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Litecoin’s creator, Charlie Lee, calls the cryptocurrency the “silver to Bitcoin’s gold.” Apart from sharing the same codebase, the price swings of both cryptocurrencies are pretty similar in the cryptocurrency markets, rising and falling in lockstep.
They also work well together. Bitcoin’s original goal was to become an everyday transactional currency. However, due to scaling issues, it has been unable to perform that role. Meanwhile, Litecoin has taken up the mantle, including scaling technology into its ecosystem to enable digital payments on its network. Litecoin experienced a “phenomenal” year in 2017, according to some analysts. As of 2021, 3,178 merchants throughout the world accept Litecoin as payment.
Observers may be perplexed by the similarities between the two cryptocurrencies, mainly because the cryptocurrency ecosystem is built on diversity in uses. However, it was primarily owing to Lee’s deliberate desire to make Litecoin follow bitcoin. In a 2018 interview, he explained why he made the decision he did.
Why Does Litecoin Follow Bitcoin? Key Differences Between The Two Coins
In 2009, the first cryptocurrency, Bitcoin, was established. It has progressed from a curiosity to a contentious commodity, investment, and exchangeable money since then. It uses decentralized and communal computing power to keep a centralized database, known as a blockchain, valid and secure.
The following are some prominent Bitcoin characteristics that set it apart:
- Proof-of-work is a consensus method and validation procedure that verifies transactions and blocks on the blockchain by utilizing the processing capacity of GPUs (and, to a lesser degree, CPUs).
- The cryptographic hash algorithm SHA-256 is used to encrypt the blockchain. To encrypt data, the hash function converts input to a fixed-length output.
In 2011, a former Google employee, Charlie Lee, unveiled the “lite version of Bitcoin” in a posting on a popular Bitcoin forum. From the start, Litecoin was considered a reaction against Bitcoin’s propensity toward centralization.
As a result, Litecoin incorporates many of the characteristics of Bitcoin that Lee and other developers thought were helpful in its early phases. Other aspects of Litecoin, according to the development team, may be improved. The following are some of Litecoin’s significant characteristics:
- Proof-of-work: Litecoin uses proof-of-work, but it does so by requiring access to vast quantities of memory rather than only computational capacity from a central processing unit (CPU) or graphics processing unit (GPU).
- Litecoin makes use of Scrypt for its hashing method. Scrypt is based on SHA-256, but its proof-of-work memory needs are substantially larger. This is said to reduce its reliance on GPU arithmetic logic units (ALUs) and, as a result, ASIC mining devices. Scrypt ASIC mining equipment, on the other hand, was established in 2021; therefore, Litecoin may need to find a different solution.
The most fundamental difference between Litecoin and Bitcoin is the hashing mechanism. Bitcoin, as previously said, employs SHA-256, which is computed relatively rapidly on graphics processing units’ ALUs.
Another notable difference between Bitcoin and Litecoin is their market capitalization, or the total dollar market worth of all generated coins. Bitcoin has grown in popularity due to its ability to be mined by big farms and mining pools, as well as the fact that demand for it has surged to the point that it now fetches a very high cryptocurrency-to-dollar conversion rate. Because Bitcoin has a smaller supply and higher demand, Litecoin has a considerably smaller market cap.
Another significant distinction between Bitcoin and Litecoin is the total amount of coins each cryptocurrency can produce. This is where Litecoin sets itself apart. The Bitcoin network can never hold more than 21 million coins, while Litecoin can hold up to 84 million.
In theory, this looks to be a significant advantage for Litecoin; nevertheless, commodities and investment values are frequently influenced by supply and demand and consumer and investor sentiment. Bitcoin’s price reflects their belief that it corresponds with their interests, values, and financial aspirations. For more information, visit CEX.IO and see crypto and Bitcoin exchange in the crypto and Bitcoin exchange in USA.
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Although transactions on the Bitcoin and Litecoin networks are technically instantaneous, it takes time for such transactions to be confirmed by other network members. Litecoin was created to put transaction speed first.
The average transaction confirmation time on the Bitcoin network is roughly nine minutes per transaction (the time it takes for a block to be confirmed and added to the blockchain). This, however, may vary greatly depending on the network load. For Litecoin, the corresponding time is about two and a half minutes.
Why Does Litecoin Follow Bitcoin?
Lee created Litecoin because he saw that bitcoin’s identical transaction costs would make transferring little and big sums difficult. “If bitcoin is primarily used for transferring big sums of money, costs will be high, and security will be high.” Litecoin might be considered a compliment. He mentioned that it may be used for lesser sums of money and has reduced costs. The Litecoin Foundation, a non-profit linked with the cryptocurrency, purchased 9.9% of Germany’s WEG Bank in 2018, paving the way for Litecoin to enter mainstream banking.
Because Bitcoin is the mothership for most cryptocurrencies today, its code has been modified to fit its purposes. Lee adopted a hands-off approach to bitcoin’s original code when developing Litecoin. Instead, he added additional features and functions to bitcoin’s original code.
Compared to bitcoin, Litecoin has a greater block size and processes transactions significantly faster. Lee stated that he trusts bitcoin and that its programming is designed specifically for a purpose. “We’re seeing a lot of currencies shift some stuff about and then be hacked or have something blow up in their face,” he added.
What Are The Pitfalls of Lee’s Methodology?
The first is that, with a few exceptions, Litecoin’s price has followed chiefly the bitcoin price trend. It also implies that Litecoin isn’t as appealing to investors as bitcoin because it’s hard to tell apart from the original cryptocurrency.
The second is the transmission of bitcoin’s flaws to its offspring. In the interview, Lee expressed concern over a bitcoin issue that might crash nodes in the network, destroying their value. Because it shares code with bitcoin and duplicates its price fluctuations, Litecoin will be immediately impacted by a crash.
“Something like that might wipe out 90% of its worth in one instant.” As a result, things like that keep me up at night. In the case of Litecoin, we’re managing a three-billion-dollar network. “That’s still a lot of cash,” Lee added.
We’ve realized that Bitcoin and Litecoin have a lot in common. Litecoin’s usage has a bright future as a far less expensive alternative to bitcoin and a widely accepted form of payment worldwide. The main snag with Litecoin is that if Bitcoin declines in value, the value of Litecoin is likely to fall as well.
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