Bitcoin vs. Litecoin: An Overview
Over the past several years, public interest in cryptocurrencies has fluctuated dramatically. It has garnered attention from investors, whose interest in cryptocurrency has surged as it has aged. The main focus of this interest has been Bitcoin, which has become synonymous with creating cryptocurrency millionaires and increasing people's digital wealth.
Since Bitcoin was founded, hundreds of other cryptocurrencies have been forked from it or been created. Litecoin (LTC), a Bitcoin fork, is one of these altcoins—the term for cryptocurrencies that are not Bitcoin. While Litecoin is based on the same underlying blockchain and verification method as Bitcoin, several key differences might help you decide which is right for your interests and goals.
- Bitcoin and Litecoin use different cryptographic algorithms: Bitcoin uses SHA-256 encryption algorithm, and Litecoin uses Scrypt.
- Both Bitcoin and Litecoin are cryptocurrencies that use the proof-of-work consensus mechanism.
- Litecoin can produce a greater number of coins than Bitcoin.
- Bitcoin's market cap remains much higher than Litecoin's.
Bitcoin was the first cryptocurrency to be introduced in 2009. Since then, it has evolved from a novelty into a controversial commodity, investment, and exchangeable currency. It relies on decentralized and community computing power to maintain the validity and security of a centralized database, called a blockchain.
Some notable Bitcoin properties that make it unique are:
- Proof-of-work: The consensus mechanism and validation process that uses the computational power of GPUs—and to a lesser extent CPUs—to verify transactions and blocks in the blockchain.
- It uses SHA-256: The cryptographic hash function which encrypts the blockchain. The hash function converts input to an output of fixed length to encrypt it.
Litecoin was launched in 2011 by former Google engineer Charlie Lee, who announced the debut of the "lite version of Bitcoin" via a posted message on a popular Bitcoin forum. From its founding, Litecoin was seen as being created in reaction to Bitcoin's tendency to gravitate towards centralization.
For this reason, Litecoin adopts many of the features of Bitcoin that Lee and other developers felt were working well for Bitcoin in its early stages. Litecoin has other aspects that the development team felt could be improved upon. Some of Litecoin's notable properties are:
- Proof-of-work: Litecoin uses proof-of-work, but it relies on access to large amounts of memory rather than central processing unit (CPU) or graphics processing unit (GPU) computing power only.
- Uses Scrypt: Litcoin employs Scrypt for its hashing function. Scrypt uses SHA-256 but includes much higher memory requirements for proof-of-work. This supposedly decreases its dependability on GPU arithmetic logic units (ALUs), and thus ASIC mining machines. However, Scrypt ASIC mining machines were created in 2021, so Litecoin may need to find another solution.
The most significant difference between Litecoin and Bitcoin is its hashing function. As mentioned earlier, Bitcoin uses SHA-256, which is processed very quickly on the ALUs of graphics processing units.
Another area in which Bitcoin and Litecoin differ significantly is their market capitalization, the total dollar market value of all the created coins. Bitcoin is more popular because of its ability to be mined by large farms and mining pools; also, demand for it has risen so high that it commands a very high cryptocurrency-to-dollar exchange rate. Litecoin has a much smaller market capacity because Bitcoin has a smaller supply and greater demand.
Another of the main differences between Bitcoin and Litecoin concerns the total number of coins that each cryptocurrency can produce. This is where Litecoin distinguishes itself. The Bitcoin network can never exceed 21 million coins, whereas Litecoin can accommodate 84 million coins.
In theory, this sounds like a significant advantage for Litecoin; however, supply and demand generally dictate prices for commodities and investments, along with consumer and investor sentiments. Both appear to believe that Bitcoin aligns with their interests, values, and financial goals, so its price reflects that.
Although technically transactions occur instantaneously on both the Bitcoin and Litecoin networks, time is required for those transactions to be confirmed by other network participants. Litecoin was founded with the goal of prioritizing transaction speed.
The Bitcoin network’s average transaction confirmation time (the time it takes for a block to be verified and added to the blockchain) is around nine minutes per transaction. However, this can vary widely depending on network traffic. The equivalent figure for Litecoin is roughly two and a half minutes.
Is Litecoin Better Than Bitcoin?
Which is better depends on your goals, what you want to do with your coins, and your views on cryptocurrency. Litecoins are generated faster than Bitcoin, but Bitcoin is worth more. Bitcoin might be better if you want more value per coin, while Litecoin might be better if you want more coins at a lesser value.
How Many Litecoins are Left?
Litecoin has a limit of 84 million coins. There were 69.2 million on Dec. 18, 2021, so as of that date, there were roughly 14.8 million left.
Does Litecoin Have a Future?
Litecoin's future depends on consumer and investor sentiments. Government regulations, economic conditions, government-sponsored cryptocurrency, and more can also affect cryptocurrency. It's possible that technological advancements could even render cryptocurrencies obsolete.
Why Is Litecoin So Cheap?
Litecoin has a lower LTC/USD exchange rate and less purchasing power because it has a larger supply and lower demand than other cryptocurrencies do. This is largely due to consumer and investor perspectives—if a means of exchange can purchase more goods, it is worth more. If a commodity or investment has a higher value for people, they will pay more for it. Bitcoin is currently perceived to be a more valuable asset, so it is worth more.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author does not own Bitcoin or Litecoin.