What Is Litecoin (LTC)? How It Works, History, Trends, and Future

What Is Litecoin (LTC)?

Litecoin (LTC) is an alternative cryptocurrency created in October 2011 by Charles "Charlie" Lee, a former Google engineer. It was adapted from Bitcoin's open-source code but several modifications were made. Like Bitcoin, Litecoin is based on an open-source global payment network that is not controlled by any central authority. Litecoin differs from Bitcoin in aspects, such as its faster block generation rate and the use of Scrypt (pronounced ess-scrypt) as a hashing algorithm.

The History of Litecoin (LTC)

Litecoin is considered to be among the first altcoins derived from Bitcoin's original open-source code. Initially, it was a strong competitor to Bitcoin. However, as the cryptocurrency market has become more saturated and competitive, Litecoin's popularity has waned somewhat.

Litecoin was developed by Charlie Lee, a graduate of the Massachusetts Institute of Technology (MIT) and a former Google engineer who became interested in Bitcoin in 2011. According to Lee, "In October of 2011, I was playing around with the Bitcoin codebase, and I guess the short of it was that I was just trying to create...a fork of Bitcoin. It was mainly a fun side project."

Litecoin has always been viewed as a reaction to Bitcoin. In fact, when creator Charlie Lee announced the debut of Litecoin on a popular Bitcoin forum, he called it "a lite version of Bitcoin." Litecoin has many of the same features as Bitcoin, but Lee also adapted and changed some other aspects that the development team felt could be improved.

Segwit

Segregated Witness (Segwit) was first proposed for Bitcoin in 2015. It works by "segregating" the digital signal data (the "witness") outside the base block in the blockchain. SegWit was developed to address Bitcoin's scalability issue by giving blocks more room for information, but the proposal created deep controversy within the community.

In 2017, Litecoin adopted SegWit, and because of Litecoin's similarity to Bitcoin, it worked as a testing ground for SegWit's viability on the larger Bitcoin network. The test was a success, and Bitcoin adopted SegWit thereafter. Some opponents of the SegWit adoption who advocated for larger Bitcoin block sizes created a Bitcoin hard fork that resulted in Bitcoin Cash.

Lightning Network

The Lightning Network is a second-layer technology for Bitcoin that uses micropayment channels to scale its blockchain’s capability to conduct transactions.

Similar to the SegWit example, the implementation of the Lightning Network on Litecoin was a test to prove that innovations were possible on Bitcoin. Charlie Lee has also argued that when “the Bitcoin blockchain is congested, and the fees are high, it’s easy to use Litecoin to onboard onto the Lightning Network.” Litecoin integrated the Lightning Network in 2018.

MimbleWimble

According to the Litecoin website, the last planned project (as of May 5, 2024), MimbleWimble, was completed in May 2022.

MimbleWimble is a privacy protocol that builds on confidential transactions that encrypt or obscure information like transaction amounts.

How to Mine Litecoin

Litecoin is a minable cryptocurrency. It can be mined using application-specific integrated circuits (ASICs) or personal computers (in a limited capacity). If you choose to mine Litecoin, it's best to join a mining pool, even if you can afford an ASIC compatible with Scrypt. Mining pools increase your chances of being rewarded, although rewards are shared with pool members.

Litecoin (LTC) vs. Bitcoin (BTC)

Litecoin was launched with the aim of being a cryptocurrency used in small transactions. Like Bitcoin, it is a peer-to-peer digital currency. It is a fully decentralized, open-source, global payment network. Lee also developed Litecoin to improve on Bitcoin's shortcomings. The broader differences between the two cryptocurrencies are listed in the table below.

Litecoin is designed to produce four times as many blocks as Bitcoin (1 new block every 2.5 minutes to Bitcoin's 10), and it also allows for 4x the coin limit, making its main appeal speed and ease of acquisition.

Scrypt and Litecoin's PoW require significantly more processing power than SHA-256 and Bitcoin's PoW. However, Litecoin produces tokens at four times the rate Bitcoin does and has a smaller network, so it uses less energy to produce a block reward (at least in May 2024).

Litecoin ranked among the top 20 largest cryptocurrencies in terms of market capitalization (though it remains far below Bitcoin). As of May 2024, it had more than 74 million coins in circulation.

Scrypt Proof-of-Work Algorithm

Bitcoin and Litecoin both use proof-of-work (PoW). Basically, PoW requires that one party proves to all the other participating parties in the network that a required amount of computational effort has been expended. Unlike Bitcoin, which uses the SHA-256 PoW hashing algorithm, Litecoin uses the less resource-intensive Scrypt hashing algorithm.

Scrypt is a password-based key derivation function. According to Tarsnap, "the scrypt key derivation function was originally developed for use in the Tarsnap online backup system and is designed to be far more secure against hardware brute-force attacks than alternative functions such as PBKDF2 or bcrypt."

Lee used Scrypt to make large-scale, custom-built hardware attacks on the currency more difficult. Bitcoin's SHA-256 algorithm does not require a lot of random access memory (RAM) as an impediment to parallel processing, whereas Scrypt does.

At the beginning of the 2010s, as mining operations developed specialized hardware—like the application-specific circuit (ASIC) to solve SHA-256 hashing—it appeared that Bitcoin was vulnerable to such an attack. By making Litecoin's consensus algorithm memory intensive, Lee sought to thwart the hardware arms race, though in practice, that didn't happen as ASIC designers found a way to make Scrypt miners.

Future of Litecoin

As of May 2024, there were no projects listed on Litecoin's website or GitHub page. However, this doesn't mean there aren't any plans. The Litecoin Foundation Github page shows activity in its LiteWallet for Android and iOS and other projects not related to the Litecoin core blockchain or network.

If the past is any indicator, Litecoin will continue to be developed and maintained. Its founder sees a future where there are only a few cryptocurrencies left—and he expects Litecoin to be one of them.

The Bottom Line

Litecoin is a cryptocurrency created from a fork of the Bitcoin blockchain but with several changes. It is faster, will have more coins available, and uses a different hashing algorithm than Bitcoin.

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