A Beginner’s Guide to Litecoin
If you’re reading this then you’ve probably already been introduced to Bitcoin. If you haven’t, I recommend reading my first article entitled: A Beginner’s Guide to Bitcoin. As we progress through this article you’ll see that the two digital currencies have a close relationship.
What is Litecoin?
Simply put, Litecoin is a peer-to-peer decentralized digital currency that was built using blockchain technology. Just like Bitcoin, Litecoin’s decentralized nature means that no country, no government, nor any corporation owns it. And, similar to Bitcoin, Litecoin is open-source, meaning the copyright holder allows others the right to study, change, and distribute the software to anyone and for any purpose. In other words, the technology is developed by and for the user community through collaboration.
At this point you might be wondering what the difference is then between the two currencies. While Litecoin was definitely inspired by Bitcoin and very similar in terms of the underlying technology, there are two major differences that make these two coins distinct: speed and utility. We’ll explore both of these shortly.
Where did Litecoin Come From?
Satoshi Nakamoto, the anonymous founder of Bitcoin, left his mark on the world when he published his white paper in 2008; he also inspired countless other technologists to create their own cryptocurrency. One of them was Charlie Lee, a former Google employee, also known as @SatoshiLite. Charlie Lee released the software for Litecoin October 7th, 2011, and the network went live on October 13, 2011.
Why Does Litecoin Matter?
When Bitcoin was created it was meant to be a peer-to-peer cash system in which users all over the world can transact quickly and efficiently without the need for a middleman. However, with all the attention Bitcoin has gotten recently in the media and new adopters being added everyday, that purpose has evolved towards more of a commodity. In other words, Bitcoin has become “digital gold.” As the price rises, people are less willing to part with their Bitcoin as it becomes more valuable.
This is where Litecoin comes in. Earlier I mentioned that there are some distinct differences between the two coins, primarily in the form of speed and utility. According to the organization’s website, which is run by the product development team, Litecoin was created to be an instant global payment network. Whereas Bitcoin has become a store of value similar to gold, Litecoin has taken its place as a medium of exchange for everyday transactions, similar to cash. In fact, I generally use Litecoin to make day-to-day purchases or if I need to move money quickly between my wallets or exchanges. A quick look under the hood will explain why it’s more suited for this purpose.
How Does Litecoin Work?
Like Bitcoin, and all other cryptocurrencies, Litecoin was built using blockchain technology. On the Bitcoin blockchain, Bitcoin transactions are collected and packaged in a block and added to a long chain of blocks roughly every 10 minutes, creating a permanent record of all transactions since the beginning. Litecoin is different in that the block time is around 2.5 minutes. This makes it 4x as fast as the Bitcoin and more suitable for quick payments.
This reduction in block time also results in greater volume and lower fees for Litecoin as more transactions are being verified and miners are earning a fee more often. Here’s a transaction of mine from a month or so ago in which I paid roughly 25¢ in order to send $55 almost instantaneously.
Should I invest in Litecoin?
In the interest of protecting myself, I want to emphasize that I am neither qualified nor certified to give financial advice. This article should only be considered for educational purposes.
The Founder of Litecoin, Charlie Lee, tweeted this a couple days ago:
In a rather funny way (I recommend following him on Twitter) Charlie is pointing out that while Bitcoin has gotten a lot of attention because of its explosive growth over the last year, Litecoin has actually outperformed Bitcoin in terms of growth. At the beginning of the year the price of one Litecoin was $4.50. The price as I write this is ~$139.00 (27x).
It’s important to note here that Lee does not consider Litecoin to be in competition with Bitcoin. In fact, he created it to complement Bitcoin. Here’s a few excerpts from a recent interview of his with the folks at Mixergy:
Yeah, so when I first found out about Bitcoin, I realized it was very similar to gold. It’s more like digital gold, and when I created Litecoin, I set out to create the silver equivalent of digital gold, so Litecoin being silver to Bitcoin’s gold.
He goes on to say:
It kind of just caught on because Litecoin is faster in terms of transaction speed than Bitcoin, and there’s more Litecoin in the world than Bitcoin, so it’s more like a plentiful version, an easier-to-use version of Bitcoin, and it’s also cheaper, so it fit the analogy really well.
It’s more like a coin that is better suited for a store value. So you keep gold in the bank safe, but you would use silver daily. So a similar idea, where you would keep Bitcoin for its store value, but you may use Litecoin for daily purchases.
For these reason and others, I consider Litecoin to be a good choice for a balanced portfolio. Relative to price of Bitcoin, Litecoin has remained relatively stable or grown in tandem with its predecessor. It’s also served as a good hedge during periods of falling prices for Bitcoin.
One common question I get is whether I think Litecoin can surpass Bitcoin in price. I find this extremely unlikely for several reasons:
- Bitcoin has a total supply of 21 million coins that will be produced over its lifetime. Litecoin has a total supply of 84 million. Basic economics implies that a greater supply will have a lower price due to more availability.
- Bitcoin has the first-mover advantage, which states that among other things, being first typically enables a company to establish strong brand recognition and customer loyalty before other entrants to the market arise. Bitcoin has almost become synonymous with cryptocurrency, and is the coin that most people are familiar with.
- As mentioned above, Charlie Lee’s intention was not to overtake Bitcoin but to supplement it. He’s also very active within the Bitcoin community and an important pro-Bitcoin advocate.
With all this mind, Litecoin has a bright future as it continues to be adopted by merchants for purchases. For example, earlier today it was announced you can now buy vouchers for Steem, a popular gaming platform, with Litecoin.
Another thing to consider is the psychology of the market at the moment. Coinbase, the popular cryptocurrency exchange, has been adding upwards of 50,000 new users per day. Their mobile app has jumped into the top 5 on the App Store as new adopters come on board. After creating their account, there are those who will see the price of Bitcoin is over $15,000. Thinking they’re too late or not knowing they can purchase fractions of a Bitcoin, they might opt to purchase Litecoin at it’s lower price of $125. While this purely speculative game theory on my part, I believe this is a plausible outcome.
As always the decision to purchase is always yours. I also recommend doing your own individual research. This article was my attempt to create a comprehensive guide and introduction to the cryptocurrency known as Litecoin. For those interested in buying, you can find a guide to purchasing Bitcoin and Litecoin here: A Beginner’s Guide to Buying Bitcoin.
If you made it this far, I just wanted to personally say thanks for reading! If you had any additional questions or just wanted to say hi, you can comment below or reach me on twitter @ChrisAllenDunn or @BitcoinDunny.
Also, Coinbase, one of the largest Bitcoin exchanges, has a pretty cool referral program. If after reading you decide you want to move forward, use this link to sign up and we both get $10 worth of Bitcoin when you purchase.
Lastly, these articles, while short, do require a significant amount of time for research, writing, and proofreading on my part. If you find these articles useful, feel free to leave at a tip of any amount at these address: