Launched in 2011, Litecoin was among the initial altcoins based on the model of bitcoin and was often referred to as ‘silver to Bitcoin’s gold.’ It was created by Charlie Lee, an MIT graduate, and former Google engineer. Litecoin is based on an open source global payment network that is not controlled by any central authority and uses "scrypt" as a proof of work, which can be decoded with the help of CPUs of consumer grade. Although Litecoin is like Bitcoin in many ways, it has a faster block generation rate and hence offers a faster transaction confirmation. Other than developers, there are a growing number of merchants who accept Litecoin.
BREAKING DOWN 'Litecoin'
Litecoin has gained much popularity since the time of its inception and has earned industry support along with high trade volume and liquidity over the years. Litecoin is a peer-to-peer digital currency and was developed with the aim to improve on Bitcoin's shortcomings.
Litecoin is designed to produce more coins (Four times that of Bitcoin) and at a faster rate (1/4th of the time of Bitcoin). Overall, Litecoin is seen as second to Bitcoins in value, but Litecoins are more easily obtainable and transactional.
There are currently 180 internationally recognized currencies in circulation, ranging from the Samoan tala to the Burmese kyat. Just like with regular currency, there are multiple cryptocurrencies too. Because it was the first, bitcoin gets all the publicity, but it competes against dozens of aspiring altcoins—one of which is litecoin.
Measured by market capitalization (or the amount of currency on the market), litecoin is the third largest cryptocurrency after bitcoin and XRP. Litecoin, like its fellow altcoins, functions in one sense as an online payment system. Like PayPal or a bank’s online network, users can use it to transfer currency to one another. Only instead of using U.S. dollars, it conducts transactions in units of litecoin. That is where litecoin’s similarity to most traditional currency and payment systems ends.
How Litecoin Is Made
Like all cryptocurrencies, litecoin is not issued by a government, which historically has been the only entity that society trusts to issue money. Instead of being regulated by a Federal Reserve and coming off a press at the Bureau of Engraving and Printing, Litecoins are created by the elaborate procedure called mining, which consists of processing a list of Litecoin transactions. Unlike traditional currencies, the supply of Litecoins is fixed. There will ultimately be only 84 million Litecoins in circulation and not one more. Every 2.5 minutes (as opposed to 10 minutes for bitcoin), the Litecoin network generates what is called a block - a ledger entry of recent Litecoin transactions throughout the world. And here is where Litecoin’s inherent value derives.
The block is verified by mining software and made visible to any "miner" who wants to see it. Once a miner verifies it, the next block enters the chain, which is a record of every litecoin transaction, ever.
Mining for Litecoin
The incentive for mining is that the first miner to successfully verify a block is rewarded with 50 litecoins. The number of litecoins awarded for such a task reduces with time. In October of 2015, it will be halved - the halving will continue at regular intervals until the 84,000,000th litecoin is mined.
But could one nefarious miner change the block, enabling the same litecoins to be spent twice? No. The scam would be detected immediately by some other miner, anonymous to the first. The only way to game the system would be to get a majority of miners to agree to process the false transaction, which is practically impossible.
Mining cryptocurrency at a rate worthwhile to the miners requires immense processing power, courtesy of specialized hardware. To mine most cryptocurrencies, the central processing unit in your Dell Inspiron isn’t anywhere near fast enough to complete the task. Which brings us to another point of differentiation for litecoins; they can be mined with ordinary off-the-shelf computers more so than other cryptocurrencies can. Although the greater a machine’s capacity for mining, the better the chance it’ll earn something of value for a miner.
What Is Litecoin Worth?
Any currency—even the U.S. dollar, even gold bullion—is only as valuable as society thinks it is. Were the Federal Reserve to start circulating too many banknotes, the value of the dollar would plummet in short order. This phenomenon transcends currency. Any good or service becomes less valuable the more readily and cheaply available it is. The creators of litecoin understood from the start that it would be difficult for a new currency to develop a reputation in the marketplace. But by restricting the number of litecoins in circulation, the founders could at least allay people’s fears of overproduction.
There are advantages inherent to litecoin over bitcoin. Litecoin can handle more transactions, given the shorter block generation time. Litecoin also has a barely perceptible transaction fee. It costs 1/1000 of a litecoin to process a transaction, regardless of its size. Contrast that with PayPal’s 3 percent fee.
If we consider the U.S. dollar to be of constant value—of course, it isn’t, but we need to have one static quantity when comparing cryptocurrencies—litecoin’s variability becomes clear. Through most of 2013, litecoin’s market capitalization was similar to today’s. But during a 3-week span in November 2013, its market cap increased 20-fold. It’s been gradually declining to its previous level ever since, even as the user base has increased.
In the physical world, the most reliable stores of value become the currencies of choice in the event of a crisis. In the late 1990s and early 2000s, Zimbabwe became synonymous with hyperinflation. When inflation reached 89.7 sextillion percent (give or take a few points) and rendered the Zimbabwean dollar worthless, that wiped out the fortunes of many people unfortunate enough to have held liquid assets. People had no choice but to use something more stable—primarily the U.S. dollar and South African rand—for daily commerce. Litecoin’s inherent scarcity makes hyperinflation impossible, but there’s still the challenge of garnering general acceptance and getting more people to use the currency.
The Birth of Litecoin Cash
The Litecoin network underwent a hard fork that created a new cryptocurrency called Litecoin Cash. The fork occurred at block 1371111 in the existing Litecoin blockchain.
Both Litecoin and Litecoin Cash will continue to exist in parallel after the fork. Participants who wish to go with the newly created LCC system will get 10 LCC coins for each LTC coin they hold at block 1371111. Those who wish to continue with the original Litecoin blockchain will retain their original LTC coins as-is.
Following the fork, the LCC mining switched to SHA256 proof-of-work hashes, an established mining algorithm. This will enable a new lease of life to the now-defunct SHA256-based mining hardware devices which have become obsolete due to the use of other mining algorithms, like Scrypt, Equihash, or X13, and due to the availability of new-gen hardware for mining cryptocurrencies using SHA256.
Miners who own SHA256-based mining devices will not be required to purchase costly new-gen mining hardware, as the original Litecoin will continue to use the Scrypt algorithm.
Litecoin Cash maintains the predictable block time of around 2.5 minutes of LTC and will be four times faster than bitcoin, which has 10 minutes of block time. LCC is also retaining the blockchain size of LTC to keep it around 13 GB and is far lower than the 145 GB blockchain size of bitcoin. This allows for more bandwidth availability within the Litecoin Cash network, and the transactions are claimed to be 90% economical compared to Litecoin.
Litecoin Cash Aims to Be Faster and More Efficient
Immediately following the fork, the mining of Litecoin Cash started at the minimum mining difficulty level for the first 24 blocks. Following that, the dynamic adjustment of difficulty based on the observed time for block generation will ensure that early LCC miners don’t get any undue advantage over the new mining entrants.
The mining difficulty will be dynamically calculated at each block using the DarkGravity V3 algorithm, an integral part of another popular altcoin - Dash.
Eventually, the new Litecoin Cash expects to be faster in processing transactions, coin and block generation, and more efficient in network performance with a higher speed of processing compared to both Litecoin and Bitcoin.
Criticism of the Big Fork
Despite its promising features and claimed superiority over bitcoin and Litecoin, the Litecoin fork that created Litecoin Cash was heavily criticized. Litecoin founder and creator Charlie Lee, in a tweet, called the fork a scam, comparing it to all similar "bitcoin forks trying to confuse".
There were similar sentiments among the Litecoin community on social media platforms like Reddit.
Meanwhile, Litecoin Cash admits that they are "not associated or affiliated with Charlie Lee or any of the Litecoin team in any way." And they are using the Litecoin Cash name simply because it has become customary in recent months for a coin, which forks a blockchain, to prefix its name with the name of the coin being forked".
Creating new cryptocurrencies through forks is not new in the world of virtual currencies. Bitcoin Cash (BCH), Bitcoin Gold (BTG) and Bitcoin Diamond (BCD) are some of the forked versions of the original Bitcoin (BTC).
The original Ethereum, an extremely popular app-based blockchain network, also underwent a fork that created two versions of blockchain which continue to exist in parallel – Ethereum Classic and Ethereum.
The Bottom Line
New cryptocurrencies and their surrounding ecosystems, can be created from scratch using the standard blockchain technology, or through forked versions of existing virtual currencies that tweak some of the existing features to make room for improvements.
However, irrespective of the origin, the initial opinions, and criticism, the success of each new virtual currency depends on its features, which determines its adoption, popularity, and valuations. Despite several versions of bitcoin coming to the fore, none have been able to beat the original one. Only time will tell how Litecoin Cash will fare.
Once a currency reaches a critical mass of users who are confident that the currency is indeed what it represents and probably won’t lose its value, it can sustain itself as a method of payment. Litecoin isn’t anywhere near universally accepted, as even its founders admit that it has fewer than 100,000 users. (Even bitcoin probably has less than half a million total users.) But as cryptocurrencies become more readily accepted and their values stabilize, one or two of them—possibly including litecoin—will emerge as the coin(s) of the digital realm.
Amid the media craze over the various cryptocurrencies, a new cryptocurrency called Litecoin Cash (LCC) quietly launched on February 18, 2018, as a split version of the original Litecoin (LTC).
Litecoin, which launched in 2011, aimed to improve on some of the limitations of bitcoin, the most popular cryptocurrency.
Litecoin quickly gained traction owing to several factors. They include Litecoin’s ability to produce comparatively more cryptocoins, faster speed of block generation, and the use of scrypt algorithm, which is an efficient "proof of work" algorithm designed to make miners prove their computing contributions in the mining process of cryptocoins.
As per the statistics for 2018, Litecoin ranks fifth for cryptocurrency valuations based on overall market capitalization, making it one of the most popular virtual currencies to date.