It can be tempting to focus on the latest generation of projects in each crypto cycle, assuming old-school protocols are no longer technologically advanced enough to warrant their valuations as boomer coins steal the limelight and headlines.

However, neglecting OG coins that have stood the test of time and are still here to tell the story could be a costly mistake in the long run. Litecoin (ticker: LTC) is the personification of that type of project - often written off, but surviving multiple cycles since it was founded by former Google engineer Charlie Lee in 2011. 

What’s more, it’s still reaching new all-time highs and has a lower risk profile than many of its younger competitors. 

Launching just two years after Bitcoin, Litecoin’s “lite” version of the protocol is still referred to as the silver to Bitcoin’s gold. Widely considered the first successful altcoin, Litecoin also serves as a testbed for improvement proposals like SegWit and layer 2 solutions like the Lightning Network. 

We take a look at Litecoin, how it works, the benefits it offers, and 10 years on, why it is still so popular.

What Is Litecoin?

Litecoin is described as a peer-to-peer internet currency enabling instant, near-zero cost payments to anyone in the world. It is an open-source global decentralized network without any central authority, primarily used as a currency offering faster transaction confirmation times and improved storage efficiency than Bitcoin. 

Forking from Bitcoin’s codebase, the supply of Litecoin is fixed. Though, at 84 million coins - of which nearly 67 million have been mined so far - total supply is exactly four times larger than Bitcoin’s. 

Litecoin development is governed by a proposal process where anyone in its open-source community can submit Litecoin Improvement Proposals (LIPs). After debate, Litecoin Core developers, funded by the Litecoin Foundation, accept or reject proposals with any changes ratified on-chain once the majority of the network adopts the upgrade.

How Does It Work?

At a protocol level, Litecoin is a distributed ledger of unspent transaction outputs (UTXOs) stored in a chain of blocks. Full nodes receive transactions from other participating nodes, validate them against Litecoin’s consensus rules, propagate them to other full nodes, and so on across the network. Valid transactions are sent to Litecoin’s mempool of pending transactions, waiting for mining nodes to confirm them in the next block.

Like Bitcoin, Litecoin uses a Proof-of-Work consensus algorithm to allow mining nodes to confirm transactions from the mempool and secure the network against attacks. Proof-of-Work creates a computational challenge for miners to compete in solving to then verify a block of transactions and earn a share of new LTC block rewards and transaction fees. 

New blocks are generated every 2.5 minutes on average, with the same 2,016 blocks between mining difficulty changes, the same four-year block reward halving cycle, and a current block reward of 12.5 LTC. 

While Bitcoin uses SHA-256, Litecoin uses a newer algorithm called Scrypt, developed by Colin Percival of Tarsnap Inc. Scrypt was designed to require vast amounts of memory to solve computational challenges. It was therefore utilized in Litecoin to reduce the efficiency gains and economic incentives to produce specialized mining hardware like Application-Specific Integrated Circuits (ASICs) that made mining more difficult for the average participant, impacting decentralization. This was initially effective and, although Litecoin ASICs were eventually developed, mining on the network arguably remains more realistic for participants without specialized equipment than for Bitcoin.

What Are the Benefits?

Litecoin is established as one of the most widely accepted cryptocurrencies with thousands of merchants and exchange platforms now supporting LTC.

Due to more frequent block generation, Litecoin is capable of a higher transaction throughput that makes it four times faster than Bitcoin. This is particularly beneficial in time-sensitive situations for merchants and traders who could sometimes wait up to an hour for the six confirmations deemed safe to make transactions final on Bitcoin.

That throughput also feeds into the cost-effectiveness of transactions as there is less competition for space per block. Litecoin can therefore provide a cheaper means of transferring value than other blockchains, as well as being amenable to more frequent payments without incurring high fees.

Compatibility with interoperable peer-to-peer atomic swap technology also allows LTC to be exchanged for other cryptocurrencies without going through a centralized intermediary. Future implementation of the MimbleWimble protocol will then enhance privacy and fungibility on the Litecoin network, while reducing bloat and improving scalability.

Further, early adoption of Segregated Witness (SegWit) allows Litecoin to confirm more transactions in each block already, and since performing the first Lightning transaction, it has showcased the potential for a future layered network design that can deliver faster and cheaper transactions, including micro-payments, with a greater functionality set that opens up a variety of new use cases.

Why Is It Still so Popular?

As the first successful altcoin, Litecoin has always been positioned as a medium of exchange that is complementary to Bitcoin, due to its faster and cheaper transactions, substantial industry support, significant trade volume, and deep liquidity across all major crypto exchanges globally -  perhaps helping it to be viewed more positively than directly competing networks that seek to extract rather than add value.

Litecoin can be used to pay for goods and services natively, as well as by using one of the many LTC-supported crypto debit cards or processors that accept major cryptocurrencies on behalf of merchants, now also including PayPal.

This high level of availability and liquidity, alongside a predictable finite supply, has also made it one of the most popular assets among traders, especially with its historical ability to maintain correlation with bitcoin and then lead during certain stages of the cycle.

As a result, over the last 10 years, Litecoin has grown significant support from the original Litecointalk and IRC forums to its enthusiastic social media communities on Telegram, Twitter, and Reddit, and the crypto traders who benefit from its liquidity. 

This provides a substantial foundation of healthy network activity that now boasts over 400,000 active addresses, 137,000 daily transactions, and a 24-hour volume exceeding $3.5 billion.

Having reached a critical mass of users and activity, with such strong network effects in play, a long-standing reputation among major digital assets, and more functionality to come, this is one old-school crypto you still want to keep an eye on.

May 24, 2021
Crypto 101

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