So, what is Litecoin and how does it work?
Litecoin is similar to Bitcoin, and in some ways, a direct competitor. Like Bitcoin, Litecoin exists as a blockchain where participating nodes process transactions, and miners provide security and verification for each of those transactions.
Litecoin was originally conceived and developed by Charlie Lee in 2011. Since its launch in 2011, Litecoin has seen steady adoption with an active community of traders, merchants, and developers. Many believe Litecoin is here to stay and will continue to play an important role in cryptocurrency and digital asset development.
While Bitcoin is seen as “gold” and a store of value for long-term purposes, Litecoin is seen as the “silver” and a means of transactions for cheaper and everyday purposes. The Litecoin Network went live on October 13th, 2011. It is basically a fork of the Bitcoin Core blockchain. In order to understand the Litecoin Network better, a comparison with Bitcoin’s protocol is necessary. The differences between Bitcoin and Litecoin are discussed below.
Litecoin and Bitcoin Mining Differences
Both Bitcoin and Litecoin use the Proof-of-Work consensus mechanism. Thus, the miners use their computational power to solve extremely hard cryptographic puzzles.
Bitcoin and Litecoin have adopted slightly different approaches to the Proof-of-Work consensus. Bitcoin uses the SHA-256 hashing algorithm for its mining purposes.
Not long after the Bitcoin’s Network went live, miners discovered that they could exponentially increase their mining power by joining together and forming mining pools via parallel processing.
In this parallel processing, program instructions are divided among multiple processors. By doing this, miners decreased the running time of the program and thus, established mining pools.
Moreover, the SHA 256 puzzles require a lot of processing power, and that gave rise to specialised “application-specific integrated circuits” aka ASICs. These ASICs are specifically designed with the sole reason of mining Bitcoins.
On the other hand, Litecoin uses “Scrypt” (pronounced as “script”) as its hashing algorithm. Even though, “Scrypt” uses SHA-256, its calculations are way more serialised than the SHA-256 used by the Bitcoin Network. Thus, this makes parallelising the calculations impossible.
What does all of this mean?
Let’s say that mining consists of two processes called A and B.
In Bitcoin mining, it is possible for the ASICs to do A and B at the same time by parallelising them. However, in Litecoin, miners have to first calculate A before proceeding to B. Parallelisation is possible, however, it requires an immense amount of memory. Thus, “Scrypt” is also referred to as a “memory hard problem.”
Litecoin mining through “Scrypt” has been specifically designed to make sure that mining is accessible to an average user and also as decentralised as possible. Unfortunately, companies like Zeus and Flower Technology have recently managed to create “Scrypt” ASICs. Thus, endangering Litecoin’s dream of democratised mining.
When compared to Bitcoin, Litecoin’s block mining speed is 4 times faster. It takes 10 min and 2.5 min respectively to add a new block to the chain. This Litecoin quality is extremely useful for merchants who need to perform multiple mini-transactions. Using Litecoin, they can get two confirmations within 5 minutes while just 1 confirmation in Bitcoin will take at least 10 minutes.
Another advantage of the faster block creation is the variance in miner rewards. Since the time between blocks is so small, more and more miners get the opportunity to mine blocks and earn the mining rewards. What this means is that the mining rewards should theoretically be better distributed in Litecoin and, by extension, it should be more decentralised.
What does the future of Litecoin look like?
One of the most exciting features that Litecoin is introducing is the “Atomic Swaps”.
“Atomic Swaps” enables cross-chain exchange of coins without the need of a third party such as exchanges. Let’s imagine that Alice has 1 BTC and Bob has 100 LTCs, with the implementation of Atomic Swaps, Alice and Bob could directly swap coins without the need of going to an exchange.
Despite its dramatic price rise, many consider Litecoin to be far more valuable. Designed as Bitcoin’s “younger brother,” Litecoin has outgrown its purpose and is now looking towards the future.
Over the last year or so, Litecoin has taken the risks needed to show the masses what the true scope and potential of cryptocurrencies is. Litecoin Network was one of the first cryptocurrencies to implement SegWit, to test out Atomic Swaps and to activate Lightning Network.