Litecoin is a digital currency similar to Bitcoin that uses blockchain technology to make transactions between individuals or businesses. Like other cryptocurrencies, Litecoin makes use of a public ledger, a digital wallet known as a blockchain. This records all transactions and enables the coin to function under a decentralised payment system that’s unbound by government restriction or control.
But, what exactly is Litecoin? How did it come about and how do you trade in it? Read on to find out.
Risk disclaimer: Learning how to invest in cryptocurrencies is an important stage of preparing yourself for high-risk investments, therefore please perform your own research. Before you decide which is the best cryptocurrency to invest in, you should also consider whether you have the risk tolerance for such a volatile asset. Spokespersons for the Financial Conduct Authority and the Bank of England recommend that investors don’t spend more than they could afford to lose when buying cryptoassets.
When was Litecoin created?
Bitcoin was the first decentralised cryptocurrency, having been introduced to the world in 2009. Just two years later, when the cryptocurrency market was still a relatively new concept, Litecoin was launched by Charlie Lee, a former Google employee.
The coin was based on Bitcoin and, as a result, shares many similarities with the original cryptocurrency. Like its predecessor, Litecoin uses blockchain technology but was intended to be a cheaper alternative that would be better suited to everyday transactions.
By the end of November 2013, Litecoin’s aggregate value was rising dramatically. It has continued to experience growth. As of February 2022, the digital currency hit its all-time highest price to date in May 2021 at $410.26 (£302.20).
Where does Litecoin come from?
Unlike traditional money, Litecoins are not regulated by a central government bank, nor produced by a mint in the form of physical coinage. Instead, just like other decentralised digital currencies, Litecoins are created by a cryptocurrency process known as mining. This consists of securing each block to an existing blockchain network via mining software. The block is verified by the software and made available to all users in the system – or miners. When a miner secures a block, new units of the Litecoin are released and enter the chain. Miners can then invest these units directly back into the market.
Mining Litecoin comes with various incentives; for instance, the first miner to successfully secure a block receives additional Litecoins as a reward. However, just like Bitcoin, the amount of Litecoins awarded for this process decreases over time. This will continue to reduce until the final Litecoin is mined. Cryptocurrencies tend to have a fixed supply, and Litecoin is no different – the currency has a circulation limit of 84 million. This means that once all 84 million coins are mined, there won’t be any more Litecoins available.
How do I trade Litecoin?
Trading in cryptocurrency is usually relatively straightforward; there are methods to buy Litecoin on many crypto exchanges. The price of Litecoin is usually quoted in US dollars and buying the currency is similar to investing in other commodities on the stock market. For instance, you might consider selling your Litecoin for profit when its market value increases and it’s worth more than what you originally purchased it for in US dollars.
While investing in anything can be risky, Litecoin is one of the earlier cryptocurrencies and so has a longer history on the market than more recent digital currencies. It’s reasonable to assume therefore, that Litecoin’s performance would be easier to predict than, say, a crypto that was just launched this year.
How does Litecoin compare to Bitcoin?
Bitcoin is known as the first cryptocurrency and since its launch in 2009, the commodity has inspired the successive creation of thousands of digital currencies. The original cryptocurrency was first intended for use as a store of value for long-term purposes. In contrast, Litecoin was set up as a cheaper and more efficient digital currency for day-to-day transactions than Bitcoin.
Having been based on Bitcoin, Litecoin is very similar to its predecessor in terms of how it works and how it is created, but there are many differences between the two cryptocurrencies. Mining Litecoin is a much faster procedure, with the network aiming to process a block every two-and-a-half minutes in comparison to Bitcoin, which takes anything from 10 minutes upwards. Furthermore, at 84 million, Litecoin’s coin limit market cap is far higher than Bitcoin’s 21 million. These combining factors mean that Litecoin’s transactions are quicker and cheaper, which is potentially a reason for the digital currency’s rising popularity. However, its transactions are usually smaller in size than those of Bitcoin’s.
Perhaps the most significant distinction between Litecoin and Bitcoin is the different cryptographic algorithms that each one uses. Litecoin uses a password-based function known as a scrypt in its proof-of-work algorithm; whilst Bitcoin operates on an older algorithm known as SHA-256. However, the devices used to mine Litecoin within the scrypt algorithm are more complex and expensive to produce than those used for Bitcoin.
As the original, and possibly most familiar cryptocurrency, it’s perhaps unsurprising that Bitcoin has a much larger market capitalisation than Litecoin does. Despite many falls in its value over the years, Bitcoin continues to be one of the most traded cryptocurrencies.
There are thousands of cryptocurrencies, with new ones emerging all the time. However, as one of the earliest cryptocurrencies, Litecoin has a longer track record of its performance on the market than newer digital coins. This makes it a more attractive commodity for investors than the later cryptocurrencies that have sprung up all over the market and carry substantially more uncertainties and risks.
As the use of cryptocurrency becomes more and more prevalent and starts to be more universally accepted, it’s possible that Litecoin will emerge as one of the standard digital currencies of online trading.