The birth of Bitcoin in 2009 created a new financial era involving decentralized cryptocurrencies. While Bitcoin was seen as the gold standard at that time, it had its flaws. Charlie Lee introduced Litecoin in 2011 as an alternative cryptocurrency based on the model of Bitcoin. Despite its lower market cap, Litecoin has proven to be much faster and cheaper than Bitcoin.
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Similarities Between Bitcoin and Litecoin
Litecoin (LTC) and Bitcoin (BTC) are both decentralized cryptocurrencies that are not regulated by any central authority. They also share a similar consensus mechanism as well as the transaction method.
Proof-of-Work Consensus Mechanism
Both cryptocurrencies are mined using the same process. They use the Proof-of-Work (PoW) consensus mechanism to add new blocks to the blockchain. This mechanism rewards the first person that solves a computational problem (i.e. mining) to achieve distributed consensus.
Storage and Transaction Method
Both Litecoin and Bitcoin can be bought and traded via a cryptocurrency exchange. They can also be stored in a digital or cold storage wallet for safekeeping between transactions.
Differences Between Bitcoin and Litecoin
Litecoin and Bitcoin seem similar on the surface but they are two very different cryptocurrencies.
While they both use the PoW consensus mechanism to add new blocks, they employ different cryptographic mining algorithms. Bitcoin uses the SHA-256 algorithm while Litcoin uses a comparatively new algorithm known as Scrypt that is less complex than Bitcoin’s. Even so, you would still need an ASIC miner to mine either Bitcoin or Litecoin, which can be costly.
2. Transaction Speed
One of the better qualities of Litecoin compared to Bitcoin is its higher transaction speed. Litecoin has a maximum capacity of 56 transactions per second (tps) while Bitcoin’s is only around 7 tps.
The average transaction time for Litecoin is 2.5 minutes whereas Bitcoin transaction takes around 10 minutes to be fully validated and added to the blockchain.
3. Transaction Fees
Another feature where Litecoin outperforms Bitcoin is its lower transaction fees. You can expect to pay around $0.04 on average in transaction fees with Litecoin whereas Bitcoin charges $7.60 on average. The low fees with Litecoin are due to the fact that the LTC rewarded to miners doesn’t come from the transaction fees unlike with Bitcoin.
4. Coin Limit and Block Rewards
Bitcoin’s supply is limited to 21 million BTC whereas that of Litecoin is limited to 84 million LTC. As the coins are used to reward miners, the rewards are designed to halve at given intervals to limit the number of new coins released and create scarcity. Bitcoin rewards are halved every 210,000 blocks whereas Litecoin rewards are halved every 840,000 blocks. These events occur roughly every 4 years.
5. Value and Market Cap
As the first-ever cryptocurrency, Bitcoin is regarded as more of a store of value rather than for day-to-day transactions. At the time of writing, its value is at $47,360 with an $891 billion market cap. It remains the highest of all cryptocurrencies.
Litecoin isn’t as popular but it is considered more attractive to merchants as an everyday digital currency. Its value is currently at $182 with a $3 billion market cap.
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Future of Bitcoin and Litecoin
It’s worth thinking of Litecoin as a complement to Bitcoin rather than a competitor. Each has its function and place as a leader in the crypto market.
Due to its prestige as the first cryptocurrency, Bitcoin will likely keep its role as digital gold. Being the silver to Bitcoin’s gold while supporting extremely low-cost peer-to-peer transactions, Litecoin would continue to be a prominent cryptocurrency.
How To Bitcoin
While we at Coingecko are bullish about the crypto market in general, we also strongly encourage you to do your own research. We have published a How To Bitcoin eBook for you to explore the Bitcoin movement and start investing in it.
Diyana helps you to make sense of the complicated stuff. Follow the author on Twitter @diyana_eco