Bitcoin has made a profound impact on cryptocurrency and the structure of online transactions as a whole. Since its creation over a decade ago, it is almost impossible to find a system associated with cryptocurrency that has not been in some way influenced by or designed by Bitcoin.
With that said, there has been another form of digital, open-source currency that has been developing in recent years to counteract the frailties that are found within Bitcoin’s methods of operation. This particular system is called ‘Litecoin.’ Now going by the name itself, it is fair to assume that this and Bitcoin ought to have some similarities, whether they be minuscule or enormous. While they do in fact have a few elements in common with each other, they are not as alike as one might think.
The purpose of this article is not to claim that one is more superior than the other, rather it is just to provide an overview of each system and also a way to compare the two so that their differences can be made more transparent.
Exhibit A: Bitcoin
Bitcoin is a type of digital currency created by Satoshi Nakamoto to follow ideas that were set up in his constructed ‘white paper.’ It maintains records of transactions and new units of currency are generated based off the solution of a series of complex mathematical problems. It is an independent system that essentially functions on a peer-to-peer network.
It harnesses the use of ‘public keys’ and ‘private keys’ to manage its balance. The public key works like a bank account number, serving as the address published to the world that is also where others send their Bitcoins. The private key acts as an ATM PIN number; it is used to authorize transactions, but otherwise must be kept completely confidential.
Those in the decentralized peer network are individuals and independent companies who participate and govern the computing power are known as “miners”, who work to earn rewards (a new Bitcoin’s release). These miners are responsible for Bitcoins being delivered into circulation, with their primary goal being to discover blocks that are full of transaction data and add them to the blockchain.
A Bitcoin’s price is typically dependent on the size of its mining network. The larger the network is, the more difficult the mathematical problem is to solve, thereby allowing the block distribution to run its process at a steady pace.
There are numerous ways to earn bitcoins, some of which include:
- Receiving it as a means of payment. Online businesses often accept Bitcoins as a form of payment.
- People who are self-employed can get paid in Bitcoins. Some websites that offer digital currency are Coinality (features jobs from freelance to full-time), BitGigs, and Jobs4Bitcoins (a Reddit forum).
- Lending out Bitcoins and then being repaid in the currency. Lending the coins can take three different forms: 1) direct lending to someone you know, 2) done through a website that assists in peer transactions and pairs borrowers with lenders, or 3) depositing coins into a virtual bank that offers interest rates of Bitcoin accounts.
- If you are feeling lucky, gambling in online lotteries, spread betting, and jackpots are also viable – if not risky – options.
At the time of this writing, a Bitcoin’s worth is roughly $4,505 in Canadian dollars.
Exhibit B: Litecoin
Created by Google engineer, Charlie Lee, Litecoin is an open source software that works with peer-to-peer cryptocurrency. It is a decentralized system of finance where the transactions cannot be censored, nor can the financial activities. It is used for economic, political, and social purposes.
What makes this system special is that the blockchain belonging to it can handle higher transaction volume in comparison to Bitcoin. Merchants get efficient confirmation times thanks to the frequent block generation. It uses ‘script’ as its ‘proof of work’ function. Script is a password-based key source with an algorithm that was designed to make performing large-scale hardware attacks a costly feat by requiring a huge amount of memory.
Overall, the system’s goal is to improve the shortcomings of Bitcoin’s system. Though it is still below Bitcoin when measuring market capitalization in cryptocurrency, it is still considered one of the largest, with more than 50 million coins in circulation.
At the time of this writing, a Litecoin’s worth is roughly $43 Canadian dollars.
So what are some of the differences?
Now that the basic definitions of Bitcoin and Litecoin have been established – or as basic as they can be given the intricacy of each system – it is time to dive into a more detailed explanation of what differentiates the two from each other. There are many components that could be compared and contrasted, but to keep this article concise, three of the most prominent elements will be explored: the algorithm, the coin limit, and the transaction speed.
Bitcoin uses SHA-256 as its main algorithm, whereas Litecoin uses – as previously mentioned – script. SHA-256’s claim to fame is its complexity, making it more favorable when it comes to steady distribution. Script, on the other hand, is considered to be more accessible due to being less susceptible to custom hardware solutions that are used in ASIC (Application-Specific Integrated Circuits) mining.
Bitcoin has a coin limit of 21 million and Litecoin’s is 84 million. While Litecoin does indeed have the larger amount, keep in mind that the price for a single Litecoin unit is much smaller compared to a Bitcoin unit. Users should, therefore, have little difficulties in purchasing low-priced goods, however, the pace of distribution may not always be as steady as Bitcoin.
The average transaction confirmation time on Bitcoin is more or less 10 minutes long, and on the flipside, Litecoin’s transaction confirmation speed is roughly 2.5 minutes. As appealing as Litecoin’s reduced speed may look, this allows merchants to accept transactions without waiting for confirmation. Needless to say, these zero-confirmation transactions have garnered mixed reception from users and is the subject of some debate.
To reiterate, this article was not written out of a desire to proclaim one cryptocurrency system is of a higher caliber and is, therefore, more superior than the other. To do so would transform this from an informative piece to something that is completely subjective. The purpose of this article was to shine some light on the benefits and the flaws of each system and to compare the two so that there would not be any more confusion as to which is which.
Investopedia editor, Jake Frankenfield, described Litecoin’s relationship with Bitcoin as it is “the silver to Bitcoin’s ‘gold’.” To say anything else pertaining to how one would illustrate these systems in relation to each other would be pointless.