What is Litecoin and How Does it Work?
Since 2009, making payments has been completely transformed. With the introduction of the first decentralized peer-to-peer payment system, Bitcoin, a novel set of payment services collectively known as cryptocurrencies have transpired. One such cryptocurrency is Litecoin (LTC).
Also known as the first “altcoin,” Litecoin was developed by an MIT graduate and a former Google engineer named Charlie Lee. Built on the original source code of Bitcoin, Litecoin shares a lot of features with its inspiration. However, a few questions still materialize including what is litecoin, how is it different and how does it work?
Let’s find the answer about Litecoin a.k.a the silver to Bitcoin’s gold!
Connecting your Litecoin Address to ZenLedger For Your Crypto Tax Forms
- To import your Litecoin transactions into ZenLedger for your crypto tax forms, all we need is your public address.
- Select the proper blockchain or wallet from the dropdown list.
- Paste your address into the address field in ZenLedger.
- Select if the wallet is based in the USA or not.
- Then hit ADD COIN button
What Is Litecoin & How Does It Work?
Litecoin is a decentralized, peer-to-peer cryptocurrency and even though it is inspired by Bitcoin, it was designed to overcome Bitcoin’s limitations, especially Bitcoin’s transaction speed. As its structure is identical to Bitcoin, it’s been utilized as a testing ground for improvements to apply the results to Bitcoin later.
Built with a fork of Bitcoin's blockchain, Litecoin was developed for instant, almost zero cost payments between people or institutions around the world. Just like Bitcoin, Litecoin also uses a Proof-of-Work (PoW) consensus algorithm to validate transactions on the network. However, due to specific changes to the codebase, Litecoin has become a lighter and faster version of Bitcoin.
The differentiating factor between the two, however, is that Litecoin employs a mining algorithm known as Scrypt, which enables quicker transactions. As a result, Litecoin creates a mineable block every 2.5 minutes whereas Bitcoin takes 10 minutes or more. Now that we have covered what Litecoin is, let us continue with how does Litecoin work.
Understanding How Litecoin Works
Similar to a decentralized cryptocurrency, governments don’t generate Litecoin. The cryptocurrency isn’t printed and regulated by the central bank. It is distributed by an intricate process called mining, which comprises a record of Litecoin transactions.
Just as Bitcoin, Litecoin, and other cryptocurrencies use a PoW algorithm to safeguard their network. However, to get a little bit more technical, Bitcoin uses the SHA-256 PoW hashing algorithm while Litecoin uses the minimal resource-consuming Scrypt PoW algorithm. Now a question arises, what is Scrypt?
To put it simply, Scrypt is a key derivation function that is password-based and was originally designed for the Tarsnap online backup system. Scrypt is designed to be extremely secure against brute force hardware attacks as compared to PBKDF2 or bcrypt. Lee developed Scrypt to thwart custom-built and large-scale hardware attacks and make the cryptocurrency more secure.
Now that we have covered the basics like what is Litecoin and how it works, let us tell you how to get your hands on your first LTC.
Buying Litecoin: How to Invest in Litecoin?
To buy Litecoin you need cryptocurrency exchanges or online brokerage firms that offer crypto trading. However, before buying Litecoin you must consider charges, security, and accessibility. Here are the steps to buy Litecoin:
Step 1: Acquire a Litecoin wallet
First, you’ll need a secure wallet to buy and store your Litecoin. There are several wallets available in the market today, choose the one that is the most secure, easily accessible, and suits your needs the best.
Step 2: Access an exchange
Today, buying cryptocurrency is easier than ever before. After getting a secure wallet, you must open an account on crypto exchanges such as Binance, Kraken, Coinbase, or others. Then finish the KYC procedure and deposit funds on the exchange to buy tokens.
Step 3: Buy and Withdraw your coins from the exchange
After depositing funds on the exchange, buy Litecoin and withdraw them to your chosen personal Litecoin wallet. It is important to note that leaving your coins on the exchange can be risky if the exchange gets hacked or shut down.
Bitcoin versus Litecoin: How Is Litecoin Different From Bitcoin?
Litecoin is different from Bitcoin in three major ways. Here’s how-
The biggest difference between Bitcoin and Litecoin is the cryptographic algorithm. Bitcoin employs SHA-256, whereas Litecoin uses Scrypt to prevent ASIC-based miners from dominating LTC mining. Over time, ASIC miners have become capable at Scrypt and are generating more hashes. However, Scrypt is more secure against cyber attacks.
Lee’s first priority with Litecoin’s development was to improve its transition speed, which makes it popular. The average transaction verification time on Bitcoin’s network is 10 minutes per transaction. However, Litecoin only takes 2.5 minutes to validate a transaction and can manage more transactions as its block generation time is shorter.
3. Market capitalization
When it comes to market cap, Bitcoin tops the leaderboard and is ahead of Litecoin. Today, the value of Bitcoin in circulation is approx. $1 trillion whereas Litecoin’s market cap is around $10 billion.
What started as Lee’s fun side project, became a popular altcoin that is adopted worldwide. So much so that it still ranks in the top 25 cryptocurrencies in the world. It's all due to its faster algorithm, Scrypt that its transaction speeds are higher and the altcoin is still popular and valued. Currently, out of Litecoin’s 84 million coins, 69 million are in circulation. Hopefully, this article has answered everything you need to know about what is Litecoin and how does it work!