Like all cryptocurrencies, Litecoin needs to be mined before it can undergo distribution. But how does one participate in Litecoin mining? How is it different from mining for bitcoin? This article will explain how the process works, as well as compare and contrast the two cryptocurrencies.
Following the success of Bitcoin, an array of other digital currencies were starting to appear on the market. It is fallacious to assume that these new cryptocurrencies were just “following the leader,” hoping to replicate Bitcoin’s achievements. While this belief may not be completely false, it negates the fact that most do it for the sake of adding variety. A majority of cryptos you will find on the market usually intend on fixing Bitcoin’s shortcomings. Alternatively, the developers simply wish to do something original with their creation.
Whatever their reasons may be, they clearly work because now we have a wide variety of cryptocurrencies to choose from. Those in the top 10 of the CoinMarketCap are close to reaching Bitcoin’s level of success. One of these digital currencies, currently at the #7 spot, is Litecoin.
Litecoin is an alternative cryptocurrency that draws from the model of Bitcoin. MIT graduate and former Google engineer, Charlie Lee, is responsible for Litecoin creation. Litecoin’s foundation stems from an open-source global payment network that is not under the control of any central authority. Litecoin diverges from Bitcoin in various aspects like a faster block generation rate and using scrypt as a proof-of-work (PoW) scheme.
How it all began
Before we get into the intricacies of Litecoin mining, we need to go back to the beginning. Specifically, we need to go over the origins of Litecoin.
Litecoin’s creation took place back in 2011 by the developer and former Google employee, Charlie Lee. Its release was via an open-source client on GitHub. It is commonly referred to as being the “silver” to Bitcoin’s “gold.” This is due to the fact that it utilizes a large chunk of the Bitcoin codebase. However, it remains a separate chain; one that would become increasingly popular. Evidently, it does not quite reach the same level of popularity as Bitcoin or even Ethereum in terms of market cap. That does not detract from its prominence, though.
With the title of “money for the Internet age,” Litecoin’s initial design had a specific mission in mind. Its intent was to be a peer-to-peer Internet currency that enables instantaneous, near-zero cost payments worldwide. Another reason for its creation was to support Bitcoin’s goal to solve the world’s continuously increasing and complex payment needs. It is because of this progressive thinking and interesting approach that Litecoin grew in mainstream popularity.
For some time, Litecoin was living in Bitcoin’s shadows. That didn’t stop it from remaining a key player in the industry, though. In 2013, it would take a significant leap. There are many factors that aided in its surge in popularity.
- Mining could occur on a simple computer without the requirement of expensive mining rigs.
- The production of a considerably larger number of coins in comparison to other cryptos.
- The mass appeal of the flexibility of the Litecoin team, who were adapting code and frequent experimentation for necessary improvements.
It also helps that there are regular upgrades that make sure all Litecoin software is functioning properly.
Litecoin would remain in the spotlight for a long time, being able to remain in the top 10 on the CoinMarketCap. In May 2017, Litecoin would take it a step further and adopt the Segregated Witness protocol. As a result, they jumped on Bitcoin’s upgrade process.
Segregated Witness (aka. ‘SegWit’) is a protocol upgrade with the intent to provide protection from ‘transaction malleability.’ In addition, it aims to increase block capacity. It’s a procedure in which the block size limit on a blockchain increases by omitting signature data from Bitcoin transactions. By removing parts of a transaction, this effectively makes enough space/capacity to include more transactions to the chain.
This would go on to establish the Lightning Network in the Litecoin software. After this initiation, transaction speeds became significantly faster. This would result in Litecoin prices skyrocketing from $3 to $300. Litecoin was later able to reach an all-time high of $360.66 in December of 2017.
An appealing feature of the Lightning Network upgrade is that it makes cross-blockchain atomic swaps considerably easy. In essence, it allows users to effortlessly swap their cryptos without the need for an exchange. The technology permits a single cryptocurrency to exchange for another without needing to involve an intermediary, like a cryptocurrency exchange. Moreover, the network reduces transaction fees in association with the system. Transactions that go through the Lightning Network are instantaneous.
Litecoin vs. Bitcoin
So, having alluded to various distinctions between Litecoin and Bitcoin, what exactly separates the two? Well, beyond their different levels of popularity, there are differences concerning their coin limit, algorithm, and block generation time. There are several others, but these are the main three factors that are the go-to in a comparison between them.
Litecoin has many benefits that Bitcoin does not. Probably one of its most notable features is faster transaction speeds, with block times of just 2.5 minutes. In Bitcoin’s case, their block times are 10 minutes, meaning Litecoin designs roughly four times as many blocks. With these numbers, it is apparent that Litecoin’s primary appeal over Bitcoin pertains to its speed and ease of acquisition.
Litecoin’s consensus protocol is ‘scrypt’. Many are of the belief that this protocol is comparatively safer than the ‘SHA-256’ that PoW miners use in Bitcoin. One of the key features of scrypt is the fact it is very memory intensive. What this basically means is it’s much harder to mine in pools. This is because tasks are unable to load asynchronously. This, in turn, makes it a lot more difficult for anyone to commit a 51% attack on the network.
Because Litecoin uses scrypt as a PoW algorithm, there is a slight catch. If you want to use mining hardware, then you’re going to need an excessive amount of processing power. This makes using a graphics processing unit (GPU) mining rig or an application-specific integrated circuit (ASIC) miner tricky.
Overall, the main significance that comes from the different algorithms is their impact on the process of ‘mining’. In other words, how they generate and distribute new coins. From here, we can finally transition into the topic of mining.
The basic definition of crypto-mining
Cryptocurrency mining, alternatively crypto-mining, is a procedure in which transactions of cryptocurrency undergo verification. Afterward, they are added to the blockchain digital ledger. Whenever there is a cryptocurrency transaction, a cryptocurrency miner is responsible for ensuring the authenticity of the information. Furthermore, it is their job to update the blockchain with the information on the transaction. It is a great way to garner a profit while simultaneously supporting a developing industry.
The mining process itself involves going up against other crypto-miners. You need to solve a series of complex mathematical problems with cryptographic hash functions. Specifically, ones that associate with a block containing the transaction data.
In terms of PoW cryptocurrencies like Bitcoin and Litecoin, mining is the process that focuses primarily on blockchain maintenance. Miners receive transaction data broadcast by the numerous participants in the network since the discovery of the last block. They then assemble those transactions into ‘Merkle tree’ structures and they work to find an adequate hash.
For context, a ‘hash’ is the outcome of running a one-way cryptographic algorithm on a chunk of data. A dataset will only ever return one hash. However, it is impossible to use the hash as a way to recreate the data. Instead, its purpose is to guarantee that the data has not been subject to any tampering. If so much as one number of changes in an arbitrarily long string of transactions, then the hash will emerge differently.
A cutthroat practice
Let’s cut to the chase: bitcoin and litecoin mining is very competitive. You can easily see it as a type of race. To elaborate, a race to see which miner can generate a hash that is smaller than the network’s target first. Successfully accomplishing this means that they effectively “found” a new block. For their efforts, they will receive the block reward and any transaction fees that are present in the block.
There is no way to know what nonce (“number only used once”) will produce a below-target hash. Because of this, miners’ results are subject to two factors: luck and computing power. The former, of course, is out of their control, but one can easily buy (or steal) the latter.
Obviously, miners wish to maximize their computing power. To do this, they decide to develop specially-designed gear that will allow them to quickly plow through hash functions. They would go on to assemble enormous collections of these machines and pool their resources. Their concentration is mainly in areas where electricity is cheap, which will maximize their profits. The results of these trends would lead to the escalating centralization and professionalization of crypto-mining.
The proper hardware
It’s safe to say that an initial claim of Lee’s does not hold up. That being the ability to engage in litecoin mining using a computer’s central processing unit (CPU). Litecoin uses the scrypt hash function from Tenebrix, which is an early altcoin. The reason for Lee adopting this is that “using Scrypt allows one to mine litecoin while also mining Bitcoin.” This means that Litecoin will not get into a competition with Bitcoin when it comes to miners. Needless to say, a lot has changed, and litecoin mining is only lucrative with specialized equipment.
By choosing to incorporate scrypt, Lee effectively allows litecoin mining with the use of CPUs. That, however, did not last long either. Eventually, GPUs were the main equipment for mining litecoin, too. Then, following further development, ASICs were able to run SHA-256. This would result in bitcoin miners abandoning GPUs.
Soon enough, ASICs would receive more development, making it compatible with scrypt. Nowadays, it would be extremely difficult to turn a profit using anything other than ASICs. One ASIC that is popular for scrypt mining is Bitmain’s Antminer L3+. However, these tend to sell out almost immediately, so you need to make sure you are always up-to-date. Moreover, the company only accepts Bitcoin cash and USD wire transfers; for some batches, it only takes the former.
Alternatives are available, but the newer ASICs often run at least $2,000 and they sell out rather quickly. Older ASICs are not competitive, which ultimately makes it hard for them to turn a profit.
If you want to learn more about crypto-mining hardware, read “Cryptocurrency Mining Hardware Buyers Guide.”
Software for Litecoin miners
In the case of ASIC mining, the hardware will likely come with mining software already installed. However, if you are instead engaging in CPU or GPU mining, then you will need to choose your own software. You should, above all else, keep the topic of security in mind as you are looking through your options. It is not outlandish to assume that a software package could potentially contain malware. You need to also be on the lookout for other shifty – if not downright malicious – behavior. It is frighteningly easy to find yourself accidentally mining on behalf of the software developer. This is largely due to their system setting up their worker as the default.
Oftentimes, graphical user interface (GUI) versions of mining software are not available. Because of this, it is likely that you will need to use the command line. Both the software provider and your pool (more on this later) should explain the necessary steps to you. It is important to remember that you do not follow instructions from sources you do not trust. It is so easy to unintentionally cause damage to your system using the command line. As sad as it is, tricking novices into doing so is the intention of those with malicious intent.
Litecoin mining: solo or in a pool?
Okay, so now you have a good idea of the equipment that you will use to mine. At this point, you have another question to consider: are you going to mine solo or in a pool?
When you mine alone, you risk going long periods of time without uncovering a block. If you manage to find one while mining solo, you keep it all; all of the Litecoin it is worth, plus fees. Remember, though, that this trade off only exists if you possess a lot of hash power. In other words, you have multiple ASICs. If you solo mine while using GPU or CPU, then it is unlikely that Litecoin mining will be that profitable.
Pool mining is when large numbers of miners combine and distribute the proceeds. Specifically, in accordance with the hash power contributed. This process is still susceptible to the quirks that derive from chance. Your pool may manage to find three blocks out of 10, then wait for 200 blocks to discover another one. Nevertheless, there is a high probability of your earnings being considerably more steady with a pool. The tradeoff, in this case, is that you will only receive a small cut of each block that the pool finds.
An additional aspect of pools that you should take into consideration is security. There is an array of pools that have excellent reputations. However, not all have that luxury. Other pools fall on the spectrum from dubious management to scams, plain and simple. Even some of the most competent operations with nothing but good intentions can potentially fall victim to hackers.
If you make the choice to join a pool, remember to do research on its history. Moreover, look into customer reviews and the leadership team. With exchanges and other third-party custodians, try to keep as little of your litecoin as possible with the pool. Instead, you should transfer it to your favored wallet type (more on this later).
The final thing that you should keep in mind when considering Litecoin mining is the market concentration of the pool you choose to join. Admittedly, it can be rather tempting to join the biggest pool. They are likely to offer the greatest chance of frequent block discovery and turning a decent profit. Should your pool reach half the network’s hashing power, it is indicative of a risk to the Litecoin network overall. It is very likely that the pool has little to no incentive to execute a 51% attack itself. Doing so would deteriorate the confidence in Litecoin and cause damage to the price. However, Lee points out the following:
“…with centralized mining, then there are a few parties where governments or malicious entities can actually approach those parties and coerce them into doing something bad for the coin.”
Now that you have Litecoin, you obviously need a place to store them. You will need a wallet. A cryptocurrency wallet is a software program that acts as storage for private and public keys. They also interact with several blockchains to enable users to send and receive digital currency. Moreover, keep an eye on their balance.
You have a wide range of options, which enforce tradeoffs regarding both security and convenience. Probably the best balance is to download the Litecoin Core client, which will take up roughly 15 gigabytes of space. This is mostly because the client downloads the entire litecoin blockchain. You can change these files’ storage location, so it is entirely possible to keep them on an external hard drive.
Litecoin Core is the most prominent wallet software for Litecoin, implying that it is rather secure. You can use it to send and receive Litecoin, which in turn makes it quite convenient. So long as it syncs with the network, it will contribute to Litecoin’s overall health. It will run ‘full nodes’, which aids in keeping Litecoin decentralized, regardless of if you are mining.
Is your priority security? If so, then it is best that you keep your litecoin in one or more cold wallets. Basically, ones that have no connection to the Internet and never will. People that are handling large sums of cryptocurrency will usually generate key pairs on computers that are fully air-gapped. There are others that use paper wallets. This means that they store their keys in physical form as either QR codes or strings of numbers and letters. There are a good amount of people who support ‘brain wallets’. In other words, remembering a series of random “seed” words that are useful for private key recreation.
On the other end of the spectrum, you’ve got cryptocurrency exchanges for those who have been mining Litecoin. These provide arguably the most convenient experience that is available for those who hold a cryptocurrency. When you keep your Litecoin on an exchange, you have the ability to promptly trade it for fiat currency. That is to say, you can do it relatively. Some of the best exchanges are no strangers to frequent trading outages. Historically speaking, cryptocurrency exchanges are prone to experiencing massive hacks and astonishing collapses.
Exchanges keep your private keys in custody. Therefore, while you might legally or theoretically be in control of your litecoin, you are unable to actually move it. All you can do is ask the exchange to do it for you.
Setting up workers
At the risk of stating the obvious, selecting a pool can be a stressful task. Choosing a wallet can be just as stressful. Litecoin is almost unhackable, but that’s only if no pool gains more than 50% of the network’s hash power. However, every layer between you and the Litecoin network requires a measure of trust. What’s more, it has the potential to threaten your security.
With that in mind, setting up a worker is a welcome reprieve with no precaution requirement. A worker is representative of a computer or mining rig on a pool. You may have one, or you may want to set up several. Each one corresponds to a different machine. The workers will each have a username that is all housed under your username at the mining pool. In addition, they will have a password. Should someone jeopardize your worker, then all they will be able to do is mine cryptocurrency for you.