2. If you’re new to the cryptocurrency world, you’d be forgiven
for not having heard of litecoin. The currency, which was
created by Charles Lee in 2011, is the second largest
digital currency next to bitcoin. Here is our guide to what
you need to know.
3. Knowing your litecoin from your bitcoin
If you are used to using bitcoin, litecoin holds few surprises – if
you’re not yet initiated, read our guides on What is bitcoin and
Why use bitcoin. The ideas in those guides also apply to litecoin.
The primary desktop application is a modification of Bitcoin-QT
client, and can be downloaded from litecoin’s website. This can
also act as a wallet. Other litecoin wallets are available on We
Use Litecoin.
There are important differences though. For starters, while bitcoin
has a cap of 21 million coins, litecoin will be four times larger at
84 million.
4. Just like bitcoin, litecoin has started with a mining reward of 50
coins per block. However, the litecoin reward will halve every
840,000 blocks. Again this is four times larger than the 210,000
block threshold in bitcoin.
The transaction fee for litecoin is 0.02 LTC, which is
proportionately higher than the minimum bitcoin fee of 0.0001
BTC, however, keep in mind that a litecoin is currently worth
0.019 BTC.
5. The factor of four difference between litecoin and bitcoin persists
into the block time too. The block time is the time it is supposed
to take miners to confirm a block on the block chain.
For bitcoin this is 10 minutes, but for litecoin it is just 2.5 minutes.
This means that litecoin has the potential to be more attractive
to merchants as there will be less time to wait to ensure that a
payment has been received from customers.
6. Buying and trading
The next most important aspect to address is where on earth to
obtain litecoin?
Unless you’re a miner (more on that later), you’ll need to buy from
one of several exchanges, Litecoin’s forum – or in person, alá
LocalBitcoins style.
The places we know of that you can buy litecoin from are as
follows: BTC-e, BitBargain UK, BTER, Litecoin Global
Exchange, Kraken, Crypto Street, mcxNow, Cryptsy, Vircurex,
and last but not least, the latest entrant into the crypto-exchange
world CoinMKT.
7. Of course, the elephant in the room when talking about digital
currency exchanges is Mt. Gox who does not – at the time of
writing – support trading in litecoin. However, many anticipate
that this is not far away and is the key to greater acceptance for
bitcoin’s little brother.
Litecoin so far has nowhere near the acceptance of bitcoin, and as
such there are far fewer merchants accepting the currency.
8. However, you can find a few useful links over at We Use Litecoins.
For example, there’s Jobs for Litecoins which is a subreddit for
litecoin-accepting freelancers, and LTC Asics which sells sports
shoes – not ASIC miners! Speaking of which, let’s finish by
talking about mining litecoins.
9. Litecoin mining
An important aspect that separates litecoin from bitcoin is that it
uses a totally different ‘proof of work’ algorithm than bitcoin
does.
Bitcoin uses the SHA256 hashing algorithm, while litecoin uses the
scrypt algorithm. While SHA256 favours systems with the
largest raw processing power, scrypt’s algorithm, according to
Wikipedia, was specifically designed to make it costly to perform
large scale custom hardware attacks by requiring large amounts
of memory.
10. In other words, the system favours systems with large amounts of
RAM (which is relatively expensive), and is a form of a “Memory
Hard Problem“. Otherwise, transactions work just as they do in
bitcoin.
What this means for prospective miners is that super expensive
bitcoin FPGA and ASIC hardware is of no advantage in scrypt
mining.
The good news is that computers with powerful graphics cards (i.e.
GPUs) that were once used for bitcoin mining but have been
made obsolete can be repurposed for litecoin mining. The
process of mining litecoin is, otherwise, the same as bitcoin
mining.
11. Just as with other crypto-mining, there are mining pools to make
the process somewhat more rewarding for participants, and you
can find a comprehensive list of litecoin pools over at We Use
Litecoins.
If you intend to either join a pool or solo mine, the software of
choice is cgminer. However, be careful as this Australian
blogger described: the combination of electricity costs, litecoin
difficulty and USD price could mean that mining isn’t profitable
for you – so do your homework on your local utility prices!
12. Closing thoughts
So now you know more about litecoin, however there is still the
case to make of why you should use it.
Well, it’s not going to be for everyone, just like cryptocurrency in
general isn’t for everyone.
It’s certainly true though that – just as for bitcoin – it faces a
chicken and egg problem. It isn’t going to be adopted if it isn’t
used, and it’s less likely to be used if it isn’t adopted more.
13. However, just as was pointed out in our interview with founder
Charles Lee, ”One possibility is that bitcoin will be used for
more expensive purchases, whereas litecoin will take up the
microtransaction space”, Lee suggests (which also explains
his focus on variable transaction fees).
The low fees and fast transaction time make a compelling case
for litecoin adoption in small businesses that need to leverage
every advantage they can find to make them more appealing
than larger, less agile, companies.
