What Is Litecoin?

Litecoin is a cryptocurrency that was founded in 2011, two years after bitcoin, by a former Google engineer named Charlie Lee. Measured by market capitalization, Litecoin is the ninth-largest cryptocurrency.

Initially, it was a strong competitor to bitcoin. However, as the cryptocurrency market has become more saturated in recent years with new offerings, Litecoins popularity has waned.

Litecoin has always been viewed as a reaction to bitcoin. In fact, when Lee announced the debut of Litecoin on a popular bitcoin forum, he called it the lite version of Bitcoin. For this reason, Litecoin has many of the same features as bitcoin, while also adapting and changing some other aspects that the development team felt could be improved.

Key Takeaways

  • Litecoin is a cryptocurrency that was founded in 2011, two years after bitcoin, by a former Google engineer named Charlie Lee.
  • Litecoin can be used as an avenue for paying people anywhere in the world without an intermediary having to process the transaction. 
  • Measured by market capitalization, Litecoin is the sixteenth-largest cryptocurrency.
  • There will never be more than 84 million Litecoins in circulation.
  • On August 31, 2021, the value of one Litecoin was $168.50.

Understanding Litecoin

Like other decentralized cryptocurrencies, Litecoin is not issued by a government, which historically has been the only entity that society trusts to issue money. Instead of being regulated by a central bank and coming off the press at the Bureau of Engraving and Printing, Litecoins are created by an elaborate cryptocurrency procedure called mining, which consists of processing a list of Litecoin transactions.

Unlike traditional currencies, the supply of Litecoins is fixed. There will never be more than 84 million Litecoins in circulation. Every 2.5 minutes, the Litecoin network generates a new block–a ledger entry of recent Litecoin transactions throughout the world. 

The block is verified by mining software and made visible to any system participant (called a miner) who wants to see it. Once a miner verifies it, the next block enters the chain, which is a record of every Litecoin transaction ever made.

There are incentives for mining Litecoin: the first miner to successfully verify a block is rewarded with 12.5 Litecoins. The number of Litecoins awarded for such a task reduces with time. In August 2019, it was halved, and the halving will continue at regular intervals until the 84,000,000th Litecoin is mined.

Mining cryptocurrency at a rate worthwhile to the miners requires a huge amount of processing power, courtesy of specialized hardware. The central processing unit in most personal computers isn’t fast enough to mine most cryptocurrencies. However, Litecoin can be differentiated from the majority of other cryptocurrencies because it can be mined with personal computers. Although the greater a machine’s capacity for mining, the better the chance it’ll earn something of value for a miner.

Any currency–even the U.S. dollar or gold bullion–is only as valuable as society thinks it is. If the Federal Reserve started circulating too many banknotes, the value of the dollar would plummet in short order. This phenomenon transcends currency. Any good or service becomes less valuable the more readily and cheaply available it is. The creators of Litecoin understood from the start that it would be difficult for a new currency to develop a reputation in the marketplace. But by restricting the number of Litecoins in circulation, the founders could at least allay people’s fears of overproduction.

The Litecoin Foundation estimates that it will be around 2142 when the maximum of 84 million Litecoins will be reached.

How Is Litecoin Different than Bitcoin?

The most important distinction between Litecoin and Bitcoin is the different cryptographic algorithms that they employ. Bitcoin uses the SHA-256 algorithm, whereas Litecoin makes use of a newer algorithm, called scrypt.

Litecoin has some inherent advantages when compared to bitcoin. It was founded with the goal of prioritizing transaction speed, and this is a major reason for its popularity. The bitcoin network’s average transaction confirmation time is currently just under nine minutes per transaction, while Litecoins is roughly 2.5 minutes. Litecoins network can handle more transactions because of its shorter block generation time.

Bitcoin has a significantly greater market capitalization than Litecoin. As of August 31, 2021, the total value of all bitcoins in circulation is around $1 trillion, while the market capitalization of Litecoin is around $11.9 billion. Bitcoins market capitalization still dwarfs all other digital currencies.

Both bitcoin and Litecoin have fixed supplies. However, bitcoins supply is limited to only 21 million coins, while Litecoins total fixed supply is 84 million coins.

Goals of Litecoin

Litecoin, like all virtual currencies, is a form of digital money. Both individuals and institutions can use Litecoin to purchase things and to transfer funds between accounts. Participants can make transactions with Litecoin without the use of an intermediary like a bank, credit card company, or payment processing service.

Rather than focusing on its functionality, many investors are interested in Litecoin as a potential long-term holding. Similar to investments in any type of currency, investors are speculating that Litecoin will build relative wealth over time.

Litecoin FAQs

What Is Litecoin and How Does It Work?

Litecoin is a peer-to-peer virtual currency, which means it is not governed by a central authority. Litecoins network offers instant, near-zero cost payments that can be conducted by individuals or institutions across the globe. Bitcoin, Litecoin, and many other cryptocurrencies use the proof-of-work (PoW) algorithm in order to secure their networks. Basically, PoW requires that one party proves to all the other participating parties in the network that a required amount of computational effort has been expended.

What Is Litecoin Used For?

Litecoin can be used as an avenue for paying people anywhere in the world without an intermediary having to process the transaction. 

What Is the Highest Litecoin’s Price Has Been?

On August 31, 2021, the value of Litecoin was $168.50. In May 2021, the value of Litecoin surpassed $380.

When Was Litecoin’s Last Halving?

Like bitcoin, the creation of Litecoin tokens involves a process called mining. For participating in the act of mining, miners are rewarded with Litecoin. A Litecoin halving refers to an instance of halving the amount of Litecoin rewards that miners are given for each block.

Litecoin halvings aim to preserve Litecoin’s purchasing power. The last Litecoin halving took place on August 5, 2019. On this date, the mining reward was reduced from 25 Litecoins per block to 12.5 Litecoins per block.

How Many Litecoins Are Left?

There will ultimately only be 84 million Litecoins in circulation. In August 2021, there were 66,752,615 Litecoins in circulation.

The Bottom Line

Once a currency reaches a critical mass of users who are confident that the currency is indeed what it represents and probably won’t lose its value, it can sustain itself as a method of payment. Litecoin isn’t anywhere near universally accepted. But as cryptocurrencies become more readily accepted and their values stabilize, one or two of them–possibly including Litecoin–will emerge as the standard currencies of the digital realm.

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 individuals 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 Litecoins.

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