What is Litecoin? How Does Litecoin Work?

Brandie E Blackler
10 Min read

Litecoin, launched in October 2011 by Charlie Lee, is a decentralized peer-to-peer cryptocurrency that operates on an open-source blockchain protocol.

Positioned as one of the pioneering altcoins, Litecoin aims to complement Bitcoin by offering a faster and more efficient transaction processing system.

With a conservative approach and a focus on maintaining the integrity of its underlying technology, Litecoin has garnered widespread recognition as a legitimate digital asset.

Over the years, Litecoin has developed a robust user base and remains a prominent player in the cryptocurrency ecosystem, appreciated for its stability, lower transaction fees, and a secure network that continues to support a variety of real-world applications.

In this article, we answer questions such as, what is Litecoin? How does Litecoin work? How does Litecoin creation work? Is Litecoin risky? Let's begin!

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:

  1. To regulate the generation of Litecoin units
  2. To verify the transfer of funds and secure transactions

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.

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-minute 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 script 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. 

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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 ensures there is only one blockchain by creating blocks that are difficult 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.

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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 August 2023, there are approximately 73.4 million Litecoins in circulation.

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 Admirals' 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 could be 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.

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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.

You can see the Daily price fluctuations of LTCUSD via the below TradingView chart widget:

 *Past performance is not reflective of future results.

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.

Trade CFDs on Litecoin With Admirals

In conclusion, Litecoin is undoubtedly a compelling cryptocurrency with several advantages and a few caveats worth considering.

As one of the earliest and most established altcoins, Litecoin boasts faster transaction times and lower fees compared to its big brother, Bitcoin.

Its active development community and innovative technology make it a potential investment option in the ever-evolving world of cryptocurrencies. However, like any investment, it comes with risks. Litecoin's price can be volatile, and its value is subject to market sentiment and regulatory changes.

For those interested in trading Litecoin without owning the actual asset, CFD trading offers a valid avenue. Contracts for Difference (CFDs) allow traders to speculate on Litecoin's price movements without the need for a digital wallet, providing flexibility and leverage.

As with any financial endeavor, thorough research and risk management are crucial when diving into the exciting realm of Litecoin CFD trading. 

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Is Litecoin a security?

At this point in time in 2023, Litecoin is not considered to be a security, but a commodity. Generally speaking, the current status of how to define cryptocurrencies from a financial perspective is to deem them as commodities.

 

What is Litecoin?

Litecoin is a decentralized digital currency, similar to Bitcoin, that enables fast and low-cost peer-to-peer transactions on a blockchain network.

 

 

INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admiral Markets investment firms operating under the Admiral Markets and Admirals trademarks (hereinafter “Admirals”). Before making any investment decisions please pay close attention to the following:
1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
4. The Analysis is prepared by an independent analyst (hereinafter “Author”) based on Brandie E Blackler, Financial Analyst, personal estimations.
5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
6. Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
7. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks.

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