Litecoin Guide

With the advent of cryptocurrencies, there are many terminologies and some new names going around. Among these new forms of digital assets is Litecoin. You might have heard about it, but probably have some unanswered questions. And if you’re new to this, it’s never too late to learn!

In the present article, we will explore everything you need to know about Litecoin, often abbreviated as LTC. Read ahead, and find out for yourself!

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Where it all began

If you have heard about cryptocurrencies, there’s no doubt that you’ve heard about Bitcoin and Satoshi. Unlike Satoshi-the creator of Bitcoin- unknown to the public yet is Charlie Lee, the creator of Litecoin, who is not a mystery to the public eye. Since he created the Bitcoin, Satoshi has disappeared; had he been socially available, he would’ve led all the cryptocurrency’s technical directions. Lee, on the other hand, is an active participant in the community of cryptos,  has an active social media page, and even owns a blog. He worked for Google for a decade before building an interest in Bitcoin and eventually decided to create a cryptocurrency that would serve as a lighter version of cryptocurrency, Bitcoin. This vision was what brought about the name, Litecoin.

Crypto investors see Bitcoin as the cryptocurrency to use for high-end purchases. Litecoin, on the other hand, for less expensive, day to day transactions.

Charlie Lee released Litecoin through an open-source client on GitHub on the 7th of October 2011. However, the Litecoin network did not go live until the 13th of October 2011.

How To Create Litecoin

The government does not issue cryptocurrencies. This fact is also actual for Litecoin. Unlike fiat currencies or cash, there is no Federal Reserve that regulates Litecoin, neither is there a Bureau of Engraving and Printing that marks and prints it.

Mining is the process that creates Litecoins. Concerning the production of Litecoin, mining is a series of events that generate Litecoin by processing Litecoin transactions. Litecoin, in contrast to fiat currencies, has a fixed supply. The number of Litecoins in circulation is 84 million, and this number is not exceeded. Litecoin’s network creates a block at 2.5 minutes intervals. A block is an entry of the latest Litecoin transactions across the world.

Litecoin gets its intrinsic value from its fixed supply and block generation.

A mining software verifies the block and allows any miner (a person who takes part in the mining process) to view it. A miner authenticates the block before it goes into the chain. The chain is the record of all Litecoin transactions that have ever been made.

What is The Value of Litecoin?

The truth is that the value of any currency is highly dependent on the community of cryptos. For instance, if the Federal Reserve circulates banknotes in excess, the value of the dollar will drop. This fact does not only apply to the Litecoin currency. The cost of any commodity or service drops when its supply is very high, especially when it is more than its demand. This fact is among the reasons why the founders of Litecoin restricted the circulation of Litecoin. It also helps rest the public’s fear that when the Litecoin is overproduced, its value will drop.

Litecoin comes with certain advantages over bitcoin. One of these is that Litecoin can process more transactions due to the shorter block-generation time(bitcoin generates blocks every 10 minutes). Plus, the transaction fee for processing a Litecoin transaction of any size is 0.001 of a Litecoin.

Consider the hyperinflation that made the Zimbabwean dollar useless. People lost fortunes because they owned liquid assets. A restriction on the circulation of Litecoin makes such a situation impossible. The challenge lies in getting more people to accept it and more persons to adopt cryptocurrency for their day-to-day transactions.

Comparing Litecoin to Bitcoin

Comparing Litecoin to bitcoin is crucial to fully understand what Litecoin is. The founders of Bitcoin have admitted that the cryptocurrency is a Bitcoin-clone.

However, there are specific features that make Litecoin unique. Let’s take a more in-depth look at what differentiates Litecoin from bitcoin.

The Mining of Litecoin

A critical difference between Litecoin and bitcoin is in their mining process. The two cryptocurrencies use a consensus mechanism called the Proof-of-work. This mechanism is easy to understand, read ahead.

Miners use the power of computers to solve complicated and cryptographic puzzles. The extreme difficulty of these puzzles is necessary. If it were simple, then the miners could easily continue to mine blocks and consume all of the cryptocurrency supply in no time!

Although getting the solutions to the puzzles is an increasingly challenging task, checking for the correctness of the answer should be easy.

That’s all what the Proof-of-Work mechanism is all about. That was effortless to understand, right?

All in all, it is just about-

  • Solving challenging puzzles, the difficulty of which is unavoidable.
  • Checking whether these solutions are right or not, would be easy.

This is where Litecoin and bitcoin handle things quite differently.

Bitcoin makes use of the SHA-256 hashing algorithm to handle its mining tasks. As time went on, miners found out that it was possible to exponentially increase the power they used for mining. They realized how they could improve the mining power through collaboration and eventually creating what are known as mining pools, through parallel processing.

Using parallel processing, the instructions of the program are shared with multiple processors. This division decreases the time used to run the program exponentially. In a sense, these mining pools take advantage of the concept of division of labor.

The puzzles formed by the SHA-256 hashing algorithm need a large amount of processing power. This high consumption of processing power brought about the Application-Specific Integrated Circuits(ASICs). These ASICs serve the purpose of explicitly mining bitcoin.

The mining pools have a large amount of ASICs that are specifically used to mine bitcoin.

Satoshi’s vision was for mining to be a highly democratic procedure. This vision meant that anyone with a laptop could join the cryptosystem as a miner. This dream, however, could not be realized due to the introduction of ASIC plants, as it takes more than a personal computer for one to compete with large companies.

The process of mining wastes many resources. For example, the mining of bitcoin consumes about 32.73 Terawatt per hour in one year. This amount of power is equivalent to that used by some countries, in entirety. Some nations use even lesser power in total.

Using this amount of power is potentially harmful, environment-wise.

In addition to the issues stated above, another one to note is the currency’s centralization.

While we write this article, five mining pools have used over 51% of bitcoin’s hash rate. If one mining pool gets access to this 51% of hash rate, a cyberattack that requires at least 51% control of bitcoin, is possible. This potential attack on the blockchain can lead to catastrophic results. Litecoin, on the other hand, uses the ‘Scrypt’ algorithm to avoid these issues, about which we will learn in the following section.

What does Scrypt mean?

Initially, Scrypt is decoded as ‘s-crypt,’ although it is pronounced ‘script.’ This algorithm makes use of the SHA-256 algorithm and makes the calculations more serialized. This increase in serialization makes the parallelization of these calculations impossible.

Let’s break this down into details.

For instance, let’s say there are two processes: process Alpha and process Beta.

With the parallelization of calculations in bitcoin due to ASICs, it is possible to do Alpha and Beta simultaneously.

In Litecoin, however, simultaneous processing is not possible. Hence, the two processes have to be done serially. Trying to parallelize these processes would result in an enormous amount of memory, which cannot be handled.

The critical limiting factor in Scrypt, therefore, is the memory and not the processing power. This factor is why Scrypt is called a memory-hard problem. Parallelizing memory challenging problems is very challenging because handling three memory hard problems requires three times the memory. Yes, there are devices with this large an inbuilt memory, and you might think using those devices will solve the issue. However, two more problems are awaiting you.

Individuals can buy everyday memory cards to compete, rather than buying ASICs that are specialized.

SHA-256 hashing chips have a lower cost of production than a memory card.

The Scrypt algorithm has been designed for a specific purpose, i.e., to ensure that mining can be performed by anyone and is as democratized as it can be. Unfortunately, companies have been able to create Scrypt ASICs chips. So, democratized mining might not stay for long!

The Speed of Litecoin Transactions

As we stated earlier, in comparison to bitcoin’s 10 minutes, Litecoin blocks are mined every 2.5 minutes.

Due to the congestion of the network and times when block mining is slow, the transaction times can vary. The average transaction time for processes can be up to 30 minutes.

This time is convenient for business people that do transactions throughout the day. Because of the faster block mining time, two Litecoin transactions can be done in 5 minutes, whereas one bitcoin transaction takes at least10 minutes.

The time required to mine blocks also affects what rewards that miners get. Due to the lesser time-gaps between the mining of blocks, there are opportunities for more miners to process blocks and receive mining rewards. This means that there is a higher distribution of mining rewards in Litecoin, and it is, thus, more decentralized.

As is with everything, advantages bring along disadvantages too. The increased speed in processing transactions has disadvantages also.

A reduction in the time required to create blocks results in the creation of a higher amount of orphaned blocks.

But what are Orphaned Blocks?

Miners compete with each other to mine higher numbers of blocks. In addition to pools, mining is filled with individuals that try to process the following block to be added to the blockchain. In cases where multiple miners mined, the possibility of the addition of several blocks to the blockchain.

In such cases, the network has to decide which block enters the chain next. It is now when the other block becomes an orphaned block. An orphaned block is legitimate; however, it does not have any transaction in it.

Because the time between processing blocks is meager, the rate at which miners mine orphaned blocks is very high. The production of orphaned blocks drains the system.

Even as Litecoin was created to handle high volumes of transactions, the production of orphaned blocks stretches out and stresses the blockchain.

Flood Attack Immunity

A flood attack overfills the network with spam transactions. This attack results in unavoidable filling up blocks and clogging the blockchain.

Bitcoin suffered such a flood attack in July 2015. As a result of this attack, the network clogged up with thousands of spam transactions. There was a point that the transactions rose to eighty thousand!

That might make you wonder if the Litecoin is immune to an attack like that. Well, according to its creator Charles Lee, the Litecoin network is such that it makes a flood attack as economically impractical as possible.

The Litecoin Atomic Swap Feature

Among the several excellent features of Litecoin, another notable one is the Atomic Swap.

This feature facilitates the cross-chain exchange of coins without needing a third party. For example, let’s say you have some bitcoins which you want to convert to Litecoins. Normally, you would have to pay an exchange fee for this conversion to go through. But with the ability of the Atomic Swap, you will be able to exchange your coins without performing an exchange or paying any extra fee.

Conclusion

No doubt, Litecoin is gaining recognition in the world. The public’s trust for the cryptocurrency is increasing, and it is being adopted mainstream. Also, Coinbase, the renowned cryptocurrency go-to, is selling Litecoin.

In addition to its increased recognition, Litecoin has gained much more value. Yes, it was created to be a smaller version of the bitcoin, but today, it has become a lot more than that. Over time, Litecoin has taken charge of showing the public what cryptocurrencies can do and how their application is beneficial.

With all these, it’s only right that it’s value increases!