- The history of Litecoin
- How Litecoin works
- Some other features
- What about Bitcoin?
- Main differences
- Litecoin vs. Bitcoin. Which one is better?
With new cryptocurrencies appearing all the time, it may be difficult to choose the best option to invest and earn money. The first thing that comes to mind is Bitcoin but many investors are discouraged by its high price. In this article, you will find out about one of the most popular alternative coins — Litecoin.
Litecoin was launched two years after Bitcoin. It was developed by Charlie Lee, a former engineer at Google, who decided to create a lighter version of Bitcoin by addressing some of its weaknesses. Because of that Litecoin uses many of Bitcoin’s features which, according to Lee and other Litecoin’s developers, were efficient at the early stages of Bitcoin operation.
Litecoin and Bitcoin are based on the same blockchain and use the same verification method, but they implement different cryptographic algorithms: while BTC uses the SHA-256 encryption algorithm, Litecoin is based on Scrypt.
Both cryptocurrencies are based on the proof-of-work consensus mechanism. The mining mechanism is the same, but Litecoin allows users to produce more coins. Litecoin is way behind Bitcoin in market capitalization.
While Litecoin also uses the proof-of-work mechanism, its efficiency depends not only on the computing power of the CPU (central processing unit) or GPU (graphics processing unit) but also on access to large memory capacities.
Litecoin uses Scrypt for the hash function. Although Scrypt is also based on SHA-256, it has significantly higher requirements to memory for proof-of-work. Presumably, because of that Scrypt is less reliable for GPU arithmetic logic units (ALUs) and therefore ASIC machines. In 2021, Scrypt ASIC machines were created, which is why Litecoin might have to come up with a new solution.
Proof-of-work is a consensus mechanism and a validation process. It verifies transactions and blocks in the blockchain by using the computational power of graphics processing units (and in a smaller degree of central processing units).
Bitcoin is based on SHA-256 — the cryptographic hashing function which serves to encrypt the blockchain. The hashing function encrypts input data by converting it to output data with a fixed length.
The main difference between Bitcoin and Litecoin is the hash function. Bitcoin uses SHA-256, which is very quickly processed on GPU arithmetic logic units.
Another significant difference between Litecoin and Bitcoin is their market cap, the total market value of all their coins in U.S. dollars. The high popularity of BTC is determined by the fact that it can be mined by large mining farms and mining pools. It is in such high demand that it has an exceptional exchange rate to the U.S. dollar. The market capacity of Litecoin is significantly smaller because it has a larger supply and smaller demand.
Another key difference between Litecoin and Bitcoin is the total possible number of coins. Litecoin is characterized by a larger potential number of coins. There will never be more than 21 million coins in the BTC network, while Litecoin can produce up to 84 million coins. As of December 18, 2021, there were 69.2 million Litecoins, which means that there were approximately 14.8 million Litecoins left.
Although it might sound like Litecoin has a great advantage in this respect, in fact, demand and supply influence the prices of commodities and investments, as well as investor and consumer sentiments. Both of these categories consider Bitcoin to be a perfect match for their values, interests, and financial goals, which has an effect on the price of both currencies.
Another difference is the transaction speed. Strictly speaking, transactions occur immediately on both of these blockchains, the transactions need to be confirmed by other network participants which takes a certain time. Litecoin was designed to have a higher transaction speed.
It usually takes about 9 minutes to confirm one transaction on the Bitcoin network (to verify a block and add it to the blockchain). This parameter depends greatly on network traffic. On the Litecoin network, an average transaction confirmation time is about 2.5 minutes.
The preferred choice of a better cryptocurrency depends only on your goals. Although Litecoins are generated faster, they are also worth less. If you prefer to get coins with higher value, Bitcoin might be a better choice, but if you would like to have more coins at a lesser value then Litecoin is the preferred option.
As with any other cryptocurrency, the future of Litecoin will be determined by investor and consumer perspectives. Other factors that can affect cryptocurrency include governmental decrees, the economic environment, and state-supported cryptocurrencies. All the evidence now suggests that Litecoin is a good option for short-term investment and quick trading.