Litecoin (LTC) is a well-known altcoin founded in 2011 by Charlie Lee, a former Google engineer. It aims to offer faster and more affordable transactions compared to Bitcoin. While it shares some similarities with Bitcoin, Litecoin focuses on quicker transaction confirmations, allowing for a higher number of transactions per second (TPS) and faster block generation.
Developers have utilized the Litecoin blockchain as a testing platform for new technologies intended for Bitcoin. For instance, Segregated Witness (SegWit) and the Lightning Network were successfully experimented with on Litecoin before being implemented on Bitcoin.
Litecoin has a fixed supply of 84 million coins and follows a deflationary model like Bitcoin. The mining rewards are halved approximately every 4 years or after every 840,000 blocks. The next halving event is scheduled for August 2023. The average block time for Litecoin is around 2 minutes, ensuring speedy transaction confirmations.
Introduced in 2011, Litecoin is among the oldest altcoins available. It gained recognition as "the digital silver" to bitcoin’s “digital gold” due to its close resemblance to Bitcoin's code. Unlike Bitcoin, which is commonly considered a store of value, Litecoin is favored for peer-to-peer payments because of its faster confirmation time and lower transaction fees.
Litecoin implemented several changes, including a faster block generation rate and a distinct Proof of Work (PoW) mining algorithm known as Scrypt. It has a fixed supply of 84 million coins and can be acquired through mining. Litecoin follows a halving mechanism that takes place every 840,000 blocks. The most recent halving occurred in August 2019, reducing block rewards from 25 LTC to 12.5 LTC. The upcoming halving is anticipated to happen in August 2023.
How Does Litecoin Work?
Litecoin was created as an alternative to Bitcoin, offering cheaper and more efficient transactions. While both cryptocurrencies use the Proof of Work mechanism, Litecoin utilizes the Scrypt hashing algorithm instead of Bitcoin's SHA-256. This allows Litecoin to generate new blocks every 2.5 minutes, compared to Bitcoin's average block confirmation time of 10 minutes.
The Scrypt algorithm was initially developed by the Litecoin team to promote decentralized mining and deter 51% attacks. It provided accessibility to miners using GPU and CPU cards, aiming to prevent the dominance of specialized ASIC miners. However, ASIC miners eventually emerged, rendering GPU and CPU mining obsolete.
SegWit and Lightning Network
Due to the similarities between Bitcoin and Litecoin, the Litecoin network has been used as a testing ground for blockchain technologies intended for adoption on Bitcoin. SegWit, which separates the digital signature from each transaction to increase block space utilization, was first implemented on Litecoin before being adopted by Bitcoin in 2017. The Lightning Network, a layer 2 protocol that creates micropayment channels for lower transaction fees, was also introduced on Litecoin before Bitcoin.
Litecoin has implemented the MimbleWimble Extension Block (MWEB) protocol, which ensures complete anonymity by concealing transaction information such as addresses and amounts sent. Named after a spell in the Harry Potter series, this protocol reduces unnecessary transaction data and improves block size efficiency and scalability, making Litecoin an even more attractive option for peer-to-peer payments.
Litecoin, one of the early altcoins, aimed to enhance scalability and reduce transaction fees compared to Bitcoin. While it may not match Bitcoin's market cap, Litecoin offers a competitive edge as a peer-to-peer payment system. Various businesses, including travel companies, convenience stores, property agencies, and online stores, have also embraced Litecoin as a payment method.
Litecoin has released the highly anticipated MimbleWimble upgrade, which has increased transaction privacy by concealing wallet addresses and doubled Litecoin's transactions per second. This upgrade has further enhanced the privacy and fungibility of LTC transactions, making Litecoin an even more attractive option for peer-to-peer payments.
Since its launch in 2011, Litecoin has positioned itself as "the digital silver". Although it may not have the same market capitalization as Bitcoin, the Litecoin community continues to work on further development to introduce improved features and expand its range of use cases.