What is Litecoin and How It Works

The interest in cryptocurrencies in the modern world has grown exponentially and has already attracted not only professionals but also ordinary people. If everyone has heard about Bitcoin, it is not for its younger brother, Litecoin. However, this does not detract from its advantages, which we describe in this article.

Who Created Litecon?

Litecoin was founded in October 2011 by Charlie Lee, a former employee of Google. The network was created to serve the purpose of improving and complementing Bitcoin. It did so by ensuring that transactions were faster and more cost-effective.

What Is Litecoin?

Litecoin is a peer-to-peer digital currency. It is a fully decentralized, open-source global payment network similar to Bitcoin but using a different mining algorithm.

Litecoin was created to be a faster, more available form of Bitcoin. With 2.5-minute block times for quicker transactions, it uses Scrypt in mining to make it more inclusive. Litecoin is often compared to Bitcoin as silver is to gold, and it's used for faster, smaller transactions compared to Bitcoin. It also serves as an experimental application for new ideas like SegWit without breaking a decentralized, open-source structure.

How Does Litecoin Work?

Just like other cryptocurrencies, Litecoin works on blockchain technology. It records every entry of a transaction in a distributed database within the Litecoin network, constituting new blocks. This huge blockchain ecosystem is run by thousands of nodes, or computers, around the globe.

Litecoin is working on the Proof of Work (PoW) algorithm using the Scrypt hash function instead of the SHA-256 used in Bitcoin. This simplifies Litecoin mining for ordinary users, which was one of the original goals of creating this cryptocurrency.

The PoW protocol also contains a halving event, where the reward to be gained by miners in return for creating new blocks is halved. The halving is done about every four years, or after every 840,000 blocks are created.

When Litecoin's network was just established, miners found 50 LTC for one generated block. Halving happened for the first time on August 25, 2015; since then, the reward has been reduced twice and now equals 25 LTC. The next occurred in 2019 on August 5, bringing down the reward to 12.5 LTC. The third halving just occurred on August 2, 2023, bringing the reward down to 6.25 LTC. The fourth, expected around 2027, will cut the reward to 3,125 LTC. In this way, Litecoin becomes a more scarce resource, and it is expected to make the price appreciate in the long term if demand remains constant or grows.

Litecoin’s Unique Features

The main distinguishing characteristics of Litecoin include:

1. Encryption algorithm.
2. Block generation time.
3. Volume of the issue.
4. Transaction fees.
5. Better accessibility compared to Bitcoin

Let's detail these points:

1. Like we’ve mentioned before, Litecoin uses the Scrypt algorithm, which grants it independence from Bitcoin and makes mining less reliant on specialized equipment (ASIC).

2. The block creation time in the Litecoin blockchain is about 2.5 minutes, while for Bitcoin, it takes about 10 minutes. This makes Litecoin’s transactions much faster and makes this cryptocurrency well-suited for everyday purchases and small transactions.

3. The maximum amount of Litecoins is 84 million coins, which is 4 times more than the maximum amount of Bitcoins.

4. Litecoin has lower transaction fees, and, due to its speedy block creation, it becomes attractive for people who use cryptocurrencies as a daily payment method.

5. It is used broadly both for exchange and storage of value, and it is often considered "digital silver", while Bitcoin is "digital gold" due to its significantly lower price and relatively similar stability.

Is Litecoin A Good Investment?

Just like any other cryptocurrency, there have arisen questions regarding the justification for investment in Litecoin. To help you decide, consider:

1. Stability and Reputation: Litecoin stands for one of the oldest cryptocurrencies, with huge support. These factors have allowed it to be relatively stable over time.

2. Advantages in Technology: The creation of blocks in the network is speeded up, and light algorithms make its applications convenient for everyday use.

3. Halving and a deflationary model that maintains and even increases the price of Litecoin in the long term.

4. Market factors: Even though Litecoin is highly liquid and available on most large cryptocurrency exchanges, its price can fluctuate significantly depending on the general state of the market, news, and regulations regarding cryptocurrencies.

5. Future Development: Litecoin keeps evolving and has an active development team that still works on updates, which will keep long-term interest in the coin.

In sum, Litecoin is an excellent investment if one believes in the long-term future of digital currencies and is not averse to risk. Like all cryptocurrencies, a proper analysis of all factors is important. It is advised to not invest what you cannot afford to lose and to always speak to a financial advisor before making any decisions.

How Сan You Use Litecoin?

Litecoin can be used for payments and transfers, investments and trading, mining, donations and charity, accepting payments for business, interacting with smart contracts, and a lot more. Take a look at the main ways that Litecoin is applied:

Payments and transfers

• International Transfers: Any country on the planet can receive Litecoins faster and with a much lower commission than in the case of a regular bank transfer.
• Online Purchases: Thousands of internet shops accept Litecoins as payment for products and services. Having said that, sites that support payment gateways for the use of cryptocurrencies like Cryptomus make paying for goods and services with LTC easier than any other.
• Personal transfers: Litecoin can be easily sent to another person; for example, it is possible to pay for services or rent with it or to return a debt.

Investments and Trading

• Long-term investment: Some users consider Litecoin as a tool for their long-term storage in order for them to increment value over time. Halving and limited coin supply represent the fundamentals of deflationary support for Litecoin, thus providing the potential to enhance value.
• Trading: Being one of the highly traded cryptocurrencies on digital currency exchange markets, it makes it quite easy for speculators to take a position on its price, either long or short.
• Portfolio Diversification: Litecoin can be used as part of an investment portfolio with a spread of risks.

Donations and charity

• Donations: Litecoin can be used for making donations to charities or any projects receiving cryptocurrency. Thus, you can donate through the Litecoin network quickly and inexpensively.
• Crowdfunding: There are crowdfunding platforms that can take Litecoin, and you can support numerous interesting projects around the world.

Small Business

• If you're running one, you can easily accept payments in Litecoin for your goods or services using different crypto payment gateways like Cryptomus. This way, you add one more useful payment option for your clients to buy from you. This might be helpful in attracting customers among holders and users of cryptocurrencies.
• Payment automation: For websites that have payment systems, it is also possible to integrate Litecoin solutions, which enable accounting and acceptance automation. Our service, Cryptomus, for example, has plugins for easy and fast integration to accept cryptocurrency payments with peace of mind.

Interaction with smart contracts and decentralized applications

• Such add-on protocols, including RSK or Lightning Network, can provide functionality for building smart contracts and dApps.

The purpose of using Litecoin depends on your goals, whether it's paying for services, investing, or supporting projects and organizations. It’s crucial to remember when using cryptocurrency, always pay attention to security, choose reliable providers and platforms, and then your Litecoin funds will be safe.

What do you think of Litecoin? Share your opinion in the comments down below, and stay tuned for more articles on the Cryptomus blog!