Bitcoin vs. Litecoin: An Overview

Over the past several years, public interest in cryptocurrencies has fluctuated dramatically. But with the advent of the 2020s, investor interest in cryptos has surged. The main focus of this interest has been Bitcoin, which has long been the dominant name in cryptocurrency—not surprising since it was the first digital money to really catch on.

Since the founding of Bitcoin in 2009, however, hundreds of other cryptocurrencies have entered the market. Although it has proven increasingly difficult for digital coins to stand out given the crowded field, Litecoin (LTC) is one non-Bitcoin crypto that has managed to stand up to the competition. LTC currently trails behind Bitcoin as the 6th-largest digital currency by market cap.

Key Takeaways

  • Both Bitcoin and Litecoin are cryptocurrencies. Bitcoin, which originated in 2009, is the dominant brand; Litecoin, founded two years later, is one of its leading competitors.
  • As of March 2021, Bitcoin's market cap is $1 trillion, while Litecoin's is $13.7 billion.
  • Litecoin can produce a greater number of coins than Bitcoin and its transaction speed is faster, but these factors are largely psychological boons for the investor and don't impact the value or usability of the currency.
  • Bitcoin and Litecoin use fundamentally different cryptographic algorithms: Bitcoin uses the longstanding SHA-256 algorithm, and Litecoin uses a newer algorithm called Scrypt.

Similarities Between Bitcoin and Litecoin

On the surface, Bitcoin and Litecoin have a lot in common. At the most basic level, they are both decentralized cryptocurrencies. Whereas fiat currencies such as the U.S. dollar or the Japanese yen rely on the backing of central banks for value, circulation control, and legitimacy, cryptocurrencies are not subject to a centralized authority: They rely only on the cryptographic integrity of the network itself.

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. Indeed, Litecoin’s own developers have long stated that their intention is to create the “silver” to Bitcoin’s “gold.”

For this reason, Litecoin adopts many of the features of Bitcoin that Lee and other developers felt were working well for the earlier cryptocurrency, and changes some other aspects that the development team felt could be improved.

Proof of Work

One important similarity between Bitcoin and Litecoin is that they are both proof of work ecosystems. That means the underlying process by which both cryptocurrencies are mined—that is, generated, authenticated, and then added to a public ledger, or blockchain—is fundamentally similar (though not exactly the same, as we will see below).

Storage and Transactions

For an investor, many of the basic elements of transacting with Bitcoin and Litecoin are very similar as well. Both of these cryptocurrencies can be bought via exchange or mined using a mining rig. Both require a digital or cold storage "wallet" in order to be safely stored between transactions.

Furthermore, the prices of both cryptocurrencies have over time proven to be subject to dramatic volatility, depending upon factors ranging from investor interest to government regulations.

Differences Between Bitcoin and Litecoin

Market Capitalization

One area in which Bitcoin and Litecoin differ significantly is in their market capitalization, the total dollar market value of all the outstanding coins.

As of March 2021, the total value of all bitcoins in circulation is around $1 trillion, making its market cap more than 70 times larger than Litecoin, which has a total value of $13.7 billion. Whether Bitcoin's market cap strikes you as either high or low depends largely on a historical perspective. When we consider that Bitcoin’s market capitalization was barely $42,000 in July 2010, its current figure seems staggering.

Bitcoin as a network still dwarfs all other digital currencies. Its closest competitor is Ethereum, the second-largest cryptocurrency, which has a market cap of nearly $212 billion. Thus, the fact that Bitcoin enjoys a significantly higher value than Litecoin is in itself not a surprise, given that Bitcoin is so much larger than all other digital currencies in existence at this time.

Distribution

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 up to 84 million coins.

In theory, this sounds like a significant advantage for Litecoin, but its real-world effects may ultimately prove to be negligible. This is because both Bitcoin and Litecoin are divisible into nearly infinitesimal amounts. In fact, the minimum quantity of transferable Bitcoin is one hundred millionth of a bitcoin (0.00000001 bitcoins) known colloquially as one “satoshi.”

Users of either currency should, therefore, have no difficulty purchasing low-priced goods or services, regardless of how high the general price of an undivided single Bitcoin or Litecoin may become.

Litecoin’s greater number of maximum coins might offer a psychological advantage over Bitcoin, due to the lower price for a single unit.

In November 2013, IBM executive Richard Brown raised the prospect that some users may prefer transacting in whole units rather than in fractions of a unit, a potential advantage for Litecoin. Yet even assuming this is true, the problem may be solved through simple software changes introduced in the digital wallets through which Bitcoin transactions are made.

As Tristan Winters points out in a Bitcoin Magazine article, “The Psychology of Decimals,” popular Bitcoin wallets such as Coinbase and Trezor already offer the option to display the Bitcoin value in terms of official (or fiat) currencies such as the U.S. dollar. This can help circumvent the psychological aversion to dealing in fractions.

Transaction Speed

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, and that has proven an advantage as it has grown in popularity.

According to data from Blockchain.com, the Bitcoin network’s average transaction confirmation time (the time it takes for a block to be verified and added to the blockchain) is currently just under nine minutes per transaction, though this can vary widely when traffic is high. The equivalent figure for Litecoin is roughly 2.5 minutes.

In principle, this difference in confirmation time could make Litecoin more attractive for merchants. For example, a merchant selling a product in exchange for Bitcoin would need to wait nearly four times as long to confirm the payment as if that same product were sold in exchange for Litecoin. On the other hand, merchants can always opt to accept transactions without waiting for any confirmation at all. The security of such zero-confirmation transactions is the subject of some debate.

Algorithms

By far the most fundamental technical difference between Bitcoin and Litecoin are the different cryptographic algorithms that they employ. Bitcoin makes use of the longstanding SHA-256 algorithm, whereas Litecoin makes use of a comparatively new algorithm known as Scrypt.

The main practical significance of these different algorithms is their impact on the process of mining new coins. In both Bitcoin and Litecoin, the process of confirming transactions requires substantial computing power. Some members of the currency network, known as miners, allocate their computing resources toward confirming the transactions of other users. In exchange for doing so, these miners are rewarded by earning units of the currency which they have mined.

SHA-256 is generally considered to be a more complex algorithm than Scrypt, while at the same time allowing a greater degree of parallel processing. Consequently, Bitcoin miners in recent years have utilized increasingly sophisticated methods for mining bitcoins as efficiently as possible. The most common method for Bitcoin mining consists of the use of Application-Specific Integrated Circuits (ASICs).

These are hardware systems that, unlike the simple CPUs and GPUs which came before them, can be tailor-made for mining Bitcoins. The practical consequence of this has been that Bitcoin mining has become increasingly out-of-reach for the everyday user unless that individual joins a mining pool.

Scrypt, by contrast, was designed to be less susceptible to the kinds of custom hardware solutions employed in ASIC-based mining. This has led many commentators to view Scrypt-based cryptocurrencies such as Litecoin as being more accessible for users who also wish to participate in the network as miners. While some companies have brought Scrypt ASICs to the market, Litecoin’s vision of more easily accessible mining is still a reality, as a good portion of Litecoin mining is still done via miners' CPUs or GPUs.

Litecoin vs. Bitcoin FAQs

What Is Litecoin Used For?

Given all the hoopla around its prices and market cap, it may seem that Litecoin exists mainly to be bought and sold back and forth, to paraphrase the old traders' joke about soybeans. In actuality, though, Litecoin— like all cryptocurrencies—is a form of digital money. So it can be used by individuals and institutions to purchase things and to transfer funds between accounts.

Its relative speed and cheapness make it ideal for smaller, everyday transactions. Participants operate directly, without the use of an intermediary like a bank, credit card company, or payment processing service.

Can You Convert Litecoin to Bitcoin?

You can convert litecoins to bitcoins, and vice versa—similar to the way you can exchange fiat currencies, like changing dollars into pounds, or yen into euros. Since both are leading, and highly liquid cryptocurrencies, there is generally no problem in swapping one for the other.

To do so, you need to have an account with a cryptocurrency trading or exchange platform or trading app. The amount you'll receive in the conversion depends, of course, on the current prices for each currency.

Can I Send Litecoin To a Bitcoin Address?

It's important to understand cryptocurrency conversion because you can't send Litecoin to a Bitcoin address—even if it's in the same wallet—and vice versa. If you do, the money will be lost. Recovery may be possible if you have seed backups for the keys that let you access your account, but it's difficult.

Can Litecoin Overtake Bitcoin?

Whether Litecoin could ever overtake Bitcoin as the number one cryptocurrency is a matter of speculation. Bitcoin remains the original digital money, and to many, its name is synonymous with cryptocurrency in general— practically a generic term, like Kleenex is to facial tissue.

If any other crypto were to knock Bitcoin off the throne, Ethereum (the current number two), or one of the other higher-ranked currencies might be more likely candidates. Still, some analysts like Litecoin's fundamentals. "Litecoin can process transactions quicker than bitcoin, and its quicker block time suggests that it can handle more capacity than bitcoin," stock-picker Sean Williams wrote in a 2018 article for The Motley Fool, adding "it most definitely has the tools to push aside bitcoin and become the go-to medium of exchange for digital currency users."

While Bitcoin and Litecoin may, relatively speaking, be the gold and silver of the cryptocurrency space today, history has shown that the status quo in this fast-moving and still-developing sector can change in even a few months. It remains to be seen whether the cryptocurrencies with which we have become familiar will retain their stature in the months and years to come.