What is Litecoin?
Despite regulatory jabs and old school economists stuck in the past, cryptocurrencies are here to stay.
Though Bitcoin dominates headlines, there’s a lesser known but equally important cryptocurrency of which investors, users and enthusiasts need to be aware.
It’s a cryptocurrency beloved by many and it has a loyal following that believe deeply in its vision and functionality.
If Bitcoin is the new gold, then litecoin is fabled to be the new silver.
Created just two years after Bitcoin, Litecoin has proven to have staying power. Where many have failed, Litecoin has pushed on, carving out its place in the crypto top 10.
The key to Litecoin’s success is in its core development team. Though some newer cryptocurrencies offer faster transactions or lower fees, Litecoin, like Bitcoin, has the backing of some of the most brilliant minds in the game. And with new developments constantly in the works, its true potential is far from being realized.
To truly understand Litecoin, however, it’s worth taking a look at the man behind it.
Who is behind Litecoin?
Litecoin was created in 2011 by ex-Google employee Charlie Lee. Lee is one of the crypto-movement’s biggest advocates and somewhat of a star in the space.
Lee discovered cryptocurrencies during his time as a software engineer at Google. His initial attempt at creating a cryptocurrency, Fairbix, fell flat. Fairbix used a hashing protocol that ran on a Scrypt protocol, which Lee would later use when creating Litecoin.
Fairbix ran into controversy from the start. The team pre-mined 7 million coins from the release, which sparked criticism from the community, and later, the client was found to contain major software bugs which left the cryptocurrency vulnerable to a 51% attack.
After Fairbix’s flop, Lee began working on Litecoin. And by October 2011, it was ready for launch.
Following Litecoin’s launch, Charlie Lee began working at Coinbase, a then brand-new cryptocurrency exchange startup. As one of the first employees of the company, Lee helped shape the vision and direction of the company. And in 2017, he stepped down as Director of Engineering to work full time overseeing the development of Litecoin.
In late 2017, at the height of the crypto hype that led Litecoin to break $300 per coin, Lee made a controversial announcement, stating that he sold and donated his entire Litecoin stockpile.
The announcement was met with both support and criticism. Lee explained that he believed holding the coin while working on the project was a conflict of interest, noting on Reddit:
"Over the past year, I try to stay away from price related tweets, but it’s hard because price is such an important aspect of Litecoin growth. And whenever I tweet about litecoin price or even just good or bads news, I get accused of doing it for personal benefit. Some people even think I short LTC! So in a sense, it is conflict of interest for me to hold LTC and tweet about it because I have so much influence. I have always refrained from buying/selling LTC before or after my major tweets, but this is something only I know. And there will always be a doubt on whether any of my actions were to further my own personal wealth above the success of Litecoin and crypto-currency in general"
Months later, Lee touched on the subject again in a Youtube interview with Julian Hosp of TenX, stating:
"I still think it was the right move but I question whether — I think in the long run it was the right move but in the short term while the price is down, below the all-time high, it just feels like it's not the right decision."
In the interview, Lee also discusses the centralization of the cryptocurrency, suggesting that his selling was the ‘first step’ in it becoming truly decentralized, adding that eventually, he would ‘have to step away’ from the development side, as well.
What’s so special about Litecoin?
Lee created Litecoin by cloning the core Bitcoin source code, with a number of key adjustments to tackle what he felt were some of Bitcoin’s biggest problems. Though he set out to solve some of the issues associated with Bitcoin, Lee has noted that Litecoin was created not to compete with Bitcoin, but to compliment it, suggesting that Litecoin could be used for smaller, everyday transactions.
The main changes included the hashing protocol, block transaction time and the total supply cap of the cryptocurrency.
The hashing protocol is essentially what runs the entire transaction/reward system, and it’s backed by a process called mining. Mining, in the simplest terms, is the process wherein individuals create blocks and confirm transactions in the blockchain. This process rewards miners whenever a new block is created and also through small transaction fees collected from users of the blockchain.
Litecoin uses a scrypt-based hashing protocol, which differs from Bitcoin’s SHA-256 protocol in a number of ways. Both operate under the proof-of-work consensus mechanism, wherein significant computational power is required to add a block to the blockchain. While SHA-256 is solely GPU intensive, however, scrypt-based protocols are also memory intensive, requiring a significant amount of Random Access Memory (RAM) in order to submit a result.
The initial choice to use a scrypt-based protocol was to combat the rise of Application Specific Integrated Circuit (ASIC) miners which were largely unaffordable for the general population. Scrypt-based protocols essentially lowered the cost of entry, allowing anyone with a computer to mine litecoin. Though the idea once leveled the playing field for would-be miners, producers of mining hardware have since introduced scrypt-based ASICs which are now the industry standard for mining Litecoin.
The second major difference between Litecoin and Bitcoin is its block transaction time.
Lee built Litecoin to have an average block creation speed of 2.5 minutes as opposed to Bitcoin’s 10 minutes. Bitcoin’s longer block creation time created a lag in transaction speed, which impacted its use as an actual currency. Because Litecoin’s block creation speed is much faster than Bitcoin’s, it opened the door for merchants to more easily accept cryptocurrency as a payment.
The faster block creation speed was also meant to decentralize the reward process for miners. Since blocks are created at a much faster pace, more miners get the chance to receive a reward.
Litecoin utilizes the same reward protocol as Bitcoin, though because of its faster block time, Lee created the cryptocurrency with a supply cap of 84 million, compared to Bitcoin’s 21 million.
In the beginning, both Bitcoin and Litecoin miners received 50 coins for each block that was solved. This was the reward for participating in the network. The reward, however, goes through a ‘halving’ process, wherein after a certain number of blocks, the reward is cut in half. For Bitcoin, this occurs every 210,000 blocks, while Litecoin’s halving process occurs every 840,000 blocks. Though Bitcoin has seen two ‘halvings’ since its inception, Litecoin has only experienced one, thus 25 litecoins are still rewarded for every block created in contrast to Bitcoin’s 12.5.
Despite the reward ‘halving’ occurring at a slower pace, more litecoins are being created, highlighting the need for a greater supply cap.
Litecoin’s growth over the years
It’s no secret that Litecoin has changed a lot from its inception. New developments in the crypto-space have kept Charlie Lee and his team on their toes.
One of the earlier and arguably most important of these modifications came in 2015 when the network was hit with a flood attack. The attack involved a high number of spam transactions, or low volume transactions meant to overload the blockchain. At its highest, the total number of transactions reached 80,000.
This attack prompted Lee to implement a fix wherein senders would be charged a fee for tiny transactions, making it uneconomical for a malicious party to attack the blockchain in this fashion. Lee then took to Reddit offering the same solution for the Bitcoin blockchain, which was undergoing a similar attack at the time. Though the post was well received, Bitcoin never implemented the fix and has fallen victim to similar attacks over time.
Another key development for Litecoin was the implementation of the Segregated Witness (SegWit) protocol in May 2017, months before Bitcoin. SegWit, seen by many as one of the answers in Bitcoin’s scaling debate, allows blockchains to free up approximately 65 percent of the space in a given transaction by moving the digital signature associated with the transaction. The protocol also solved a security issue where a receiver could potentially intercept and alter a sender’s transaction ID, potentially granting them more funds in the process.
What’s next for Litecoin?
Though controversial for some, SegWit was largely seen as a huge improvement for both Litecoin and Bitcoin, even paving the way for new technologies such as the Lightning Network.
Mid-2017, Litecoin had already begun utilizing the Lightning Network, an off-chain transaction settlement system, with great success. With the Lightning Network, users upload funds to the network and open a payment channel or jump into a payment channel wherein funds can be sent instantly and with almost no fee. When the user closes the channel, all transactions are batched and settled on the blockchain. Due to the aforementioned transaction malleability, this was previously impossible, though, thanks to SegWit, the Lightning Network is beginning to take off for both Bitcoin and litecoin transactions.
SegWit also opened the door for another new technology: Atomic Swaps. Though there are services which allow users to switch between different cryptocurrencies currently, they often charge high fees and may even indirectly involve centralized exchanges to do so. Atomic Swaps solve these issues.
Atomic Swaps are smart contract enabled exchanges, offering users the ability to transfer between cryptocurrencies with zero fees and taking place either directly between the two different blockchains or off-chain.
The first Atomic Swap took place between the cryptocurrency Decred and Litecoin in September 2017, and since, the idea has become key in the creation of decentralized exchanges such as Ox and Altcoin.io.
Litecoin, though often overlooked by traders and investors looking for quick returns, is clearly a valuable addition to the cryptocurrency space. Lee and his team have proven to be open to new technologies and the risks associated with them, often shining a light on some of the biggest challenges in the space, from scalability to security.
With the space constantly evolving, it’s likely that Litecoin will be at the front of the pack, leading not by force, but by example.