Litecoin: What is Litecoin and How it works

Often referred to as the little brother of Bitcoin, litecoin is a peer-to-peer cryptocurrency that has gained fairly widespread adoption since its inception in 2011. A form of digital money that utilizes a blockchain to easily maintain a public ledger of all transactions, litecoin is used to transfer funds directly between individuals or businesses without the need for an intermediary such as a bank or payment processing service.

What Makes Litecoin Different?

Three things make Litecoin different:

• Speed
• Number of Coins
• Market Cap

Speed

Litecoin is based on the same open source code behind bitcoin, with some notable differences. Created by engineer Charlie Lee to be the silver to bitcoin's gold, one of the main disparities between the two cryptocurrencies lies in their transaction speeds.

Because it generates blocks about four times faster than bitcoin, litecoin can confirm the legitimacy of transactions a lot quicker as well as process a much higher number of them over the same time frame.

For more information about how blocks are created and transactions are confirmed, be sure to read our primer on blockchain technology – which functions as the underpinning of litecoin and most other p2p virtual currencies.

Number of Coins

One of the reasons some cryptocurrencies hold intrinsic value is because of their limited supply. Once a certain number of bitcoin (btc) or litecoin (ltc) are created, that's it.

There can be no more new coins at that point.

While bitcoin has a limit of 21 million coins, litecoin will max out at the 84 million mark.

Market Cap

Although its market cap pales in comparison to bitcoin, litecoin still ranks among the top 5 cryptocurrencies at the time of publication.

These rankings fluctuate based on price and number of coins in circulation.

Mining Litecoin

Another significant difference between bitcoin and litecoin is the hashing algorithm that each uses to solve a block, as well as how many coins are distributed each time a solution is found. When a transaction is made, it is then grouped with others that have been recently submitted within one of these cryptographically-protected blocks.

Computers known as miners utilize their CPU cycles to solve rather complex mathematical problems, passing the data within a block through the aforementioned algorithm until their collective power discovers a solution. It is at this point that all transactions within the respective block are fully verified and stamped as legitimate.

Miners also reap the fruits of their labor each time a block gets solved, as a predefined number of coins is distributed among those who helped out – with the more powerful hashers getting the lion's share. People looking to mine cryptocurrency typically join pools, where their computing power is combined with others in the group to obtain these rewards.

As mentioned above, litecoin and bitcoin utilize contrasting algorithms when hashing. While bitcoin employs SHA-256 (short for Secure Hash Algorithm 2) which is considered to be relatively more complex, litecoin uses a memory-intensive algorithm referred to as scrypt.

Different proof-of-work algorithms means different hardware, and you need to be sure that your mining rig meets the proper specifications for producing litecoin.