What if there was something like Bitcoin, but it was faster, cheaper, and could handle more transactions per second? Well, there are actually quite a few cryptocurrencies that have attempted this, but today’s video is on one called Litecoin.
Litecoin is meant to be a sound money that people use for everyday payments, while Bitcoin is meant to be a long-term store of value. For example, Litecoin should be like cash, where we use it every day, however Bitcoin is like that gold locked in your grandpa’s safe, something rare that is kept safe and only used for important purposes as it grows in value.
Before we get into the technicalities of Litecoin, let’s learn about the creator. Charlie Lee has enjoyed poker for a very long time. Understanding the technicals of how it worked, and having quite an education, he landed himself a job as a software engineer at Google. Later on, he would become an engineering manager, and then engineering director of Coinbase from 2015 to 2017, so he has a notable background.
He created Litecoin to be a faster, cheaper, and more decentralized version of Bitcoin. We’re going to skip a lot of basic stuff like how Proof-of-work works and why public and private keys are to get straight into what makes Litecoin different, but if anything confuses you, drop a comment below or check out the other videos on our channel as we might've already covered it. Let’s go over how Litecoin actually achieves this faster speed, cheaper transactions and better decentralization.
First, Bitcoin has a block time of 10 minutes, meaning all the transactions are collected and grouped together and then put into a block in 10 minutes. The next block has to wait 10 minutes until it is added to the blockchain. Litecoin cuts this down to 2 and a half minutes, making it faster. Another area where Litecoin shines is how many transactions per second the network can handle. Bitcoin can do around 5 transactions a second, roughly costing around $2 per transaction, but sometimes going up to 10. Litecoin improved them by making some easy improvements and can actually process 54 transactions per second and the cost of each transaction is down to a penny or two.
Litecoin is open source, just like Bitcon, and open-source means that anyone can look at the code that runs the network and even make suggestions if they want. If the suggestion is good enough, and more than half of all the miners approve it, the code suggestion will be accepted. We suggest that you hit that like button down there, and if we hit 5,000 likes, we will create an explanation video on a coin that’s similar to Litecoin called Bitcoin Cash… how’s that for open-source?
Another similarity Litecoin has to Bitconi is that it can be broken down into 8 decimal places, where .000,000,01 litecoin is called a photon, while the same amount of bitcoin is called a satoshi.
Something big about litecoin is that they were actually the first network to adopt the Lightning Network. The Lightning network is a layer 2 solution that allows users to make transactions in seconds, almost for free, and making payments much simpler. You can learn about the Lightning Network in our specific video on it.
SHA 256 vs Scrypt Hashing Algorithm
One of the largest changes to Litecoin is the hashing algorithm it uses. The hashing algorithm is actually the “problem” that the computer is trying to solve when they mine blocks. Oh, by the way, Litecoin is a proof-of-work cryptocurrency which means miners use their computing power to work really hard to guess the solution for the next block. Anyways, when Litecoin was created, miners on the Bitcoin network realized they could create special hardware to mine Bitcoins much faster.
This hardware gave them an advantage because the hardware, called an ASIC was very expensive and was much more efficient than a personal computer. Charlie Lee wanted to use a new hashing algorithm that evened the playing field again so that miners could competitively use their personal computers again to participate and add blocks to the network. He decided on the Scrypt Hashing Algorithm. This meant that the blockchain was technically more decentralized, letting ordinary people with any old computer join the network and attempt to win some Litecoin as a reward for mining.
Long story short, people quickly realized they could create ASICs specifically to solve the Scrypt algorithm and now it is not very profitable to mine Litecoin with your computer. Interestingly though, you can do something called MergeMining now. MergeMining is a technical term where you actually mine two cryptocurrencies with the same hardware and without using any extra electricity. The second most popular cryptocurrency that uses the Scrypt hashing algorithm is Dogecoin, meaning most people mining Litecoin are also mining and earning Dogecoin as well.
Also, the Litecoin Foundation is overwhelmingly operated by volunteers who support the project. Because of this and the fair launch we will mention soon, you won’t see any expensive marketing budgets for Litecoin. If you
Tokenomics of LTC
One of the best things about Litecoin is their tokenomics. Litecoin did no prelaunch or pre-mine or ICO, they launched very fairly basically just saying “everyone can start mining on this date”, so miners were the ones who get the first batches of Litecoins. This is the exact way that Satoshi launched Bitcoin when it started.
The bad news is that Charlie sold all of his Litecoin during the peak of one of the bull runs. He says he did it to see how much influence he had over Litecoin, but many other investors are upset that he would dump all his coins on the market at once and without any other good reason. Nevertheless, he still works on improving the protocol.
There will only ever be 84,000,000 Litecoins ever created, exactly 4x that of Bitcoin. Litecoin also follows the same 4-year halfing schedule, where the mining rewards are cut in half every 4 years. Since all the transactions are public, we can actually check individual wallets and see that there are any whale wallets, as most of the largest ones are known exchange companies. Overall, Litecoin has followed the price of Bitcoin pretty closely, as it’s very close to being the same thing with some minor differences that include more use cases, so it’s interesting to see where Litecoin will be in 10 years with the development of many new Layer 2 solutions.
Thanks for watching, we hope you enjoyed this video, we really hope you learned something, and most of all, we hope to see you in our next video!