its underlying mechanisms and ledger protocols, Lee was also able to spot some shortcomings and potential challenges. Since no other altcoin had addressed them before, he decided to do it himself.
Charlie had in mind designing a cryptocurrency by performing a “hard fork” on Bitcoin’s blockchain. You can think of this fork as a kind of software update to an existing network.
The major changes that Lee made to Bitcoin’s blockchain when creating Litecoin (LTC) were increasing the supply limit and processing time, and changing the hashing algorithm. In 2011, Lee mined the first 150 LTC and launched Litecoin as open-source software.
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How Does Litecoin Work?
Litecoin is an open-source software project released under the MIT/X11 license which gives you the power to run, modify, and copy the software and to distribute, at your option, modified copies of the software. The software is released in a transparent process that allows for independent verification of binaries and their corresponding source code. (Litecoin.org)
Litecoin doesn’t have an official white paper because it was modeled on Bitcoin’s protocol.
If you aren’t familiar with how Bitcoin works, you can go through its white paper which is only nine pages long. For the rest of you, we’ll give a brief overview of the mining mechanism for both LTC and BTC in order to illustrate the differences.
Both Litecoin’s and Bitcoin’s blockchains are decentralized, which means they aren’t controlled by one central authority that gets to decide which transactions are valid and eligible for confirmation.
Instead, their ledgers are operated by nodes, ie. suitable mining hardware used by miners from around the world that perform a consensus mechanism to mine the new blocks with transactions. Both Litecoin and Bitcoin use the proof of work consensus mechanism.
The process goes like this: miners wait for transactions and run them through a hash function to solve an algorithmic problem. This takes time as they have to do the hashing multiple times until they find the right answer. Every new block contains part of the hash of the previous one, as a form of timestamping against double-spending.
How Does Litecoin Differ?
Litecoin prevents many of Bitcoin’s bottlenecks by using a different hash function, called the script algorithm, that makes it possible to mine the coins using a more cost-effective mining gear (GPUs) instead of the ASICs that are used to mine BTC.
That’s why even retail traders are able to volunteer as miners as opposed to the partly centralized Bitcoin mining pools.
This algorithm also helps the network achieve higher scalability and be able to process higher transaction volumes with up to 56 transactions per second. When it comes to confirmation time, Litecoin needs only 2.5 minutes to confirm a transaction.
As a reward for the mining work, miners currently receive 12.5 LTC per block. This amount is halved every four years or after approximately 840,000 blocks have been mined. This is determined in accordance with the total LTC supply that has been set at 84 million. That’s four times more than Bitcoin!
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