A BEGINNER’S GUIDE TO LITECOIN

Bitcoin’s discovery of creative ways to use blockchain technology to decentralize our monetary system turned the heads of developers who had similar ambitions, but different approaches. As was expected, the success of Bitcoin was seen by many as an opportunity to create their own versions of a cryptocurrency, focusing on solving what they believe to be some of biggest problems inherent in Bitcoin’s design.

PROBLEMS SOLVED

One common criticism of Bitcoin is how long it takes for a transaction to be confirmed, which is around 10 minutes.

Litecoin was one of the first cryptocurrencies to successfully reduce the block confirmation time. This helped turn Litecoin into one of Bitcoin’s main competitors. Let’s learn a little bit more about one of the oldest cryptocurrencies in existence.

WHAT IS LITECOIN?

Litecoin is a cryptocurrency based on peer-to-peer transactions with open source software, which is decentralized and doesn’t have any intermediaries. Sound familiar? Well, that’s because Litecoin is, in many ways, similar to its more popular cousin; Bitcoin. It works with many of the same systems, with a few important tweaks.

Although almost identical to Bitcoin, Litecoin has technical improvements which we will explore in more detail a little further down this page. Interestingly enough, Litecoin’s marketing theme has revolved around being the “silver” to Bitcoin’s “gold”. This could be strategic, stating they are not Bitcoin’s rivals, but in reality, amany people believe that Litecoin is essentially an upgraded version of Bitcoin.

HISTORY & DEVELOPMENT

On October 2011 Charlie Lee, a former Google employee, released Litecoin on GitHub via an open source client. This was done as a fork of Bitcoin Core (Bitcoin’s source code), with some key improvements, like reducing the block generating time from 10 minutes to 2.5 minutes, changing the hash algorithm to scrypt instead of SHA-256, and increasing the number of coins created.

Litecoin started to gain massive growth in 2013, especially during November when it experienced a 100% leap in just 24 hours. The success only grew exponentially, reaching the $1 billion market cap in that same month.

Throughout the years Litecoin has reached some other impressive milestones. Besides being the third oldest cryptocurrency in existence, Litecoin also was the first out of the top-five cryptocurrencies to integrate SegWit (Segregated Witness) and hosted the first Lightning Network transaction.

MAIN DIFFERENCES TO BITCOIN

As we have said, Litecoin is, in many ways, the same as Bitcoin but with some key improvements. These include a reduced block generation time, while also lowering the transaction fees and enabling a higher volume of coins on the network, all of which is possible because of the implementation of SegWit.

SegWit was initially proposed as a soft fork intended to be implemented on Bitcoin. The intention behind this initiative was to solve a block size limitation. The purpose of having a block size limit was to prevent the attacks of malicious people who would make up fake blocks that were generally really long. By reducing the block size to 1 MB, those fake blocks wouldn’t be included in the blockchain.

But, by solving one problem they were creating another: as Bitcoin gained more and more users, the limit size slowed down the transactions, sometimes taking up to one hour to complete. This has been known to be one of the main problems with Bitcoin’s system.

The block’s capacity is mostly filled with script (code) that contains the payer’s signature and public address. SegWit’s solution is to essentially split the block into two: the main block, which goes to the blockchain and only contains who the receiver is, and a second block that works as an appendix, which contains the script (the “segregated witness“).

By doing this, the blockchain’s size isn’t filled up as quickly and can contain a lot more transactions. This ensures that the transactions can be verified faster, therefore allowing them to be confirmed in 2.5 minutes. Bitcoin has been hesitant to implement this system, as it changes the nature of the blockchain and they would be vulnerable to the publics disapproval. Instead, Litecoin has worked as the host of SegWit to test it out.

Another improvement SegWit indirectly enables is lowering the transaction fees, because they depend on how much of the block’s space the transaction takes. So, by reducing the size of the transactions, the fees are lower. One big difference between Litecoin and Bitcoin is the supply of the tokens, another improvement allowed by reducing the size of the blocks. SegWit enables Litecoin to create 84 million litecoins, four times as many coins as will be produced by Bitcoin, which has a hard cap of 21 million bitcoins.

The last improvement Litecoin has over Bitcoin is the use of scrypt instead of SHA-256 in its proof-of-work. This was for two main reasons: to allow users to mine Litecoin and Bitcoin at the same time, and to eliminate the advantage of ASIC, GPU and FPGA miners over CPU ones.

UPCOMING PLANS

Another proposal to improve Bitcoin is called the Lightning Network, and it has been proved to be able to further reduce block generation time. As it was done for SegWit, it seems that this year Litecoin would test out this new method. The first ever Lightning transaction was successfully made through Litecoin in May of this year, where 0.00000001 LTC were transferred from Zurich to San Francisco, taking less than a second.

Other improvements that are expected to be released this year is the implementation of smart contracts (in the same manner as Ethereum), and some improvements on the wallets and the codebase.

So is Litecoin is an improved version of Bitcoin? It has successfully tackled the key points that make Bitcoin still a little rough around the edges. It currently has a Market Cap of more than $2 billion, at around $46 per coin, making it the last of the top-5 currencies.

It’s obvious that Bitcoin’s number 1 spot has been held tightly because of its position as the first ever cryptocurrency in existence. Even though Litecoin offers a more efficient and user-friendly product than Bitcoin, it has been marketed as the “runner-up” for Bitcoin, perhaps strategically. But one thing is for certain, the next improvements Litecoin has in store could potentially be the boost needed to snatch the gold out of Bitcoin’s hands.