In this post, we’re going to take a look at Bitcoin vs. Litecoin. While both compete against each other for investor dollars, Bitcoin and Litecoin act as catalysts too. The two projects are driving innovation within the cryptocurrency space and the blockchain industry at large, allowing the world’s most devout libertarians to keep the dream of overthrowing the fiat banking system in favour of a truly democratic financial revolution alive.
Very few people know the true identity of Bitcoin’s inventor, Satoshi Nakamoto. There is still plenty of debate as to whether the name itself refers to a single person or a larger group of people. Litecoin on the other hand is the brainchild of former Google engineer Charlie Lee. Unlike Nakamoto, Lee is far from a mysterious presence in the cryptocurrency space. More than 825,000 people currently follow him on Twitter. Lee is also the former Director of Engineering at Coinbase, arguably the most popular online cryptocurrency wallet in the industry. His opinions on the state of the industry and his Litecoin price predictions regularly influence the market valuations of both.
In contrast, the anonymous nature of Nakamoto’s existence leaves the price speculation of Bitcoin to programmers, billionaire investors, media outlets and enthusiasts rather than any particular central Bitcoin figurehead.
The explosion of digital currencies is allowing for many investors, both retail and institutional, to claim quick profits and even rise to fame in the blockchain industry. As a result, many cryptocurrencies trading on the open market today offer use cases and value propositions that either aren’t clear or aren’t necessary. Lee’s use case for Litecoin on the other hand is certainly clear. It has been since the project’s inception in 2011. Allow for faster transaction times and lower the cost of those transactions. The hope Litecoin provided to enthusiasts in the beginning is what drove the project to exceed a $598 million valuation less than two years after launching.
Regardless of the application, use case or context, technology is always racing to make the world around us faster, more useful, efficient and intuitive. The underlying principles behind Liitecoin’s invention are no different. Given Bitcoin’s standing as cryptocurrency’s most valuable project over the last decade, it makes sense that Lee would create Litecoin using a large chunk of Bitcoin’s codebase as a foundation for the project. The approach makes sense given Litecoin is still ultimately a decentralized peer-to-peer payment system intended to democratize wealth.
While some elements of Litecoin’s codebase match that of its gold counterpart, there are some key differences between the two. A high-level overview proves the basic differences, but exploring the finer details also helps define the value of LTCs.
Let’s put them under a microscope!
Many novice investors decide what to invest in based on the price per share, or in this case the price per coin. That might be part of the reason Charlie Lee decided Litecoin’s total coin limit would include 84 million coins compared to Bitcoin’s 21 million. The decision encouraged the earliest of crypto enthusiasts to take a flier on a new entry into the market at a perceived lower price (not necessarily a lower market value of course). This helped drive interest in Litecoin well before the current day cryptocurrency craze that’s seeing double digit gains in price. When looking at Bitcoin vs. Litecoin price fluctuations, typically the patterns and fundamentals follow each other quite closely.
Pricing a coin to entice the young male audience that dominates cryptocurrency investment is one thing. Building Litecoin into a project that offers clear advantages over Bitcoin is another. Lee was smart in using a different algorithm and shorter average block time within the coin’s coding structure.
While the algorithms of both coins operate using a proof-of-work model (meaning they reward miners with coins in exchange for solving calculations that maintain the network). The key difference between the algorithms is that Litecoin doesn’t use the SHA-256 algorithm that Bitcoin implements.
The SHA-256 algorithm allows for solving calculations using parallel processing. This mechanism is what makes it more difficult to mine bitcoins over time. It’s also what makes ASIC based mining equipment a hot commodity as Bitcoin’s mainstream popularity continually grows.
Litecoin opts for a different approach using an algorithm called Scrypt. Scrypt allows for a more serialised approach to solving hashing calculations, which means Litecoin’s mining isn’t solely dependent on the processing power of the computers supporting the network. Scrypt works better using random access memory (RAM), which in the early days of both coins proved more efficient and enabled the Litecoin blockchain to post transactions faster.
This is part of the reason that all these years later, Litecoin still processes transactions twice as fast as Bitcoin, despite upgrades to Bitcoin’s network (more on that in a little bit) that help maintain its position as the world’s most valuable cryptocurrency.
The Scrypt algorithm and shorter average block time means Litecoin facilitates a larger number of transactions at a higher speed than Bitcoin.
A block is like a page in a ledger or a record book. It records some or all of the cryptocurrency transactions that have not been recorded on the previous block. This is true for both Bitcoin and Litecoin. The average block time for Bitcoin is 10 minutes. For Litecoin, it’s just two minutes and thirty seconds.
This means that at its inception, Litecoin was designed to handle four times more transactions than the Bitcoin blockchain. The main disadvantage of this is that Litecoin’s blockchain is much larger than Bitcoin’s and more blocks on the ledger would act as orphans over time. Orphan blocks are what result when two miners mine a block in close succession. This can create a lag in the network when transactions are being verified and slow down the network.
Overall, a faster average block time is still a great advantage because it reduces the possibility of hackers and ill-willed participants facilitating double spending attacks. A double spending attack is the digital equivalent of counterfeiting fiat currency.
Think of it this way. A criminal counterfeiting paper money makes copies of the money that appear to be legitimate and passes them off as such. He now has double the spending power he had before reproducing the paper money. In the digital currency world, coins produced by a blockchain are represented by individual digital files within a network. Hackers can attempt to make copies of these files and pass them off as real coins. This process takes time and involves critical planning to execute. The fact that Litecoin’s block time is so much faster than Bitcoin’s in theory means that it is much more difficult to launch this kind of attack because the blocks will be validated before a hacker can take advantage of the files on the blockchain.
Joseph Poon and Thaddeus Dryja published The Bitcoin Lightning Network: Scaling Off-Chain Instant Payments in 2016. As the title of the whitepaper implies, The Lightning Network is known as a “Layer 2” payment protocol that operates on top of a blockchain’s existing layer. It features the same peer-to-peer system that Bitcoin is known for but allows users to make micro-payments on the network without having to pay an exorbitant transaction fee back to the network.
Costs became a huge concern for crypto enthusiasts in 2017, when prices ballooned to record highs and the number of people completing transactions on the Bitcoin network grew exponentially as a result. Transaction times became slower and the fees to facilitate such transactions grew in a disproportionate amount. All of a sudden it wasn’t worth it to send $50 in Bitcoin to a friend anymore, because fees were sometimes 50% of that amount.
Both the Lightning Network upgrade and Litecoin came to be with good intentions for the end user, as all cryptocurrency projects promise. The problem for Litecoin is that the Lightning Network effectively wiped out the value of its use case. The upgrade made exchanging value on Bitcoin’s network cheap and fast again.
Optimal transaction times and lower fees means Bitcoin will continue to be the “entry level” cryptocurrency of new cryptocurrency converts, maintain its value. Early adopters of cryptocurrency and it’s most devoted fans will keep Litecoin in the second tier of the cryptosphere unless innovation says otherwise.
That’s not the only reason Litecoin is still chasing its gold equivalent. Charlie Lee sold many of his own litecoins at the height of the crypto boom in 2017. This temporarily drove the perception that the project lacked direction moving forward and simply wasn’t as valuable as other projects.
With all of the ups, downs, changes and rearrangements accounted for, Litecoin still currently ranks as the fifth most valuable cryptocurrency in the world today. Not bad for a project that in many ways is a fork of the king’s code. Whether Litecoin ever becomes the most valuable coin in the world depends on what happens in the future.
The Litecoin Foundation recently announced the project is finalizing a deal with a travel booking company called TravelByBit. The deal will make it possible for users to pay for flights and hotels at over a million different locations using Litecoin. The agreement extends a pre-existing relationship between the two organizations. Just last year, TravelByBit arranged a deal with an Australian airport in the city of Brisbane that allows customers to buy flights with Litecoin.
The news is very promising, yet it still seems that Litecoin and other top altcoins will continue to take a backseat to digital gold. Fortunately for most crypto investors, a bigger news announcement is driving the market valuations of all cryptos and that includes LTC.
Purists are rightly knocking down the value of Facebook’s own cryptocurrency called Libra. Even government officials in the United States’ House of Representatives are knocking the project with one constituent suggesting Libra is an attempt at a private company starting a bank while skirting government regulations. The merit of Libra is still very much up for debate.
The good news is Bitcoin’s value is up more than 40% in just over a week. The public perception is obviously that a large publicly traded company taking a dive into the space is a huge sign of adoption. The downside is anyone that believes crypto projects were always meant to be completely democratic with no central figure controlling data or the exchange of currency won’t support it.
At the present moment the market is clearly benefiting from bullish sentiment, but will it all come crashing down in a few months if governments race to kill Facebook’s crypto dreams? Only time will tell. When it comes to Bitcoin vs. Litecoin, the fact that both Bitcoin, Litecoin and many other cryptocurrencies are seeing valuations double or triple in short order is good news to investors.
Many people who’ve been into cryptocurrency for a few years now might be hoping Facebook’s foray into the industry sparks bigger companies like Amazon to start accepting cryptocurrencies on a mass scale. Even if that doesn’t happen, both Bitcoin and Litecoin could continue to skyrocket in value thanks to upcoming halving events.
At a predetermined intervals of blocks being mined, both projects cut the number of coins rewarded to miners in half. This is what stimulates the economy of both currencies and makes them more valuable in the long term. It also helps that both Bitcoin and Litecoin have predetermined total coin limits. This means the money supply available on both blockchains can’t be artificially inflated.
At the time of this writing, Litecoin’s halving date is just 37 days away. In contrast, Bitcoin’s halving event is scheduled to trigger in 2020. The values of both coins will no doubt increase relative to the rest of the market. The tough part of all of this is predicting what will happen if Facebook’s ambitions get shut down.
We’ll soon find out the answer to that, but in the meanwhile its safe to assume that both Bitcoin and Litecoin will continue to rank among the top cryptocurrencies in the world for a long time to come.
When evaluating Bitcoin vs. Litecoin, there is a lot to assess when searching for fundamental value of both cryptocurrencies.
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