Simple Guide to Litecoin

Following is a Simple Guide to Litecoin

What Is Litecoin?

Litecoin is a decentralized, open-source, P2P (peer-to-peer) and fully global payment network where transactions are conducted in litecoins or LTC units. Launched in 2011, two years after the launch of the first cryptocurrency Bitcoin, Litecoin is an altcoin, alternative crypto, that was created using the same basic structure as Bitcoin. The brain behind the creation of Litecoin is that of Charlie Lee, MIT graduate, an ex-Google engineer.

Charlie’s initial goal behind the launch of Litecoin was to offer an improvement where Bitcoin fell short and make it up to be ‘the silver to Bitcoin’s gold.’ Based on market capitalization, Litecoin has remained among the top 10 performing cryptocurrencies ever since its inception.

Main Features of Litecoin

Let’s take a look at some key features of Litecoin, shall we?

• Litecoin shares Bitcoin’s open-source codebase structure, with only a few differences.

• Like all other cryptocurrencies out there, Litecoin is not backed by any government or centralized financial institutes. 

• Litecoins are created through a procedure named mining, where the Litecoin network is spread across a wide pool of entities dubbed miners. Miners are responsible for recording all data related to transactions made over the Litecoin network into blocks. These blocks then get arranged in an orderly fashion on the blockchain so that the most recent blocks are added at the end of a chain – a record of every Litecoin transaction ever made. 

• Since there is only one blockchain that all miners can access, the miners have to go through a tedious process to create a new block to maintain maximum security and avoid any manipulation of the stored data altogether. To create a legit block, a miner needs to encrypt it with a unique cryptographic hash, abiding by several rules. Once the created block passes scrutiny by mining software, it’s made visible to all miners. The miner who creates the block gets awarded with 12.5 litecoins.   

• A new block is produced and added to the chain every 2.5 minutes.

• Cryptocurrencies typically have a fixed number of coins in circulation, as opposed to the infinite supply of traditional currencies. When a cryptocurrency becomes quite popular, the undersupply causes its value to go up. Similarly, with Litecoin, there will only ever be 84 million litecoins available for mining (which is four times as many as Bitcoin’s 21 million, by the way).

Another of the features Litecoin comes with is the ‘Atomic Swap.’ An atomic swap is an exchange of coins on the chain without any third party involvement required. For example, if person A had 200 litecoins and person B had 1 bitcoin, they can swap coins with each other without having to go through an exchange and paying any transaction fees.

Bitcoin Vs. Litecoin

Litecoin set sail with the purpose of complementing Bitcoin and resolve the issues with the Bitcoin network. But ever since it started seeing high liquidity and trading volumes and major industry support, there have been comparisons between the two and debate over which one is more beneficial for potential investors. Here we give you a look at some of the fundamental differences between BTC and LTC, and you can see for yourself how the two look stacked up against each other:

Because bitcoins are fewer in number, the BTC prices at the present state make it difficult to follow the decimals and zeros during minor transactions. However, Litecoin solves that issue by creating 84 million LTCs.

Most of the transactions we make on a daily basis are small ones- like paying a restaurant bill or buying a movie ticket- and we generally don’t have the patience or time to wait 10 minutes for these transactions to be over. This is where Litecoin is the clear winner, since every transaction is processed within 2.5 minutes, plus the transaction fees are way lower.

Bitcoin and Litecoin both use a proof-of-work (PoW) consensus mechanism, where the miners have to solve difficult cryptographic puzzles to mine blocks. Now, Bitcoin uses the SHA-256 hashing algorithm for mining, which is processor intensive, as opposed to Litecoin’s Scrypt, which is memory intensive. A lot of processing power is needed for the SHA-256 puzzles. Even though Bitcoin mining could be done in the earlier stages on regular computers, over time, the use of ASIC or Application Specific Integrated Circuit miners (whose only purpose is bitcoin mining) became necessary. 

However, these ASICs are pretty expensive machines, limiting the scope of joining the network as a miner for average traders. Litecoin designer Charlie used the Scrypt algorithm instead, to make mining accessible to a large group of users. While the Scrypt algorithm has its problems (what limits its reach is the fact that memory space is more expensive than the hashing chips SHA-256 employs), it’s undeniable that it has made Litecoin mining more approachable for the conventional crypto trader.

A few more differences between the two:

Okay, Cool. But Why Is Litecoin Worth Investing In?

This is an excellent question. When the creators first launched Litecoin, they had thought of it as a fun, experimental project. But from the looks of it, Litecoin has developed a large, loyal community of supporters in the nine years since its inception, and people continue to put their faith in it. Litecoin has quite a few things going for it to put it in that favorable position. 

Litecoin’s basic features make it relatively more profitable when compared to its contemporaries. Since the creators had the foresight to restrict the number of litecoins in circulation, people are willing to invest in it without fears of hyperinflation. 

Additionally, Litecoin can execute a larger number of transactions for the shorter block generation time, and the bare minimum transaction fees don’t hurt either. 

Then there’s the implementation of the SegWit system. With the sheer number of transactions happening on the Litecoin blockchain on a day-to-day basis, it should have given under stress a long time ago, right? But the creators brought forth a solution for that particular problem, aka the SegWit, or the Segregated Witness process.  SegWit increases the block size limit on a blockchain by removing signature data from transactions and stores them on a parallel side chain attached to the blockchain. The use of SegWit has decreased the load on the Litecoin chain by a considerable margin.  

Even though getting the general population to accept and use virtual currency has remained an arduous task, all these exciting attributes of Litecoin have certainly attracted a lot of users to it and hopefully will continue to do so.

That's it folks, to find out about Litecoin in more detail and keep an eye on the way of things, do follow the official Litecoin websites here and here.

DISCLAIMER

The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is Mumbai's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA. Please note the all consultations with the CA are Paid consultations.

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