What is Litecoin?
Litecoin is a peer-to-peer Internet currency that enables instant, near-zero cost payments to anyone in the world. Litecoin is an open source, global payment network that is fully decentralized without any central authorities. Mathematics secures the network and empowers individuals to control their own finances. Litecoin features faster transaction confirmation times and improved storage efficiency than the leading math-based currency. With substantial industry support, trade volume and liquidity, Litecoin is a proven medium of commerce complementary to Bitcoin.
How does Litecoin work?
A modification of the Bitcoin code, Litecoin has many similar features. So, if you know how Bitcoin works, you’re likely going to have an easy time understanding Litecoin.
Litecoin uses cryptography to enable ownership and exchange of its cryptocurrency, LTC, and its software places a hard limit on the amount of LTC that can ever be created at 84 million.
Like Bitcoin, Litecoin also uses a form of proof-of-work mining to enable anyone who dedicates computing hardware to add new blocks to its blockchain and earn the new Litecoin it creates.
The two main differences are that Litecoin aims to finalize transactions faster and that it uses a different mining algorithm. On Litecoin, new blocks are added to the blockchain roughly every 2.5 minutes (as opposed to 10 minutes on Bitcoin).
Litecoin’s mining algorithm originally aimed at reducing the effectiveness of specialized mining equipment, though this would later prove unsuccessful. (Today, it is still possible to mine litecoin with hobbyist equipment, though its market is dominated by large-scale miners.)
Litecoin has since proven a valuable test ground for more experimental cryptocurrency features.
In 2017, Litecoin adopted “Segregated Witness,” a technology that helps cryptocurrencies add more transactions into each block. Later that year, the first Lightning transaction was completed on Litecoin, a development that showcased how it could use a layered network design.
What’s the Difference Between Litecoin and Bitcoin?
Although Litecoin and Bitcoin are similar in many ways, there are a couple of major differences between the two cryptocurrencies. Some traders say that if Bitcoin is the equivalent of gold, Litecoin could be compared with silver. In fact, this is exactly what Litecoin developers had in mind when creating it. Both coins do share many similar characteristics, and Litecoin is similar to Bitcoin except for a couple of differences:
- Litecoin offers faster confirmation: The Litecoin Network aims at processing a block every 2.5 minutes, rather than Bitcoin’s 10 minutes rate, which its developers claim allows for faster transaction confirmation. A distinct drawback is the higher probability of orphaned blocks.
- Litecoin uses a different hashtag algorithm: Litecoin uses scrypt in its proof-of-work algorithm – a sequential memory-hard function requiring asymptotically more memory than an algorithm which is not memory-hard.
- The Litecoin Network will create more coins: Litecoin will produce 84 million Litecoins, or four times as many currency units in comparison with what will be issued by the Bitcoin Network.
All in all, Litecoin can process and handle a larger amount of transactions, which reduces potential bottlenecks, as sometimes seen with Bitcoin. Also, advantages can include greater resistance to a double spending attack over the same period as Bitcoin.
What Are the Risks of Trading Litecoin?
Here are a few points that summarise some of the risks:
- As with Bitcoin, there is little historical valuation range or comparative cryptocurrencies. Basically, the question of how you assess what is fair value is difficult to answer.
- Changes to International Capital Controls could reduce cryptocurrency demand. Countries like China have laws that protect capital outflows; hence, money is being flooded into unregulated cryptocurrencies – to avert such capital controls. A change in laws regarding capital outflows could dampen demand.
- It is unregulated, thus, some may consider it a high risk. However, this is subjective; at the end of the day, it’s just a currency.
- It is a currency, similar to a commodity in nature; hence, it is subject to market fluctuations, such as demand and supply. But this should be a positive risk for traders dealing with commodities.
Is Litecoin Safe to Trade?
Yes, it is just as safe to trade as Bitcoin, or any other commodity, for that matter. In fact, the popularity of Litecoin has skyrocketed in more recent years.