Created in 2011, Litecoin is an evolution of Bitcoin. It’s built upon a modified version of Bitcoin’s original code.
As such, the two cryptocurrencies have a lot in common. However, specific code and algorithmic changes enable Litecoin to transact quicker and more cheaply than Bitcoin. This makes Litecoin a useful method for small payments.
Litecoin is the 10th largest cryptocurrency by market capitalisation, currently valued at $4.27bn. It’s used to purchase goods and services, or make payments. It can also be bought and traded on exchanges like BTC Markets.
How can Litecoin transact quicker and cheaper than Bitcoin? Why is it ideal for small payments? How is new Litecoin created? This guide answers those questions.
How does Litecoin transact faster and more cheaply than Bitcoin?
Litecoin transacts quicker than Bitcoin due to its ‘confirmation time’. Confirmation time is the period between submitting a cryptocurrency transaction and the assets being received. Litecoin’s confirmation time is 2.5 minutes. Compare this to Bitcoin’s 10 minutes, which is four times longer.
Bitcoin’s payment network can get busy. After all, it’s one of the most widely used cryptocurrencies in the world.
Computers processing Bitcoin payments work harder when network demand increases. To pay for this, transaction fees rise. The busier the network, the greater the fee. Users can even pay higher, specified fees to increase the speed of their transactions.
Litecoin’s network operates in much the same way. However, as its confirmation time is quicker, the network is less congested. This keeps transaction fees lower. As such, making everyday payments using Litecoin is more efficient than Bitcoin.
Why is Litecoin ideal for smaller payments?
Bitcoin, Litecoin, gold and silver are all scarce – only a finite amount will ever exist. Bitcoin is often described as ‘digital gold’ being limited to 21 million tokens.
Litecoin is more abundant than Bitcoin with 84 million tokens. As Litecoin is less expensive, it is considered the ‘silver’ cryptocurrency to Bitcoin’s ‘gold’.
Litecoin’s higher token limit and lower price makes it more practical for small payments. For example, you wish to pay a friend $170 with cryptocurrency. At the time of writing, each Litecoin or Bitcoin are worth $68 and $14,295 respectively. Given this, you could either send 0.0118925 Bitcoin, or 2.5 Litecoin.
How is new Litecoin created?
New Litecoin is created and enters circulation through a process called mining. This process is much like Bitcoin’s.
Miners are the worker bees of Litecoin’s blockchain network. They are specialised computers that verify and organise transactions on the network into ‘blocks’.
However, mining equipment is both expensive to buy and to run. To cover costs, miners are rewarded a set amount of freshly created Litecoin per block mined. Effectively, they digitally dig out new coins which then enter circulation.
Over time, the reward is reduced. This process, known as ‘halving’, is baked into Litecoin’s code. Occurring once every four years, halving decreases the mining reward by half.
Currently, 12.5 Litecoin’s are rewarded per block mined. The next halving, expected in August 2023, will see mining rewards halve to 6.25 Litecoin. The last Litecoin is estimated to be mined in 2142. There are currently 65.4 million Litecoin in circulation.
Halving ensures that Litecoin remains a deflationary asset. This means that as scarcity and demand increase, so too should the cryptocurrency’s value.
Since 2011, Litecoin has consistently been one of the best known and most valuable cryptocurrencies. It shows how digital assets can be used for everyday payments. Its continued development will ensure Litecoin is a major digital asset for years to come.