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Litecoin - Meaning, How it Works, Litecoin vs Bitcoin

  • Mallika Rangaiah
  • Sep 21, 2021
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The term “Cryptocurrency” has emerged as an immensely popular trend over the past decade. Yet despite its popularity, many newbies still remain uncertain about this term. The term has earned many misgivings and raised several doubts and differing opinions among the audience. 


Interestingly, these currencies are developed by the use of advanced technologies which can alter the manner in which economies work. Their volatile nature attracts a high level of attention, while also subjecting them to quite some criticism. 


This eccentric attribute has boosted a great deal of interest amongst the speculators, investors and also among those who are interested in observing how the cryptocurrency market will be unfolding in the future. 


Amongst all these cryptocurrencies, the most popular one which has become a rising fame in the financial world is Bitcoin. Alongside Bitcoin, some other known cryptocurrencies include Ethereum, Dogecoin and the one we will be featuring in this blog - Litecoin. 


This is a peer - to - peer internet currency, which is at times even referred to as “Bitcoin’s little brother” or even the “lite version of Bitcoin.” In November 2013, the currency faced its first considerable price surge. The rapid surge made it the hottest new trend in the world of cryptocurrency at that time. 


You can check out the History of Litecoin in detail here. 


In this blog, we will be talking about Litecoin, how it works, how it can be purchased and also how the cryptocurrency differs from the leading Bitcoin.



What is Cryptocurrency?


Now, to get an idea of what exactly cryptocurrency is you’ll firstly need to get an understanding of how money works. Initially we started out with physical money, that includes notes and coins. 


Then sprouted the e-Money, aka the electronic money that reflects on our e banking applications. Both these forms of money are issued to us by the Government. 


Later emerged the cryptocurrency, that is a kind of electronic money which has not been issued by any Government. We also call it “Math Money” since this form of money is developed and managed through blockchains, aka computer networks that are powered through advanced mathematics. 


Cryptocurrency is basically an online only digital currency that serves as a direct financial exchange among users, barring the involvement of any third party or bank., unlike the currency system that we are generally more accustomed to, that makes use of a central bank. Several cryptocurrencies are decentralized, which include Litecoin.


(Related blog - Centralized and Decentralized Cryptocurrency Exchanges )


These currencies are then controlled at the hands of the country’s government or the bloc of countries, which are issuing that currency, be it a euro or a dirham. The primary purpose of this form of currency is the decentralization of the banking system. This is largely owing to the inconveniences that are faced by the public while sending or receiving money across financial institutions or to a different country. 


These inconveniences have only escalated in the present times, owing to which cryptocurrency becomes an intriguing solution for technology buffs and institutions engaged in such transactions.


It has to be kept in mind that cryptocurrencies aren’t really stored in the traditional manner, i.e in a scenario where the currency would be stored inside a bank account, the transaction record is stored onto the blockchain.



What is Litecoin?


Set up in 2011 by Charlie Lee, an ex Google employee, Litecoin (LTC) is a peer-to-peer cryptocurrency. It shares several similarities with Bitcoin and this cryptocurrency is actually based on the original source code of Bitcoin.


Litecoin had been set up for being leveraged for less costly transactions and for being more efficient in terms of daily use. Relatively, Bitcoin is considered as a store of value to be adopted in the long term. The coin limit market cap is much higher on litecoin than bitcoin, and the mining process is far quicker. This means transactions are faster and cheaper, although generally smaller in size. 


Similar to Bitcoin, Litecoin is a form of digital money. By making use of the blockchain technology, litecoin can be adopted for direct transfer of funds between individuals or businesses. This helps to ensure that a public ledger is recorded of all the undertaken transactions and which enables the currency to set up a decentralised payment system that is devoid of censorship and government control. 


(Suggested Read - Bitcoin Mining )


On several occasions Litecoin is referred to as the “silver to Bitcoin's gold.”


In the present scenario and at the time of writing this article Litecoin’s market cap is over $12 billion


Watch this video for a deeper understanding of Litecoin : 



How does Litecoin Work?


For coming to terms with how litecoin works, it would be effective to firstly gain an idea of the blockchain technology. Let’s understand this term with an example.


Suppose you have lent money to a certain person who, at a future point, claims you have not lent it to them and refuses to give it back to you. This, in a normal scenario would leave you helpless and resigned, as you realise you can’t really do anything about it.


Now imagine another scenario, where you have witnesses who have recorded you lending the money to this person and also them claiming to return it soon and posted it on popular social media platforms. This becomes useful evidence since the person committing the fraud would not possibly be able to hack the evidence from the Internet.


Yet another example can be that of Google Doc. Whenever we create a particular document and then share it with people, the document is distributed, rather than being copied or transferred. 


This sets up a decentralized distribution chain that offers everyone simultaneous access to the document. This way, all the alterations made to the document are recorded in real-time and no one is locked out while waiting for other parties to incorporate the changes, which in turn ensures that the changes are transparent. 


These are relevant analogies that can be used to depict the technology that is the blockchain. A blockchain is mainly a handful of computers (nodes) that are connected to each other. Each of these computers possess the same data, which can be a ledger for instance. 


If someone wishes to hack this data, they’d be required to hack most of these computers simultaneously to gain access to the data, which definitely poses quite a challenge. The data stored within the blockchain is secured via encryption techniques and  the transactions that take place through blockchain technology are considered anonymous. 


Just like other cryptocurrencies, Litecoin is mined by the user, in exchange for the currency. By solving intricate math equations, miners verify transactions and generate fresh blocks. 


Through Litecoin, the miners are generally awarded with 25 fresh Litecoins per block they mine, a figure which gets halved in the period of every four years, on an average, basically every 840,000 blocks. 



How to purchase Litecoin?


Litecoin, like other cryptocurrencies, cannot really be purchased by the traditional method of using traditional brokers. Rather it is purchased in a digital wallet, through one of the cryptocurrency exchanges, or via an online brokerage firm that offers crypto trading. 


Several factors like fees, accessibility and security need to be taken into account prior to making a decision regarding where to purchase and maintain cryptocurrencies.


Irrespective of wherever one buys these Litecoins, they are required to be stored inside a cryptocurrency wallet. This wallet, which could be an actual hardware or a software program, enables the user to send and receive digital currencies and also allows them to oversee their speculative stocks. 



Difference between Litecoin and Bitcoin


The image shows the difference between Litecoin and Bitcoin in terms of the Coin release date, maximum coin supply, average transaction time, halving interval for block rewards, mining algorithm and Market Cap

Litecoin vs Bitcoin


  1. Transaction Speed


Litecoin has a much higher transaction speed as compared to Bitcoin. The blocks are generated faster and the transactions are processed faster as well, with a high number of transactions getting processed over the same time period.


( Suggested Read - Bitcoin vs Bitcoin Cash )



  1. Number of Coins


Both the cryptocurrencies have a finite number of coins that are available for circulation. While Bitcoin has a total of 21 million coins available, Litecoin has 84 million coins available – the cryptocurrency’s coins are four times more than that of Bitcoin.



  1. Market Cap


Litecoin has a smaller market cap as opposed to Bitcoin. While Litecoin’s market cap presently stands at over $12 billion, Bitcoin’s market cap presently dangles over $900 billion. 



  1. Algorithms


Both Litecoin and Bitcoin adopt varying algorithms. While Litecoin adopts Scrypt, Bitcoin makes use of SHA-256.


Both the algorithms have a varying impact on how the process of mining fresh coins takes place. A great degree of computing power is required for confirming transactions for Litecoin and Bitcoin. Generally Bitcoin’s algorithm SHA-256 is far more complex to that of Litecoin’s algorithm Scrypt. 


The miners have tried applying some complex techniques for being able to mine bitcoins effectively. They have adopted ASICs, i.e hardware systems set up for mining Bitcoins.


Scrypt on the other hand, has been set up in a manner which makes it less vulnerable to ASIC-based mining custom hardware solutions, which offers it an advantage by making it more accessible for the people who wish to mine. 



  1. Halving Intervals for Block Rewards


While Bitcoin has a block reward halving for every 210,000 blocks, Litecoin’s block reward halving is undertaken every 840,000 blocks. This implies that Litecoin generates four blocks for every one block generated by Bitcoin.  





The success or failure of Litecoin is dependent on a number of criterias. The rate at which it is adopted by the users is one criteria, and the more people purchase the cryptocurrency, for whichever purpose, its value will escalate. The cryptocurrency’s presence on leading exchanges becomes another lucrative advantage for it. 


( Suggested Read - Future of Cryptocurrency )


Yet Litecoin, unlike Bitcoin, doesn't really attract as much attention from the public, nor does it have that level of public trust. With governments deliberating on the best approach for regulating cryptocurrencies, fresh regulations can result in large price shifts for each cryptocurrency, which include Litecoin.


Till date, Litecoin has managed to survive and prevail in a world where several cryptocurrencies have declined and become obsolete. Having established itself as a well-known and recognized blockchain powered payment network worldwide, it remains to be seen how Litecoin will be shaping itself up in the long term.

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