Litecoin vs Bitcoin: What’s the difference?
If Bitcoin is gold, then Litecoin is silver. That was the original vision for one of the first cryptocurrencies to be created on the back of Bitcoin’s success.
Launched in 2011, Litecoin is based on the source code of the original Bitcoin software and aims to solve some of the problems that Bitcoin suffers from. Today, Litecoin is among the most popular cryptocurrencies. Here are the main differences between Bitcoin and Litecoin.
The identity of Bitcoin’s creator, Satoshi Nakamoto, still remains a mystery. The person(s) who created Bitcoin never made any public appearances, and the last the world has ever heard of Satoshi was in a 2014 comment on an online forum.
On the other hand, Litecoin’s creator, Charlee Lee, is well known. An ex-Google employee and formerly the director of engineering at Coinbase, the most popular online cryptocurrency exchange, Lee is active on social media, and often appears on TV and news. He is also an avid blogger.
Lee’s vision was that while Bitcoin is a store of value for long-term purposes, Litecoin is meant to address day-to-day purposes, thus the gold-to-silver comparison.
Both Bitcoin and Litecoin use the proof-of-work consensus mechanism to create new blocks of transactions and mine new coins. PoW involves solving complicated mathematical puzzles to prevent abuse of the network and theft of the supply of bitcoins. Miners must compete to solve the puzzle first and claim the rewards that each new block of transactions releases.
However, there’s a difference between Bitcoin’s and Litecoin’s puzzles. Bitcoin is based on the SHA-256 hashing algorithm. While SHA-256 is computationally expensive, miners can use specialized processors (application-specific integrated circuits or ASIC) to run the operations in parallel and solve the puzzle faster. This makes it possible for wealthy companies to create large mining pools that distribute mining operations between different processors. The problem is that it makes it harder for small players to become involved in mining operations.
In contrast, Litecoin uses s-crypt, another hashing algorithm. S-crypt also uses SHA-256, but its calculations are more serialized and are much harder to perform in parallel. S-crypt is a "memory hard" problem, which means the main limiting factor is memory as opposed to processing power. What this effectively means is that everyone can increase their mining power by adding normal RAM memory to their computers. Also, mining pools can’t use specialized processors to speed up operations. Instead, they need to build devices with large amounts of memory, which is much more expensive than creating rigs of ASIC processors.
This makes the mining market for Litecoin much more competitive and democratic.
Bitcoin has been designed to create a new block every ten minutes. Litecoin, on the other hand, creates new blocks every 2.5 minutes. This is a very useful feature for people who want to perform fast transactions. This also means that the Litecoin network can process up to four times as many transactions as Bitcoin does in the same amount of time.
For a transaction to become stable and irreversible, it needs six layers of confirmation. That’s the standard most exchanges use before making your new funds available. On the Bitcoin network, this takes an average of one hour. On the Litecoin network, it takes around 15 minutes.
However, faster block creation has its own tradeoffs. First, this means that the Litecoin blockchain, the distributed ledger where all litecoin transactions are stored, grows at a much faster pace than the Bitcoin blockchain. This puts an extra strain on the computers that support the network since they have to allocate more network bandwidth and disk space to download and store the Litecoin blockchain.
Second, there’s a higher chance of creating orphaned blocks. Orphaned blocks happen when two miners coincidentally solve the puzzle and at the same time and create legitimate blocks that are different. The network selects one and rejects the other. The smaller the interval between two new blocks, the higher the chance of legitimate blocks becoming orphaned.
Supply and halving
Bitcoin has a limited supply of 21 million coins. When it first launched, the reward for mining each new block was 50 BTC. But at every 210,000 blocks, the reward halves, which at the current pace happens every four years. Bitcoin has already undergone two halvings and its block reward currently stands at 12.5 BTC. In 2020, it will reduce to 6.25 BTC. Eventually, if nothing changes, sometime around 2140, the last bitcoin will be mined and no new coins will be created (What happens when all the bitcoins are mined?).
Litecoin basically follows the same rule. However, the final supply of litecoins is 84 million and the halving occurs at every 840,000 blocks. Litecoin started out with a 50 LTC/block when it launched in 2011 and underwent its first halving in 2015. Its current reward stands at 25 LTC/block and the next halving will occur sometime in August 2019.