Litecoin (LTC) is a type of cryptocurrency that enables instant payments to anyone in the world.
It was created by Charle Lee, a former Google employee, in 2011.
Litecoin functions similarly to bitcoin, but with a higher maximum number of coins that can be mined. 84 million litecoins will be produced, which is 4 times as many currency units as bitcoin.
One of the main reasons that people buy Litecoin is that transactions take significantly less time to transfer than bitcoin, with a fraction of the transaction fees.
Litecoin blocks can also be created faster, once every 2.5 minutes compared to Bitcoin’s algorithm which is one block every 10 minutes.
It also offers features such as Segregated Witness and the Lightning Network which allows for faster processing at lower cost.
Why is Litecoin important?
The main advantage and the main reason many people buy Litecoin is that it makes day-to-day purchases possible with cryptocurrencies.
When the price of bitcoin was low, purchasing something quickly and cheaply may have been possible, but at its all-time high in December 2017, buying a single cup of coffee with bitcoin would have cost you $30+ in fees.
On top of that, the transaction would take at least an hour to process, maybe longer — not exactly ideal for everyday purchases.
The cryptocurrency community is actively trying to solve this problem with technologies such as Lightning Network for bitcoin, but as of today, these protocols have not yet been fully implemented.
Litecoin, on the other hand, was designed to make payments instant, by enabling transaction verifications that take minutes rather than hours, which lowers transaction fees.
How does Litecoin work?
Many cryptocurrencies are created through a process called mining, which means that computers on the network are competing to solve computationally difficult puzzles, which serves the function of validating transactions.
Miners are rewarded for their work, or for dedicating computing power to the network, by receiving newly issued units of the cryptocurrency.
This model of dedicating computing power toward maintaining a blockchain and creating a new cryptocurrency is called proof-of-work, or PoW.
Once the network reaches consensus (which is what the mining process is all about) and records a transaction to the blockchain, it’s very difficult to change or invalidate this work because making changes would require going back and redoing all the work that has already been done.
The amount of computing power and energy it would take to undo confirmed transactions makes it practically and economically difficult to defraud a blockchain that is maintained by proof-of-work.
Bitcoin and litecoin both rely on proof-of-work, but they go about the process using different methods, which ultimately results in differences in transaction speed and cost.
Bitcoin uses the SHA-256 hashing algorithm, requiring costly and sometimes hard-to-find ASIC (Application-Specific Integrated Circuit) equipment, whereas litecoin can be mined on the less expensive and more common GPU (Graphics Processing Unit) found in computer video cards.
Litecoin runs on what is called the Scrypt algorithm, which didn’t allow the jump to mining on ASIC setups, keeping the barriers to entry lower, at least at first.
Today, litecoin mining (as well as mining other cryptocurrencies) is getting more complicated and expensive.