RV Blog What is Litecoin?

What is Litecoin?

What is Litecoin?

Litecoin is one of Bitcoin’s earliest forks, meaning that Litecoin is basically a copy of Bitcoin’s programming code with a few tweaks. This fork happened already in 2011 indicating that Litecoin is one of the first alternative cryptocurrencies alongside Bitcoin. With a proven track record and a reputation of being a test ground for Bitcoin, Litecoin has managed to become one of the most established cryptocurrencies.

Who created litecoin?

Unlike Bitcoin, which has an anonymous creator by the name of Satoshi Nakamoto, Litecoin’s founder is known: The cryptocurrency was given birth to by MIT graduate and former Google employee Charlie Lee. Although Lee claimed that he sold all his holdings in the cryptocurrency back in 2017, he’s still associated with Litecoin and an active debater and commentator in the wider crypto space to this day. Also, he is still holding the position of the managing director inside the Litecoin Foundation, a non-profit Singapore-based entity that is promoting the further development of Litecoin.

Watch the video: Charlie Lee: Behind the creation of Litecoin

Comparing Bitcoin and litecoin

Because Litecoin is ultimately a fork of Bitcoin, the tech behind the two blockchains functions alike. So, if one understands how Bitcoin works, it’s a rather easy task to wrap your head around Litecoin’s modus operandi. Just as with Bitcoin, there is also mining happening with Litecoin. Even though Litecoin mining can technically still be done with consumer hardware, most of the Litecoin miners today are organized in bigger mining pools resembling the state of Bitcoin mining. 

One difference worth mentioning when it comes to mining is the following: While Bitcoin uses the so-called SHA-256 algorithm, Litecoin is based on an algorithm called scrypt. Because of this different algorithm, Litecoin blocks are produced four times faster than Bitcoin blocks. While it takes approximately 10 minutes within the Bitcoin network for a block to be added to the blockchain and to get its first confirmation, in the Litecoin network on average every 2.5 minutes a new block is added to the blockchain. The result is a faster block and therefore transaction finality within the Litecoin network. 

Akin to Bitcoin, with every new block added to Litecoin’s blockchain, miners delivering on the proof of work are rewarded with new Litecoin units in return. This payout in the form of block rewards is also cut in half approximately every four years, which is another similarity to Bitcoin. Since Litecoin has a much faster block time though, rewards are only halved every 840,000 blocks as opposed to Bitcoin’s halving schedule, which changes every 210,000 blocks. Currently in 2021, Litecoin’s block rewards per block stand at 12.5 units. In about two years from now, the cryptocurrency will experience its fourth halving with a reward drop to 6.25. As we can see, Litecoin is behind in the halving schedule when compared to Bitcoin because the project was launched two years after the mother of all cryptocurrencies, Bitcoin, which was started in 2009.

Interestingly enough, Litecoin’s block reward will reach zero approximately by the year 2142, which is about the year Bitcoin is projected to run out of block rewards as well. Judging by the fact that Litecoin’s block rewards are issued four times faster than Bitcoin’s, it is no surprise that the maximum supply of Litecoin units that will ever be created are also four times that of Bitcoin’s maximum supply. As a matter of fact, there will never be more than 84 million Litecoin issued. In the spirit of Bitcoin, Litecoin also has a predictable monetary supply that is fixed. As of now, almost 67 million of Litecoin’s total 84 million units have already been issued and circulate in the open market.

Why are litecoins created?

Looking back at the time when Litecoin was introduced, the cryptocurrency was heralded as a faster alternative to Bitcoin. Interestingly, it was stated that Litecoin’s faster confirmations will not be as secure as Bitcoin’s slower confirmation. But the reduction of block time was deliberately chosen in order to incentivize merchants to use Litecoin. The reasoning behind this was that merchants would more readily accept payments that are more rapidly finalized. Hence the name Litecoin in reference to the word “lite” for “fast” and “efficient” was chosen.

Ever since the launch of Litecoin, the cryptocurrency has been positioned as a better medium of exchange because of its faster transaction times. In order to corroborate this narrative, Litecoin has always been marketed as Bitcoin’s little brother more aligned with the payment use case. For this, people keep on referring to an analogy from the precious metals sector: What silver is to gold, Litecoin is supposed to be to Bitcoin.

To this day then, Litecoin is considered by some to be a blockchain prioritizing the settlement of mass transactions on-chain. Back in 2018, Litecoin also got an update to its native software Litecoin Core that effectively slashed fees by up to 90%. In fighting for mass adoption to become a currency and a medium of exchange that is used in everyday, Litecoin is seen by many as a direct competitor to Bitcoin Cash or Bitcoin SV.

Read the guide: How to Mine Litecoin

Use cases

Litecoin’s foundation and its community have been working on bringing Litecoin’s payment use case to fruition. Already back in 2018, Litecoin started a marketing campaign under #paywithLitecoin in a pursuit of popularizing the cryptocurrency as a medium of exchange. While some progress has been made, Litecoin – as other cryptocurrencies – is still far away from being massively adopted as a means of payment.

Litecoin has also been flirting with the gaming industry. In 2020 one of the most recognizable names in gaming, Atari, announced a partnership with the Litecoin Foundation. Goal of this partnership was to integrate Litecoin as a method of payment into games published by Atari. The gaming company also launched its own token Atari, with Litecoin being accepted in the Atari Token sale. 

With LiteBringer, there is also the first Litecoin-based game available. The game is presented as a truly decentralized application, since the whole game takes place on the Litecoin blockchain, with no servers involved, giving the players unprecedented control over the game. As there is Litecoin involved, players solving quests can also earn the cryptocurrency playing the game.

Watch the video: Litecoin & The Future of Crypto Adoption

What's the purpose of litecoin?

Since its beginnings in 2011, Litecoin has experienced ups and downs. Overall, it managed to establish a vivid community as well as a solid market. Some argue that it can be seen as quite an achievement that Litecoin has remained a top 15 cryptocurrency project by market capitalization until this day. Many of its companions from the early days are long gone. 

Others argue that Litecoin has only really survived because it’s considered a malleable testnet for Bitcoin to try out new innovations in a live environment. As a matter of fact, many of the things that have been implemented into Bitcoin were first tested on Litecoin. The most prominent upgrade was Segregated Witness (SegWit), an update that made transactions more efficient and paved the way for the integration of the Lightning Network. Even the first Lightning transactions ever made happened on the Litecoin Network.

Because unproven updates can first be tested on Litecoin, some Bitcoin people consider it worth it to keep fostering the Litecoin community and its blockchain. As there will be a few more updates on Bitcoin in the future, having Litecoin as a test ground seems rather beneficial. Even currently, new privacy tech by the name of MimbleWimble – something Bitcoiners have been interested in for years, is said to be activated on Litecoin by the end of 2021. So, even if all other use cases that Litecoin is currently pursuing are bound to fail, maintaining Litecoin as a testbed for Bitcoin is justification enough to keep Bitcoin’s little brother running alongside it.

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RELATED CATEGORIES: Crypto, Litecoin