What is Litecoin? How Does It Work?

Written by Drew ChenelerUpdated: 9th Sep 2021
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Ranked as the seventh-largest cryptocurrency in the entire market, Litecoin is truly a force to be reckoned with.

Next to Bitcoin, it is one of the industry’s oldest projects, and stalwart investors still speculate on it. But what exactly is Litecoin and how does it drive interest?

Aspiring to bring what Bitcoin originally intended to do, Litecoin focuses on scaling blockchain technology and opening it up for truly everyone.

In the next sections, we will expand on how the major altcoin achieves that and which defining features Litecoin possesses.

What is Litecoin?

Right from the cryptocurrency’s name, we can deduce that Litecoinis a lighter version of Bitcoin.

Launched only two years after BTC Litecoin’s developers intended to create a blockchain network that processes transactions faster, offering lower fees simultaneously.

Litecoin is officially defined as a peer-to-peer Internet currency that enables instant and near-zero cost payments.

Following its predecessors’ same aspirations and visions, the Litecoin blockchain is deeply rooted in values such as decentralization.

The protocol, at times, processes transactions four times faster compared to Bitcoin. Moreover, it only charges a portion of BTC’s fees as the network is far more efficient.

>> More: How to Invest in Cryptocurrencies

History of Litecoin

On October 13, 2011, ex-Google employee Charlie Lee launched the Litecoin Project. The launch was carried out with the help of the existing Bitcoin community interested in a more productive protocol.

As such, Litecoin is a fork of the original BTC network. However, it was purely a software fork as Lee only used Bitcoin’s source code, which he edited.

Litecoin soon gained its popularity, which it owes to the Scrypt Proof-of-Work consensus algorithm.

By improving transaction speeds and lower fees, the new blockchain project soon became favored by the community.

A notable shift in Litecoin’s future occurred when Mt Gox, historically the most important crypto exchange, announced that it is integrating LTC. This event drove speculation, and by April 2013 the project had reached a market cap of $81 million.

Next to Ethereum, Litecoin is recognized as one of the most important networks in the blockchain industry.

During the last bull run of 2017, Litecoin ranked fifth on the market’s leaderboard thanks to its large market cap.

Who Invented Litecoin?

The founder of the Litecoin Project is Charlie Lee, a computer scientist who previously worked for Google. In 2013 he temporarily worked for crypto exchange Coinbase, but most of his active work revolved around the Litecoin Foundation.

After finding out about Bitcoin in 2011, Lee went on to create his very own project.

However, Lee notes that Litecoin is not meant to replace Bitcoin or act as a direct competitor. Instead, he stated that LTC should be used for smaller transactions.

How Does Litecoin Work?

The main difference that distinguishes Litecoin from Bitcoin is that the blockchain networkutilizes the Scrypt PoW algorithm.

Scrypt was created in 2009 by Colin Percival, featuring different characteristics as opposed to SHA-256.

The PoW algorithm is famous for enforcing hardware scalability by requesting significant memory from miners for mathematical calculations.

According to the team, Scrypt actively prevents the performance gain that Application-Specific Integrated Circuits (ASIC) machines have compared to normal computers. As such, it makes the entire network more decentralized and fairer for everyone.

Another major difference is that Litecoin features a confirmation rate of 2.5 minutes. This gives Litecoin a sharper edge in processing transactions, giving users faster access to their funds. As a reminder, the Bitcoin network confirms transactions every 10 minutes.

As for the rest, Litecoin harbors most of Bitcoin’s original design. Critical questions and parameters, such as block sizes have not been changed.

What is Litecoin Worth?

At the time of writing, one LTC is currently worth $132. In 2021 Litecoin successfully surpassed its 2019 high and even managed to reach a level seen for the last time in 2018.

Litecoin has performed quite well during the ongoing bull run. However, its market cap does not have the same growth rate that we would traditionally see. LTC is now ranked seventh on the crypto market, surpassed by newer projects like ADA and DOT.

Does Litecoin Have a Future?

Litecoin is the second digital asset to hit the market in the entire history of cryptocurrencies. By providing faster transaction processing and lower fees, the project stood the test of time and is actively traded even today.

Given that older projects have mostly disappeared from the map, it is important to see that Litecoin still holds its ground. Does Litecoin have a future?

Based on its historical performance and current level of relevance, investors can certainly put their trust in the Litecoin Foundation. While the project’s bullish narrative has diminished substantially, it is still a worthwhile asset.

Advantages of Litecoin

Being a successor of Bitcoin, to a certain degree, Litecoin offers numerous advantages. Here are just a few of them that might interest you:

  • Processes transactions up to four times faster than Bitcoin
  • Charges lower fees
  • Perfect for transferring smaller amounts of crypto.
  • Is mined more slowly compared to other digital assets.

Disadvantages of Litecoin

  • Slowly falls into obscurity as newer and more advanced projects replace it
  • Has not changed in any significant way in the past few years.
  • Harder to mine with ASIC machines.

Where Can You Buy Litecoin?

Litecoin is one of the oldest cryptocurrencies, and as such, it can be found on every single cryptocurrency exchange.

By maintaining a high value and trading volume, the project garners frequent and high interest. But which exchanges does the average person use to trade LTC?

#1. Coinbase

Coinbase represents the industry’s most important exchange, used by both retail and institutional investors. The platform features all kinds of trading pairs, especially those assets that drive interest.

While the centralized exchange charges higher fees than other trading platforms, Coinbase’s security makes it the perfect place for beginners. Apart from Litecoin, Coinbase features numerous other altcoins as well.

>> More: Coinbase Review

#2. Gemini

Founded by the Winklevoss Brothers, Gemini is an institutional exchange used by trading actors who wish to trade securely.

The exchange offers several protective features that enable reliable and worry-free crypto investing.

It is popular for its insurance fund, which reimburses traders in the case of a hack. Just like Coinbase, Gemini offers Litecoin as well.

>> More: Gemini Review

#3. Robinhood

For those who trade stocks or are not that familiar with complex crypto exchanges, Robinhood might serve as the better option.

Famous for its simplicity and commission-free services, Robinhood is the perfect spot for newbies who wish to try out crypto trading.

While you have less control over your assets in comparison to exchanges, Robinhood makes up for it with its easy-to-use interface. Moreover, the trading platform does not provide its services to traders outside the U.S.

>> More: Robinhood Review

Is Litecoin Better than Bitcoin?

In the cryptocurrency market, no asset is necessarily better than another. While Litecoin definitely shares the same segment and goal that Bitcoin has, there are still a few differences that set them apart. Both projects are payment networks. However, they serve different customers.

As we have previously mentioned, Litecoin focuses on lightweight transactions. Payments that carry a low value can be processed nearly four times faster in comparison to Bitcoin. Moreover, the fees are also lower.

On the other hand, Bitcoin transacts both small and large transactions at the same speed. It is also not problematic to move millions, sometimes even billions, of dollars at a time. With its universal approach, Bitcoin caters to everyone, even if the network is slower.

To conclude, Litecoin is definitely better than Bitcoin when it comes to smaller transactions. However, BTC is still the king in general.

While LTC is only used speculatively, many institutional investors and whales use litecoin to store their wealth or to move it fast.

>> More: How to Buy Bitcoin

Bottom Line: What is Litecoin?

Litecoin is a decentralized and open-source peer-to-peer network that forked from Bitcoin in 2011.

Charlie Lee created the cryptocurrency in 2011 to introduce faster and cheaper transactions. Designed as a lighter version of Bitcoin, Lee created the world’s second digital asset to swiftly process smaller transactions.

To achieve its goals, Litecoin utilizes a different PoW consensus mechanism called Scrypt. By requiring much more memory from miners than usual, the blockchain network also lowers the efficacy of ASIC machines.

This leads to a much more decentralized system in which every node competes on an equal footing.

Litecoin gained its popularity very early when Mt. Gox announced plans to integrate the cryptocurrency in 2013. By 2017, LTC became a top 5 cryptocurrency with an enormous market cap.

The asset is still traded even to this day, being ranked seventh in the market.

While Litecoin has not moved far from its original design, it still hosts an active community and attracts tons of liquidity.

Even though numerous newer cryptocurrencies have risen to the top lately, the project manages to compete with popular assets like Bitcoin and Ethereum without any problems.

Drew Cheneler
Drew Cheneler

Drew is our Co-Founder and is a recognized Credit, Small Business, and Personal Finance Expert. He has been featured in CNBC, Fox Business News Section, The Huffington Post, Business.com, Moneyunder30, US Chamber of Commerce, and more. He is known for breaking down complex personal finance topics into action-oriented advice, so you can make the most of your hard-earned money. Drew attended the U.S. Coast Guard Academy where he majored in Business Management with a focus on Information Systems.