Litecoin (LTC) is one of the first spin-offs of Bitcoin. Like Bitcoin, Litecoin was conceived to decentralise money by enabling low-cost, secure, and borderless payments for anyone. In comparison to Bitcoin, Litecoin reduced block production times and created more supply. At its launch, Litecoin was introduced as the “light version of Bitcoin," with a design better suited to payments. The project is often considered the silver to Bitcoin’s gold.
Litecoin was created in October 2011 by Charlie Lee, a Google employee who later became the Director of Engineering at Coinbase. As a source code fork of Bitcoin, Litecoin started out as an independent network and did not share the same genesis block as Bitcoin.
Litecoin is technically identical to Bitcoin, with a few critical design differences. These include decreased target block generation time for faster transaction confirmation, and an increased maximum supply of coins. Litecoin was developed to use the Scrypt hashing algorithm, which was designed to deter the use of GPUs and ASICs among miners.
All of these design choices focused on optimizing Litecoin for use as a medium of exchange, and making it more accessible. Litecoin’s staying power among the top cryptos by market cap is further testament to its strong attributes that benefit the ecosystem. Let’s dive into those attributes and see what makes LTC so popular!
How Does LTC Work?
On the surface, Bitcoin and Litecoin have many things in common. Charlie Lee created Litecoin by forking the source code of Bitcoin, but made modifications that would improve its functionality as a payment medium. All design features were focused on improving speed and accessibility.
Litecoin uses the Proof-of-Work (PoW) consensus algorithm. While Bitcoin uses the SHA-256 hashing algorithm for PoW, Litecoin uses another known as Scrypt. Scrypt is generally considered to be a less complex and energy-intensive algorithm than SHA-256.
Litecoin’s algorithm is a memory-intensive algorithm that favors less expensive customized hardware solutions, unlike ASIC-based mining. Less customization and lower costs increases accessibility, thereby encouraging more miners to begin contributing to the network. This attribute of Litecoin’s is known as ASIC-resistance. Litecoin's ASIC-resistant properties have since become obsolete, as ASIC hardware is now capable of running Scrypt.
On average, new blocks on the Litecoin network are generated every 2.5 minutes. This is four times faster than Bitcoin, where blocks are mined approximately every 10 minutes. Faster block production also translates into faster theoretical throughput, or transactions per second (TPS).
It is important to note, however, that the faster theoretical throughput for Litecoin is merely theoretical. It does not take into account the history of actual network usage, on which Bitcoin vastly surpasses Litecoin, nor layer-2 solutions like the Lightning Network. Since its launch, Litecoin has only rarely surpassed Bitcoin’s real TPS.
Supply And Halvings
Litecoin was created with 84 million total LTC - four times that of Bitcoin. The original parameters of Bitcoin were changed in order to achieve this on Litecoin, with the expectation that eventual supply of Litecoin would stabilize to no more than 84 million.
To compensate for Litecoin’s faster block time, the block count interval between halvings was extended. A halving event is when the reward for mining blocks is cut in half. Litecoin’s halving was designed to take place every 840,000 blocks in comparison to Bitcoin’s 210,000 blocks. This schedule should keep Litecoin and Bitcoin on a similar trajectory in regard to total supply, with a halving event taking place every four years.
Both Bitcoin and Litecoin share the same original block size limit of 1MB. This means that 1MB of data, which comes in the form of transaction data, can fit onto each block before a new one must be created. While other Bitcoin forks have increased block size, such as Bitcoin Cash, Litecoin has stayed true to the original scale.
Roadmap Of Litecoin
Litecoin has implemented several features since its launch, intended to improve its transaction speed without compromising the security and integrity of the network.
SegWit, also known as Segregated Witness, was first proposed for Bitcoin in 2015. SegWit is a workaround to block size limits. Remember that you must digitally sign each transaction you execute on Bitcoin - Segwit removes signature data from transactions to leave room for more transactions to fit on a block. This was developed to address Bitcoin's scalability issue.
In May 2017, Litecoin adopted SegWit ahead of Bitcoin. Due to Litecoin's similarity to Bitcoin, the Litecoin community implemented the changes and acted as the testing ground for SegWit's viability on the larger Bitcoin network.
The Lightning Network (LN) is a layer-2 technology for Bitcoin that uses micropayment channels to scale up total throughput on the network. When you use LN, the BTC you send goes off-chain through an expedited tunnel that bypasses the slower, traditional pathways on the network. LN was developed to enable near-instant and low-cost payments between users.
Similar to the SegWit case, Litecoin implemented the Lightning Network first in May 2017 and successfully acted as a testnet for Bitcoin.
As of July 2021, there are 361 nodes on the Lightning Network for Litecoin. According to 1ML.com, these nodes have a total of 512 active channels with a total network capacity of 153.87 LTC - worth $21,200 at the price of $138 per Litecoin (July 29, 2021).
Litecoin's activity on the Lightning Network pales in comparison to Bitcoin’s. The Bitcoin Lightning network has 23,780 nodes with combined channels of 60,620. Total network capacity is 2,048 BTC (~$81M) at the price of $39,640 per Bitcoin (July 29, 2021).
MimbleWimble is a privacy protocol that builds on confidential transactions that encrypt or obscure information, such as transaction amounts. Proposed benefits include decreased block size and increased scalability. In early 2019, Charlie Lee announced through LIP-0003 and LIP-0004 that Litecoin would pursue MimbleWimble development.
Adoption Of LTC
Litecoin does not have any significant adopters to date, but is often used as a medium of payment complementary to Bitcoin. Due to its long history and technical similarities with Bitcoin, Litecoin is usually listed on most cryptocurrency exchanges along with Bitcoin.
Grayscale launched the Grayscale Litecoin Trust, enabling traditional investors to gain exposure to Litecoin in the form of a security starting March of 2018.
With faster block times and higher transaction throughput, Litecoin was built to be a more practical and scalable medium of exchange, whereas Bitcoin has grown more into a store of value. However, the vision and utility of Litecoin has degraded over the years.
Litecoin has yet to secure itself as a dominant medium of exchange, and the increasing adoption of the Bitcoin Lightning Network renders the purpose of Litecoin somewhat obsolete. Especially when one considers that its initial purpose was to facilitate payments by improving upon the original Bitcoin.
Other new types of digital assets, such as XRP, have succeeded in solving payment issues by completely side-stepping the technical limitations of Bitcoin. And while Litecoin may be referred to as the silver to Bitcoin’s gold, it has solidified its position among some of the top cryptos on the market.