The “lite” in Litecoin holds the key to the differences between Litecoin vs. Bitcoin.
For every Coca-Cola, there seems to be a Pepsi. In the world of cryptocurrency, it’s easy to view altcoins (any coin other than Bitcoin) as competitors trying to knock the reigning king off its throne. What about Litecoin vs. Bitcoin? Are they competitors? What’s the difference?
In this article, we’ll take a look at some of the basic characteristics of crypto coins so we can understand the similarities and differences between Litecoin and Bitcoin. We’ll also explore why the differences might matter.
First, let’s cover some of the basic features of a cryptocurrency.
What Makes Up a Crypto Coin?
Cryptocurrencies are digital forms of exchange governed by cryptographic software on a distributed network of computers. As such, there are no “coins” in the traditional sense of the word. But the term is commonly used to describe a single unit of the cryptocurrency.
Crypto coins live and function on a special type of network called a blockchain. This distributed ledger uses cryptographic functions to record transactions in a manner that is validated, can’t be altered later, and can be seen by everyone using the blockchain.
To better understand the differences between Litecoin vs. Bitcoin, you’ll need to understand blockchain details.
First, most cryptocurrencies operate on their own blockchain. Second, there are different methods blockchains use to validate transactions on their network.
Unlike traditional financial currencies, there are no centralized authorities overseeing cryptocurrencies and verifying the viability of transactions. Instead, participants compete to do this task for a specific reward in cryptocurrency.
Also known as crypto mining, the methods — known as consensus mechanisms — used to verify and validate transactions may vary from blockchain to blockchain. Essential to both the normal functioning of the blockchain and consensus validation is the hash function.
A hash function is a mathematical approach that converts an input of data of arbitrary size into an output of enciphered text, or a fixed-size string of characters, called a “hash.” It will always encode the input data into exactly the same output.
But the value of the hash function is it’s pretty much one-way. If you know the input data and the hash function used, you can reproduce the output perfectly. But it’s almost impossible to reverse engineer — to start with the hash and try to figure out what the input data was.
The hash function factors in two important ways in a cryptocurrency blockchain. First, it is used to encode transaction data and to form “block headers” that link a new block to an existing one in a tamper-proof manner.
Second, it can be used as the heart of a consensus mechanism known as “proof-of-work.” Miners compete to solve a resource-intensive hash problem as part of the transaction validation process. The winner gets a reward as the verified block is added to the blockchain.
So what’s all this got to do with Litecoin vs. Bitcoin? Let’s take a closer look at where these cryptos came from and how they are related.
A (Very) Brief History of Bitcoin
Bitcoin was created in 2008 by an unknown person or group under the name Satoshi Nakamoto and was rolled out for use in 2009. It was released as open-source software, meaning others could examine its code, make contributions, or even make use of it.
It was originally designed to function as a digital version of what currency enables: a medium of exchange, but one that is decentralized and not subject to government or third-party regulation or oversight.
In use, though, it has become more of a store of value, with investors hoping for both short- and long-term gains. In its early days, the value of a single bitcoin hovered around $1.00, but recently it has been hovering around the $20,000.00 zone.
So how are Litecoin and Bitcoin related?
The Fork in the Road That Gave Us Litecoin
According to its creator, Charlie Lee, shortly after Bitcoin was released, he noticed that the length of time to complete a transaction with Bitcoin — about 10 minutes — could potentially damper its effectiveness as a medium of exchange. He set about to fix that problem.
As Bitcoin continued, Lee produced a variant he described as a “lighter version of Bitcoin.” Hence the moniker that stuck, “Litecoin.” But rather than forking from Bitcoin’s original blockchain, Lee used a copy of Bitcoin’s open-source software code to create Litecoin.
In this way, he was not constrained by Bitcoin’s blockchain approaches. He was free to focus on improving speed and other aspects of Litecoin’s functioning. Principle among these: make Litecoin better suited for payments; let Bitcoin be the store of value.
As such, Litecoin was not intended to be a competitor to Bitcoin, but a compliment. Or, as Lee described it, silver to Bitcoin’s gold.
But what are the key differences between Litecoin and Bitcoin?
Litecoin vs. Bitcoin: 4 Key Differences
Lee succeeded in creating a blockchain approach that could add blocks quicker than Bitcoin, reducing the average transaction time from Bitcoin’s 10 minutes to Litecoin’s two and a half minutes.
Different Crypto Algorithms
Originally, Lee wanted common users to be able to share in mining Litecoin. Bitcoin’s hash function, SHA-256 tended to require very specialized processors not available to ordinary users. So Litecoin uses a hashing algorithm known as Scrypt.
Originally, it was accessible to common users as long as their machines had lots of memory. Today, specialized ASIC processors do the majority of mining for Litecoin.
This means both Bitcoin and Litecoin use the proof-of-work consensus method for mining (unlike other altcoins that use proof-of-stake). But they differ in the specific hash function used.
Market Cap and Coin Value
Bitcoin has clearly emerged as a store of value cryptocurrency. As we’ve seen, it currently hovers around $20,000 per coin.
Litecoin was recently listed for just over $50.00. That means Litecoin’s market cap is measured in tens of billions; Bitcoin’s at almost a trillion.
Lifetime Cap on Number of Coins
While both Bitcoin and Litecoin have a lifetime cap on the number of coins that can be mined, that number is wildly different. Bitcoin is capped at 21 million; Litecoin at 84 million.
Having a cap can potentially make a crypto more valuable because an unlimited supply of any currency can lead to inflation and a general devaluing. A set limit of coins can prevent that and maintain the value of the crypto.
But since Lee wanted Litecoin to be primarily used for payments and exchange, it made sense to have more coins available and not too high of a per-coin price.
So which is better — silver or gold?
Litecoin vs. Bitcoin: Which Is the Better Crypto?
The truth is both gold and silver have value. One may be priced higher per ounce than the other but they are used for different things.
However, there are advantages and disadvantages to each.
Cost of Coin vs. Value
As we’ve seen, Bitcoin has a much higher per coin value, and may, in the long term, be a better store of that value. But if you want to conduct transactions — such as buying something — with a crypto, a $50 coin may be easier to use.
Lots More Coins Left to Mine
Because its total supply is severely limited, Bitcoin has a regular halving event to make sure it doesn’t get mined too quickly. (You can look at halving as the ultimate means by which the supply of Bitcoin is limited.)
Litecoin also uses a halving approach, especially since its quicker transaction time would result in a far more rapid pace of mining. But still, the number of Litecoin left to be mined is greater than Bitcoin’s.
Larger Supply and Lower Demand
Litecoin’s large supply is partially responsible for its lower cost per coin. But another factor is that it’s less in demand and not valued as highly.
Transaction fees on a blockchain often relate to transaction volume. Since Bitcoin is the original crypto and is highly used, its volume is enormous compared to Litecoin. And so are its transaction fees.
The Original as the Standard
Bitcoin still enjoys the “oldest crypto in existence” status. This contributes to its perception as the most stable — even in the volatile world of crypto — and therefore a desirable store of value.
We’ll have to see what the future holds for Litecoin and how it is used. It could live up to its designer’s hope that it becomes a medium of exchange and for crypto investors, there’s an advantage in having options.
The Value of Diverse Cryptos
You’ve likely heard the saying “Don’t put all your eggs in one basket.” And many investors seek to apply this idiom to their portfolios. For crypto investors seeking diversity, it helps to have more than one crypto to choose from — and not just Litecoin vs. Bitcoin.
In fact, in advanced crypto trading, the use of “crypto pairs” becomes crucial. In part, it avoids having to convert a crypto to a fiat currency just to buy another. But it also factors into decentralized finance (DeFi) approaches, such as staking, yield farming, and liquidity pools.
Having a crypto platform partner that offers a wide range of cryptocurrencies and crypto trading pairs is essential. Find one like Binance.US that offers you options and security no matter your goals.
You don’t want a choice of one, or even two. You want access to whatever crypto is right to fill your investment needs.
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