Litecoin What It Is & How It Works
Litecoin What It Is & How It Works Often referred to as the little brother of bitcoin, litecoin is a peer-to-peer cryptocurrency that has gained fairly widespread adoption since its inception in 2011. A form of digital money that utilizes a blockchain to easily maintain a public ledger of all transactions, litecoin is used to transfer funds directly between individuals or businesses without the need for an intermediary such as a bank or payment processing service.
What Makes Litecoin Different?
Three things make Litecoin different:
Number of Coins
Litecoin is based on the same open source code behind bitcoin. Created by engineer Charlie Lee to be the silver to bitcoin’s gold, one of the main disparities between the two cryptocurrencies lies in their transaction speeds.
Because it generates blocks about four times faster than bitcoin, litecoin can confirm the legitimacy of transactions a lot quicker as well as process a much higher number of them over the same time frame.
For more information about how blocks are created and transactions are confirmed, be sure to read our primer on blockchain technology – which functions as the underpinning of litecoin and most other p2p virtual currencies – Litecoin What It Is & How It Works.
Number of Coins
One of the reasons some cryptocurrencies hold intrinsic value is because of their limited supply. Once a certain number of bitcoin (btc) or litecoin (ltc) are created, that’s it.
There can be no more new coins at that point.
While bitcoin has a limit of 21 million coins, litecoin will max out at the 84 million mark.
Although its market cap pales in comparison to bitcoin, litecoin still ranks among the top 5 cryptocurrencies at the time of publication.
These rankings fluctuate based on price and number of coins in circulation.
Another significant difference between bitcoin and litecoin is the hashing algorithm that each uses to solve a block, as well as how many coins are distributed each time a solution is found. When a transaction is made, it is then grouped with others that have been recently submitted within one of these cryptographically-protected blocks.
Computers known as miners utilize their GPU and/or CPU cycles to solve rather complex mathematical problems, passing the data within a block through the aforementioned algorithm until their collective power discovers a solution. It is at this point that all transactions within the respective block are fully verified and stamped as legitimate.
Miners also reap the fruits of their labor each time a block gets solved, as a predefined number of coins is distributed among those who helped out – with the more powerful hashers getting the lion’s share. People looking to mine cryptocurrency typically join pools, where their computing power is combined with others in the group to obtain these rewards.
As mentioned above, litecoin and bitcoin utilize contrasting algorithms when hashing. While bitcoin employs SHA-256 (short for Secure Hash Algorithm 2) which is considered to be relatively more complex, litecoin uses a memory-intensive algorithm referred to as scrypt.
Different proof-of-work algorithms means different hardware, and you need to be sure that your mining rig meets the proper specifications for producing litecoin.
How to Buy Litecoin
If you’d like to own some litecoin but aren’t interested in mining it, the cryptocurrency can be purchased with another cryptocurrency such as bitcoin on websites known as exchanges. Some of these exchanges, as well as other services like Coinbase, also allow you to purchase ltc with actual fiat currency including US dollars.
Ed. Note: When investing and trading cryptocurrencies, be sure to watch for red flags.
Like bitcoin and many other cryptocurrencies, litecoin is typically stored in a digital wallet.
There are different kinds of wallets including those that are software-based and reside on your computer or mobile device, as well as physical hardware wallets. Another secure yet admittedly outdated and somewhat complex method to store your litecoin is to create a paper wallet, which involves generating and printing out a private key on a computer not connected to the web as one of its steps.
Litecoin Basics: What Is Litecoin?
Litecoin is a peer-to-peer electronic cash system that transfers funds overseas at high speeds. This digital currency is a member of the cryptocurrency class, as it utilizes cryptography to secure the Litecoin network, verify transactions, and regulate the creation of new coins.
Litecoin is also open source technology that was created in October of 2011 by Charles Lee.
Each wallet has private keys required to receive and send coins to and from your litecoin address. Because these keys are stored offline in a hardware wallet, they are inherently more secure than wallets connected to the internet- Litecoin What It Is & How It Works
These application-centric wallets exist in the form of desktop or mobile software, and are available for almost all popular operating systems and devices. In addition to third-party applications such as Electrum, laptop and desktop users also have the option to install Litecoin Core, which is the full-fledged client created and updated by the Litecoin Development team. Litecoin Core downloads the entire blockchain directly from the peer-to-peer network, avoiding any middleman involvement in the process.
Litecoin Block Explorer
As is the case with other public cryptocurrencies, all litecoin transactions within its blockchain are public and searchable. The easiest way to peruse these records or search for an individual block, transaction or even address balance is through a litecoin block explorer. There are many to select from, and a simple Google search will allow you to find one that suits your individual needs.
Like Bitcoin, Litecoin is a mined cryptocurrency that enforces scarcity by design. In accordance with Litecoin’s design, there may be no more than 84 million Litecoins in circulation at any given moment.
This helps to stave off inflation, which fiat currencies are subjected to due to the ease with which bank notes (dollar bills) can be printed. Taking a page out of Bitcoin’s book, Litecoins have to be mined to increase the quantity in circulation, and mining comes at a cost (requires a significant amount of energy, and therefore is yet another deterrent to inflation, helping to maintain an acceptable level of scarcity).
This achieves the digital equivalent of the effect that gold coins had, with the exceptions that gold has an intrinsic value and is expensive to mint due to the high cost of gold (gold is electrically conductive, lasts long, and has its uses in electronics). Gold coins are naturally scarce. Digitally, cryptocurrencies achieve that by requiring a costly process such as mining – Litecoin What It Is & How It Works.
Gold has become some costly and ‘valuable’ that it is no longer suitable for use as a currency, due to the fact that it is not divisible enough. One ounce of gold could buy hundreds of burgers. Imagine trying to divide an ounce of gold!
Being a digital currency, Litecoin is highly divisible (not all digital currencies are) and that compensates for the high value of one Litecoin (I’m not going to write the value here, as it varies). You don’t have to spend one whole Litecoin. For example, you could spend 0.01 LTC on a small item such as a burger.
You could also buy that burger without giving out your credit card number or PayPal e-mail address (in a theoretical world where Litecoin is accepted everywhere).
Key Benefits Of Litecoin
Key benefits of Litecoin include, but are not limited to:
- The ability to transfer funds internationally without costly wire transfers, and it takes seconds, even if it has to go all the way around the world.
- Mining is required on the network for transactions, incurring a cost per transaction. This helps to deter attacks on the network, making them potentially costly for the attacker (Litecoin What It Is & How It Works).
- It isn’t at the mercy of centralized financial institutions such as banks and money transfer services which have minimum account balances or monthly fees, ATM withdrawl fees just so you can use it, and require you to give out excessive amounts of personal information to send or receive money.
- It is easy to create a Litecoin wallet and accept funds. Just install the app and store your private key in a safe place (NOT on your computer or phone).
- It’s decentralized design helps to ensure accessibility around the world, without the geographic distance issues that servers and ISPs face. For example, it is likely that there are miners close enough to you, while a centralized server may not be if the owner isn’t operating in your area.
- You can support the network and increase local accessibility by purchasing a miner of your own.
Disadvantages Of Litecoin
- The mining process is energy intensive.
- It is not as widely accepted as Bitcoin or fiat currencies.
- Some technical knowledge is necessary to properly secure your coins. Some people fail to back up their private keys, resulting in them losing access to their funds if their computers malfunction.
- Scaling it up in the future is a challenge, and there are now faster cryptocurrencies out there, such as Raiblocks.
- For the reason above, you may have to switch to a newer cryptocurrency if it takes over and causes the price of Litecoin to decline. However, this is an easily accomplished task.
What Determines The Value Of A Litecoin?
The value of a Litecoin is determined by demand and supply, and the price in USD is equal to Litecoin’s market cap in USD divided by its circulating supply in LTC. If you’re just getting started with cryptocurrencies, or you are interested in cryptocurrency investing, one of the most informative things you could do is look at current cryptocurrency statistics.
These include their market caps, circulating supply, and price history (going all the way back to their inception, ideally).
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