ZuluTrade Blog

What Is Litecoin (LTC) & How Does It Work? Guide for Beginners

Knowledge Crunch | Wednesday, November 3, 2021 1:38 PM GMT

Like you, most people have heard of Bitcoin by now – the digital currency which has made headlines in recent years thanks to its phenomenal rise (and occasional crash) in value.

In fact, there are now well over 1,000 cryptocurrencies, with more emerging all the time. One of the most popular and enduring is Litecoin. But how is it different from Bitcoin, Bitcoin Cash, Ripple or any other cryptocurrencies? Here’s our overview of the currency that is often considered the silver to Bitcoin’s gold. 

Before we dive in, as always, remember that investing in crypto coins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.





Table of Contents

 

What is Litecoin?

How Does Litecoin Work?

 Is Litecoin Safe?

Litecoin vs Bitcoin

Litecoin Mining

Litecoin Wallet 

Buying & Selling Litecoin







What is Litecoin?

Set up in 2011 by Charlie Lee, an ex Google employee, Litecoin (LTC) is a peer-to-peer alternative cryptocurrency. It shares several similarities with Bitcoin and this cryptocurrency is actually based on the original source code of Bitcoin. It is considered a second block generation crypto.

Litecoin had been set up for being leveraged for less costly transactions and for being more efficient in terms of daily use. Relatively, Bitcoin is considered as a store of value to be adopted in the long term and after the lightning network upgrade, possible more. The coin limit market cap is much higher on litecoin than bitcoin, and the mining process is far quicker. This means transactions are faster and cheaper, although generally smaller in size. 

Litecoin can be mined every 2.5 minutes compared to the 10 minutes it takes to mine a block of Bitcoin, making it possible to handle more transactions in the altcoin.

The Litecoin transaction speed is important for both customers and merchants if cryptocurrency is to become a widely accepted form of currency.

Like Bitcoin, Litecoin uses an open-source payment network that's not controlled by any single authority. Unlike Bitcoin, however, Litecoin has a far larger supply limit of 84 million LTC compared with Bitcoin's 21 million. Because of the differences in supply limit, Litecoin is often referred to as the silver to Bitcoin's gold.






How Does Litecoin Work?

In order to understand how Litecoin works, it is good to first have a base knowledge of the underlying technology of blockchain. With blockchain, information is coded and stored in a block, and each block strung together creates a chain. The chain of information acts as Litecoin’s transaction ledger and is open source.

What is a blockchain?

Blockchain  is an open, distributed ledger that, as described by the Harvard Business Review, “can record transactions between two parties efficiently and in a verifiable and permanent way.” The ledger itself can also be programmed to trigger transactions automatically.

The information used within a blockchain system is kept safe through the use of encryption techniques. Transactions using blockchain technology are generally assumed to be anonymous (although in fact, they are pseudonymous— someone could do lots of legwork to trace it back to an actual IP address, and thus the actual person).

As with many cryptocurrencies, Litecoins are mined by users, hopefully in exchange for the currency. Miners verify transactions and create new blocks by solving complex mathematical equations—making Litecoin part of the math-based currency cohort.

Litecoin miners are awarded with 25 new Litecoins per block they mine, an amount that gets halved roughly every four years (every 840,000 blocks).

Litecoin has a cap of 84 million Litecoins in total—four times as many units as Bitcoin. Similar to Bitcoin, Lee designed Litecoin to have the majority of coins mined in the first two decades. As of this writing, there are over 63 million Litecoins.

 

Is Litecoin Safe?

Charlie Lee, the founder of Litecoin and former Google employee, has spoken about the security of the platform. After the launch of Crypto51, a new application that theorizes what the loss would be if different cryptocurrencies were hit by a 51% attack on their networks, the crypto-community seemed to experience a wave of panic thinking that there might be a danger for their tokens.

Lee has assured users on the Litecoin platform that there is no reason for worry since the network has a relatively low threat of attack and that Litecoin is secure and healthy. The founder noted that the well-distributed mining pools aid in the security, as well as increased hash rate times and boasted about the high capital costs.

The risks of Litecoin are similar to the risks of most cryptocurrencies. First, potential buyers are wise to be mindful of scammers. Unfortunately, there are always people out there who are willing to take advantage of others.

Cryptocurrency, which is a new, exciting, and sometimes misunderstood frontier, is an environment that is ripe for such activity.

Also, cryptocurrency wallets and exchanges are not impervious to hacking. Hacking could be a major concern of anyone making a decision about where to buy and store their cryptocurrencies. If cryptocurrencies are hacked and stolen, there may not be a way to recover them.

 





Litecoin vs Bitcoin

Proponents of Litecoin often refer to it as acting as silver to Bitcoin’s gold. It’s an interesting metaphor that stands up to scrutiny – while one unit of Litecoin is certainly less valuable than one unit of Bitcoin, both are commodities that are used as a store of value but have other differences other than price, let’s take a look at some.

Maximum Supply

While Bitcoin has a maximum supply of 21 million coins, Litecoin increased this amount by four times, creating a total of 84 million LTC available to be mined.

Mining

The mining process is relatively similar for both networks as they both utilize proof of work consensus. Currently, mining a block on the Bitcoin network rewards the miners 6.25 BTC, while on the Litecoin network 12.5 LTC.

Both networks undergo halvings where this block reward is halved, taking place roughly every 4 years. However, on the Bitcoin network, this is implemented every 210,000 blocks while on the Litecoin network the mechanism is executed after 840,000 blocks are mined.

Hashing Algorithm

Litecoin opted to change the hashing algorithm of the Bitcoin network, moving from a SHA-256 hashing algorithm to one called Scrypt. Scrypt allows smaller miners to take part in the mining process and offers a lower hash rate.

Store Of Value

Bitcoin was created to provide both a store of value and a medium of exchange, while Litecoin was predominantly designed as a medium of exchange. Despite both networks being used for both causes, the return on investment differs substantially.

Transaction Speeds

On the Bitcoin network, it takes 10 minutes to create a new block, meaning roughly 10 minutes to execute a transaction. Working on the speed of the network, Litecoin decreased the block creation time to 2.5 minutes per block, allowing for much faster (and cheaper) transactions.


Source: Pixabay.com



Litecoin Mining

Miners must successfully solve hash functions in order to add new blocks of a cryptocurrency to the blockchain. Litecoin and bitcoin use different mining algorithms, with Scrypt being the hash function used for litecoin, and SHA-256 the hash function used for bitcoin. Scrypt was initially chosen by the litecoin development team to avoid mining being dominated by ASIC-based miners.

This would allow CPU and GPU-based miners to compete. The Scrypt mining algorithm is more memory intensive, and this was initially less suited to ASIC miners, giving other miners more opportunity. However, Scrypt-capable ASIC-based miners have developed over time.

This means CPU and GPU-based miners no longer have valid mining tools due to the inferior computational powers, and ASICs are able to generate far more hashes per second.

Because Litecoin represents an open, permissionless system like Bitcoin, anyone with access to computer processing power can participate in mining. In the early days of Litecoin, it was very well possible to mine the cryptocurrency using home gear computer hardware like classical CPU or GPU (both of these are computer processing units). 

For Bitcoin, the mining algorithm used is SHA-256. In contrast, Litecoin uses a fundamentally different algorithm called “Scrypt” to process hash functions. So while ASIC miners used to mine Litecoin cannot be switched to mining Bitcoin, they can easily be changed to mine other coins, most notably Dogecoin, which also adheres to a scrypt-based algorithm.

Just like the Bitcoin mining industry, Litecoin mining today is also dominated by mining pools. If someone is in possession of only a handful of scrypt-based ASIC machines, it is best to plug these mining machines into so-called mining farms.

It takes an average of 45 days to mine an entire Litecoin with one of the most powerful hardware mining devices. When it comes to block size, the right setup will commit a block to the Litecoin blockchain in just 2.5 minutes.

A mined block released 25 Litecoin. Of course, this time can vary based on Litecoin difficulty of the blocks. The higher the difficulty, the longer it takes. 

 

Litecoin Wallet

A Litecoin wallet is a software program or an application that allows you to send, receive and store your Litecoins (LTC) safely. There are different types of wallets available on the market. Some LTC wallets focus on security while some are easy to use but compromise security. Some wallets allow you to check your transaction history instantly. 

On the other hand, some wallets need to be connected to their respective portals/sites in order to check the history or manage funds. The most secure wallet is the one where the Private Keys are owned by you. 

If you store your LTC on an exchange or site where you do not own the private keys, then you might lose your Litecoins in an event of a hack. We believe that a secure crypto wallet should fulfil the following criteria:

  • The wallet should have an active development community or the company should be reputable.
  • It should provide a backup and restore.
  • The wallet should be easy to use and navigate.
  • It should be compatible with different operating systems and devices.
  • It should allow you to control your private keys.

Make sure that all these above points are fulfilled before selecting any cryptocurrency wallet.

Web wallets - Your Litecoins are stored on someone else’s server.

Desktop / mobile wallets – Your Litecoins are stored on your device (e.g. your laptop).

Hardware wallets – These wallets are small pieces of hardware which store your private key securely. The device is connected to your computer via a USB portal.

 

Buying & Selling Litecoin

Litecoin is one of the most popular altcoins on the market, often featuring in the top 10 of market capitalization. By choosing the right platform, it can be quite easy to buy and sell Litecoin. We take a look at how to do it in a quick and secure way.

 

Should you buy Litecoin?

Given the fact that Litecoin is one of the largest cryptocurrency by market cap, it’s believed that investing in Litecoin is worth it.

Many investors claim that Litecoin is worth considering, insisting that the price of Litecoin could grow further in the long term. Litecoin saw an increase of over 70% since Black Thursday 2020 and managed to recover from the ongoing coronavirus pandemic.

Moreover, as Litecoin has a max supply of 84 million, its scarcity makes LTC a low risk from depreciation and inflation and might help it become a store of value for long-term investors, especially in turbulent economic times.

That said, when deciding to invest in cryptocurrencies, always keep in mind that crypto investing can be risky. Never invest more than you can afford to lose.

 

Investing in Litecoin

Investing in Litecoin, like other crypto assets, can be done either by mining or buying LTC online in a few simple clicks on a trading platform like ZuluTrade or an exchange. Once you have Litecoin, you can decide between the various ways to invest in crypto which we actually wrote a guide on how. Check out 8 Crypto Trading Strategies for Beginner Crypto Traders (2021)

 

How to trade Litecoin

Trading Litecoin can be done on any crypto exchange (like coinbase) or cryptocurrency trading platform but there are other ways users trade. 

Instead of directly buying Litecoin you would buy a CFD and take a short or buy position. This allows you to take advantage of shifts in the market without ever owning a single Litecoin.

Another way is through Copy Trading. Every time a trader you follow opens a trade with the Litecoin/USD pair, you automatically replicate (copy) their trades in your brokerage account. All these great features are available on ZuluTrade. Litecoin can experience volatility in some instances, but it is important to note that this is when it achieves its all-time high (as with most altcoins).





Now Over to You

Litecoin is a highly liquid cryptocurrency available on most major cryptocurrency exchanges, making it ideal for traders. As transactions on its network are relatively cheap, some even use it to move funds between different exchanges or lending platforms to avoid high transaction fees on networks such as Bitcoin or Ethereum.

Always remember that all crypto investments do carry risks and we can’t stress enough that you should always carry out your own research before investing in any asset, digital or not.

We hope you enjoyed this edition of the knowledge crunch blog just as much as we enjoy writing them! Stay tuned for more and be sure to check out our other helpful blogs with advice and tips to reach your investment goals with ZuluTrade. 

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