Currently the third most valuable Cryptocurrency by market capitalisation, Litecoin is already well established. Yet, what is it exactly and how is it different from Bitcoin. We have previously gone into the specifics of what Bitcoin is as well as you it is mined, stored sent and received.
LiteCoin shares many similarities with Bitcoin and has often been termed the “Silver” to Bitcoin’s “Gold”. This is mainly because Litecoin was created to improve on Bitcoin. It was started in 2011 by Charlie Lee who 2 years after Bitcoin was created. Charlie Lee is an ex Google engineer and used to work as the head of Engineering at Coinbase.
When it comes to the difference between the two, it mainly boils down to how they are mined including the algorithms that are used and the constraints that are placed on the network. Users are able to notice the impact of the different protocols mainly on the speed of the transactions.
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Mining Litecoin vs Bitcoin
When it comes to some of the biggest constraints on Bitcoin, scaling is among the most pertinent. This is mainly due to the initial assumptions and technology behind the protocols. There are also some concerns that it has become quite centralised as large mining companies take over the industry. Litecoin wanted to address these concerns and it mostly comes down to the algorithm that is used to mine.
The Scrypt Algorithm
The hashing algorithm and function that is used to confirm the transactions and mine on the Bitcoin network is a SHA 256 algorithm. This hashing algorithm is one of the most complex and as such requires much more time to confirm.
Litecoin, on the other hand, uses a hashing algorithm called “Scrypt” pronounced “Script”. This is generally quicker and lass complex of the two. This means that transactions can take place more quickly as blocks are cleared in a more efficient manner. As such, the mean block time on the Litecoin network is 2.5 minutes compared to 10 minutes on Bitcoin.
Less Specialised Equipment
Givent that Bitcoin uses a SHA 256 algorithm, many miners have discovered that they can only really compete in the market if they make use of parallel processing. This is done through the use of Application Specific Integrated Circuits (ASICS). These are designed with the sole purpose of mining Bitcoin and their introduction has led to an exponential increase in the mining difficulty. This has also meant that unless individual miners had the resources to purchase ASICs, they would have to join pools.
With the Scrypt algorithm, calculations are much more serialised which means that it favours large amounts of computer memory over raw processing power. More particularly, Scrypt is a “memory hard problem”. This means that users can make use of CPUs and GPUs to effectively mine Litecoin and they don’t need heavy resources in order to take part in the process.
As a direct comparison of hashing power on the network, currently the Bitcoin network has over 7m Terra hashes per second whereas Litecoin is a mere 23 Terra hashes. What this means is that the mining networks can still remain rather decentralised.
Other Protocol Differences
There are other differences in the protocol of Litecoin. In terms of the overall supply that can ever be mined, Bitcoin has a limit of 21m coins whereas Litecoin has a limit of 84m coins. In terms of difficulty adjustments, the block reward for Bitcoin will halve every 210k blocks whereas it will halve every 840k blocks for Litecoin. Block reward is also different with a 12 BTC for Bitcoin and 25 LTC for a Litecoin block.
In order to adjust for increases in processing power and the increased supply already on the market, the block reward also has to be adjusted in order to change incentives. With Bitcoin, the rewards are halved every 210k blocks whereas with Litecoin it is every 840k blocks which is roughly every 5 years.
Transactions on Litecoin vs. Bitcoin
Given that Litecoin uses the Scrypt algorithm, this means that transactions can get completed in a much quicker time period. The faster block generation means that more transactions can be included in the block and hence cleared. Although this may seem like a great outcome, it also means that there will be a considerably larger block chain with many more orphaned blocks.
Although the faster transaction time is indeed a plus, most Bitcoin proponents don’t think of it as much of a concern. A merchant who accepts funds in Bitcoin is usually satisfied with a transaction that has been sent irrespective of whether it is still unconfirmed.
Litecoin Segregated Witness Implementation
Earlier this year, Litecoin had implemented Segregated Witness (SegWit) in their protocol. We have previously covered the details of what SegWit is but essentially it is a way of splitting out the witness (signatory data) from the rest of the transaction data.
This implementation was also a backwards compatible change so previous blocks were still valid even if they did not implement the segregated witness transactions. Of course, what most users really want to see is the Lightning Network up and running on Litecoin. This was initially a proposal that was meant to improve Bitcoin but has now been taken up by the Litecoin developers.
More Cohesive Development Team
We have also seen a lot of the debate around the future of Bitcoin and how it can be adequately scaled. This has been contentious as numerous stakeholders have had different incentives. There are the miners, users, developers and payment processors. As a result, there was a great deal of disagreement and it was hard to come to a consensus. The result has been that Bitcoin had to go through a hard fork in August the resulted in creation of new currency, Bitcoin cash.
When it comes to Litecoin, the team of developers are smaller yet a lot more cohesive. There are less powerful stakeholders who can control the discussions and protocols around it. This has resulted in the team at Litecoin able to come to a consensus in a generally more efficient way. For example, when it came to the decision of whether to upgrade to Segwit there was no disagreement at all.
Buying and Storing LTC
If you have decided that you would like to HODL some of the silver to Bitcoin’s gold them you will need to get some on a cryptocurrency exchange. Given how popular Litecoin is there are a range of different exchanges that list the coin. Some of the largest include the likes of Binance, Coinbase, Bitstamp and Huobi.
Once you have your LTC you will want to move them off of the exchange onto a seperate wallet. This is because of the risks that are posed from leaving coins on an exchange such as hackers and other nefarious activity. We have previously covered some of the best Litecoin wallets where you can securely store your LTC.
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