What is Litecoin?
Is Litecoin the 'lighter' sibling of Bitcoin? Bitcoin is no doubt a more well-known cryptocurrency, but you might be surprised to learn that Litecoin was introduced more than five years ago. This article promises to explain key questions such as: How does Litecoin work? How does Litecoin creation work? Is Litecoin risky? And much more!
What is Litecoin?
Litecoin is a peer-to-peer cryptocurrency. It is an open-source software project released under the MIT/X11 licence, which means that it places only very limited restrictions on its re-use. Litecoin is, in many ways, similar to Bitcoin, as it's also considered a digital currency and a digital payment system. Additionally, Litecoin encryption techniques are used for two critical features:
- To regulate the generation of Litecoin units
- To verify the transfer of funds and secure transactions
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 Is the Abbreviation for Litecoin?
The abbreviation for Litecoin is simply LTC. The same principle as with USD (US Dollar) and EUR (Euro) applies therefore. Litecoin can also be paired to other currencies. In that case, the currency pair name could be, for example, Litecoin vs US Dollar, or LTC/USD. In case you didn't already know, it's possible to trade Litecoin (LTCUSD), on a risk-free demo trading account with Admiral Markets!
How Does Litecoin Work?
Litecoin is an online network that people can use to send payments from one person to another. Litecoin is peer-to-peer and decentralised, meaning that it is not controlled by any entity or government. The payment system does not handle physical currencies, like the Dollar or the Euro, and instead, uses its own unit of account, which is also called Litecoin (symbol: Ł or LTC). This is why you will often see Litecoin categorised as a virtual currency or digital currency. Litecoins can be bought and sold for traditional money at a variety of exchanges available online.
What is Blockchain Technology?
Litecoin is based on blockchain technology, the same as Bitcoin. According to Litecoin itself, the Litecoin blockchain is "capable of handling higher transaction volume than its counterpart – Bitcoin". Litecoin has a higher frequency of block generation, which means that the network supports more transactions and benefits from quicker confirmation times.
What is Mining?
New Litecoins are created regularly. The creation of new coins is completed via a special process known as 'mining', which is simply a record-keeping service. Litecoin makes sure there is only one blockchain by creating blocks that are really hard to produce. Instead of just producing blocks at will, miners have to make a cryptographic hash of the block that meets certain criteria, and the only way to find one is to compute many of them, until you get lucky and find the one that works.
This process is called 'hashing'. The miner that successfully creates a block is rewarded with 25 freshly minted Litecoins. Every few days, the difficulty of the criteria for the hash is adjusted based on how frequently blocks appear, so more competition between miners equals more work to locate a block.
Where Does Litecoin Come from?
The growth of Litecoin supply is de-centralised and guided by the Litecoin protocol, which assigns the creation of new coins to Litecoin participants. The maximum number of Litecoins is limited to 84 million in total, but not all coins have been created yet. As of May 2019, there are approximately 61.9 million litecoins in circulation, which is about 74% of the total. Once there are 11.3 million new coins created, the block mining reward will decrease from 25 to 12.5 coins, which is expected to occur some time in August 2019.
Who Invented Litecoin?
It is thought that Litecoin was released via an open-source client on GitHub on 7 October, 2011 by Charlie Lee, a former Google employee. It was a fork of the Bitcoin Core client, differing primarily by having a decreased block generation time (2.5 minutes), an increased maximum number of coins, a different hashing algorithm, and a slightly modified GUI.
When Was Litecoin Created?
Although it was built in October 2011, the financial history of Litecoin originates in November 2013. The Litecoin development team released the 0.8.5.1 version first, and the aggregate value of Litecoin experienced massive growth thereafter, which included a 100% leap within 24 hours. Early December 2013 saw a new version of Litecoin being created. This new and improved version offered a 20x reduction in transaction fees, along with other security and performance improvements for the client and the network.
Should You Mine Litecoins?
Professional traders suppose that trading Litecoin could be more profitable than data mining. For instance, by using Admiral Markets' MetaTrader 4 and MetaTrader 5 trading platforms, along with the MetaTrader Supreme Edition plugin, your costs are much lower compared with setting up ASICs hardware, that is considered to be expensive, and far from a sure-fire investment. There are a lot of risks involved, including but not limited to:
- Exponential network difficulty: Difficulty will increase as more and faster miners join the network, driving your profitability down. For this reason, it is important to make a realistic prediction of how much the difficulty will evolve in the near future.
- Potential low resale value: ASIC hardware can mine Litecoins extremely efficiently, but that's all it can do. It cannot be refitted for other purposes, so the resale value is very low.
- Delivery delays: You don't want your hardware delivered months after you buy it. In particular, there have been many bad reviews on the Internet about pre-ordering mining hardware.
- Power consumption: You don't want to pay more in electricity than you earn in Litecoins, right?
Simply put, trading Litecoin vs USD couldbe far more interesting, profitable, and less expensive.
Where Can You Spend It?
Litecoin can be used and spent on a long list of goods with different types of merchants. The first step involved in facilitating this is to download a Litecoin wallet, which will then make it possible for you to purchase Litecoins from an exchange, and which you can then use to purchase goods and services with Litecoins.
Who Backs Litecoin?
Litecoin operates independently of any central bank, contrary to other well-known currencies, (e.g. the US Dollar and the Euro). The Litecoin network does not have any other central point or single administrator either, which makes it a decentralised digital currency.
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 Legal?
The short answer is: yes. Regulations vary country-by-country, but you can expect to see national financial regulators interested in Litecoin and other virtual currencies, potentially along with regional regulators at a sub-country level.
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.
Source: Coin Market Cap 3 - Litecoin Chart - Data Range: April 28, 2013 - July 7, 2017
The volume of transactions has substantially increased over the past few years. Before April 2017, the average volume of transactions was mostly between 1 and 10 million USD, to 200 million USD in May, and even above 400 million USD in June 2017.
What's Next For Litecoin in 2020?
The first half of 2019 has started off favourably for Litecoin investors with prices pushing back significantly above the psychologically relevant barrier at 100 USD. But over the second half of the year, the cryptocurrency gave back most of those gains, nevertheless still holding more than 60% above its yearly opening price as of November 2019.
Still, the sequence of falling highs and lows over the last months would continue with a sustainable break below 46.50 USD, darkening the technical outlook for the cryptocurrency further.
A sustainable break lower continues the sequence of falling highs and lows, leaving Litecoin vulnerable to as low as 22 USD, the region around the 2018 yearly lows, as a next target on the downside in 2020.
In fact, this bearish outlook is probably even more true with Litecoin being said to account for a huge chunk of transactions in the 'Dark Web', continuing to suffer at the hands especially of US regulators.
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Stay tuned for more exciting information and analysis on Litecoin… But why wait? You know it's now possible to trade Litecoin on an Admiral Markets Demo account, so why not give it a go today? Practice makes perfect!
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.