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What is Litecoin and How Does it Work?

What is Litecoin and How Does it Work

Cryptocurrency has been one of the most discussed topics in recent years. To be specific the names that you might have heard are Bitcoin, Litecoin, etc. which are just other names of cryptocurrency.

You can think of cryptocurrency as an arcade ticket or token where you can exchange these tickets you receive from an arcade machine after winning the game to receive prizes from the ticket exchange counter.

The reason why the cryptocurrency is famous is that it can be used as means of payment to buy goods and services online from companies. 

You can deal with different types of cryptocurrencies directly since they are decentralized. This means that it is the only currency that you can directly exchange with users without the involvement of a third party like banks, governments, etc.

Many of us are used to a currency system that goes through a central bank. The currencies that go through a central bank are usually controlled by a governmental organization.

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For example, when we transfer money to another country many of us have dealt with inconveniencing issues like fluctuating exchange rates, delays in the transactional process, technical malfunctions, etc.

However, cryptocurrencies such as Litecoin are decentralized which means that they are built in a way that isn’t controlled by any governmental organization or bank. 

Users need not fear any disruptions while transferring cryptocurrencies to others. Cryptocurrency is a currency system that could pave new ways for economies to work efficiently and securely.

There are many types of cryptocurrencies, the first and the largest being Bitcoin. The other different types of cryptocurrencies are Ethereum, Ripple, etc. Let’s learn more about one of these cryptocurrencies which is Litecoin.


Understanding Litecoin

What is Litecoin?

Litecoin was invented by a former Google employee named “Charlie Lee”. He was also an engineering director at Coinbase. He released Litecoin in 2011.

It is a peer-to-peer cryptocurrency that helps to enable instant and zero-cost payments between people or enterprises all over the world.

It is designed to be a compliment for the original currency Bitcoin which is why sometimes it is referred to as the “Lite” version of Bitcoin.

This cryptocurrency also uses a similar mathematical code as Bitcoin, but it could supply four times as much and uses four times the processing speed as Bitcoin.

Why was Litecoin invented?

It was noticed that there were some limitations inherent to the biggest and largest digital asset, which is Bitcoin. 

Some of these limitations were slow transfers and the high costs involved with Bitcoin. They had the potential to bring down the overall charm of decentralized digital currency, which is where Litecoin stepped in.

Charlie Lee invented them to produce more blocks than Bitcoin so that it could bring out the maximum supply. It was also designed to be faster and more readily available than Bitcoin.

What is Litecoin used for?

Litecoin is a cryptocurrency used for payments that use blockchain technology. Its primary function is to act as a medium for transacting payments without involving a third party.

As mentioned earlier, it uses similar technology to Bitcoin but it has got extra features that could conduct transactions faster than Bitcoin.

For example, if Bitcoin takes 10 minutes to process a block then Litecoin claims to process its blocks in 2.5 minutes, which is almost 4 times as fast as the processing speed of Bitcoin.

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How does Litecoin work?

These coins are created by a cryptocurrency procedure called mining which contains the processing list of Litecoin transactions.

To understand more about these transactions, let’s first understand the base knowledge of the technology of blockchain. 

What is a Blockchain?

Blockchain consists of blocks where information is coded and stored in them. Each of these blocks is connected forming a chain-like structure. This chain of information acts as Litecoin’s transactional ledger.

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Blockchain is an open distributed ledger where transactions between two parties are recorded permanently in a verifiable manner. This ledger can also be programmed to trigger transactions automatically by itself.

The information found inside a blockchain system is securely protected using encryption techniques. When a person or organization does transactions using blockchain technology they are usually done by making the person or organization anonymous.


Dealing of Litecoins

If you would like to deal with Litecoins, then you need to know about these unique methods on how cryptocurrencies are brought and dealt with.

Litecoins are usually purchased using a digital wallet through cryptocurrency exchanges or by an online brokerage firm that offers crypto-trading.

The digital wallet or cryptocurrency wallet where you store your digital coins is a software program or hardware that allows you to keep a track of your digital expenditure like sending and receiving digital currencies.

However, you need to keep in mind that your cryptocurrency isn’t stored in your digital wallet like how you store money in your bank account. Your digital wallet contains only the blockchain information that has records of your transactions.

Most wallets offer options to keep them online or offline. But you need to be careful when you choose online wallet storage as you may be at risk of being hacked. 

An offline wallet is considered to be a safer option that is stored in hardware although users might be susceptible to losing their Hard drives.

Dealing of Litecoins

Risks of Litecoins

Although the concept of cryptocurrencies seems new and interesting, there may be potential risks that you need to be wary of:

  1. The tradeoff transaction done using bitcoins may not be as safe even if the information in the blockchain is encrypted. This is because each user has a public address and if enough legwork is done, the user’s actual IP address could be traced leading to an actual person.
  1. Users need to consider a lot of things like the fees, security, and accessibility before deciding to buy and hold cryptocurrencies.
  1. You need to be wise enough to ward off potential scammers while dealing with cryptocurrency as they might take advantage of you.
  1. Hacking is also another main concern while dealing with any type of cryptocurrency.

What is the price of Litecoins?

Click on this link to view the current price of Litecoins: https://messari.io/asset/litecoin.

Litecoin has experienced a lot of volatility throughout the period since the time it was invented.

For example, in December 2017, Litecoins experienced a hike in its trading of almost over $375. However, at the same time in December 2018, they experienced a downfall where the trading was done as low as $24.


Difference between Litecoin and Bitcoin

So, what makes Litecoin different from Bitcoin? The most important distinction is the different algorithms they use even with their slight similarity. Bitcoin uses the SHA-256 algorithm while Litecoin uses the Scrypt algorithm.

Litecoin has some basic advantages over bitcoins, one of these being its design, which increased the transactional speed which is one of the main reasons for its popularity.

However, Bitcoin also has some advantages like its significantly greater market capitalization compared to Litecoins. On April 21, 2021, the total value of all Bitcoins is around $1 trillion, but for Litecoins it’s only $18.3 billion

Both these cryptocurrencies have fixed supply limits. Bitcoins’ supply is limited to 21 million coins and at the same time for Litecoin, it is 84 million coins.

Remember that risk is always a part of volatile assets due to its volatility. Therefore, when purchasing cryptocurrencies, you need to be wary of the risk factors that come along with them.

For example, when dealing with cryptocurrencies, if you run into a problematic situation or lose huge amounts of money, you’ve no outlet to complain and get your funds back. 

This is one of the main reasons why governments are especially reluctant to implement cryptocurrencies, despite the obvious pressure from big names within the industry.

It’s also why they have restrained themselves from implementing rules and regulations for the industry that deal with these security concerns because that’d mean their acceptance of this sort of money transfer. 

There are concerns about the lack of the governmental role in this type of banking, possibly making individuals vulnerable to well knowledgeable hackers, and even providing a chance for hackers to ask for ransom without being tracked. 

None of us are strangers to the recent ransomware attacks that have compromised the sensitive data of millions of customers, publishing them online, and refusing to take them down until they were paid in Bitcoins.

Problems like these will continue and be dealt with in the world of cybersecurity, but they’re concerns that we must be aware of before stepping into the field. 

This article should have given you a fair idea of how cryptocurrencies work, their advantages, and their disadvantages. 

No matter the issues, there’s no denying the level of technological revolution brought forward by the field of cryptocurrencies.

Thus negating the level of risk associated with the banking system, and potentially being a solution in case situations like the Great Depression arise again. 

So, step forward as an informed consumer, and start investing in cryptocurrencies!

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