What is Litecoin?

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Litecoin was designed for lower transaction costs and greater efficiency during daily use. In comparison, Bitcoin was used more as a value for long-term purposes. The coin limit is much higher than Bitcoin and the mining process is much faster. This means that transactions are faster and cheaper, albeit generally with lower volumes.

Like Bitcoin, Litecoin is a form of digital money. Using blockchain technology, Litecoin can be used to transfer funds directly between individual and business users. This provides a record of all transactions in the form of a public ledger and allows the cryptocurrency to operate as a decentralised payment system, free from censorship and government control.

How does Litecoin work?

Litecoin involves the creation and transfer of digital coins via a cryptographic open source protocol. It uses blockchain technology to record a decentralised public ledger of all transactions.

What is blockchain?

The blockchain is a shared digital ledger containing records of all transactions made on Litecoin. The most recent transactions made are grouped together into blocks by ‘miners’. The blocks are then cryptographically secured before being attached to the existing blockchain. Similar technology is used for many other cryptocurrencies, such as Litecoin and Bitcoin.

What is mining about?

Mining is the process of securing each block and adding it to the existing blockchain using special software. Once a block is secured, a new cryptocurrency unit is created. “Miners” can then market these units directly.

What are the differences between Litecoin and Bitcoin?

Among the many similarities between Bitcoin and Litecoin, it is worth noting a few subtle differences between these cryptocurrencies:

Transaction speed

While Litecoin requires more sophisticated mining technology than Bitcoin, its blocks are generated up to four times faster than Bitcoin. Litecoin also processes financial transactions much faster and can perform many more of them in the same amount of time.

Number of coins

Both Bitcoin and Litecoin have a limited number of coins in circulation. Bitcoin has 21 million of them, while Litecoin has as many as 84 million – four times more than Bitcoin.

Market capitalisation

Litecoin has a much smaller market capitalisation than Bitcoin, but it is still one of the cryptocurrencies with the most transactions.

Algorithms

“Miners” need to solve a mixing algorithm to add new blocks of cryptocurrency to the blockchain. Litecoin and Bitcoin use different mining algorithms, in the case of Litecoin it is ‘Scrypt’, while in the case of Bitcoin it is SHA-256. Scrypt was originally chosen by the team creating Litecoin to avoid dominating the network of miners, those using specialised integrated circuits (ASICs). This treatment gave CPU and GPU users a chance to compete with those using ASICs. Scrypt is more memory-intensive than other encryption algorithms, which reduces the utility of ASICs. Over time, however, specialised chips were developed specifically for solving Scrypt algorithms, which of course translated into lower cost of mining for CPU and GPU users.

How to conduct transactions on Litecoin?

When you buy Litecoin, the price of the unit is usually quoted against the US dollar (USD). In other words, you are selling dollars to buy Litecoin. When the price of Litecoin rises, then you will be able to sell at a profit because it is worth more dollars than when you made the purchase. If the price falls and you decide to sell, then you will suffer a loss.

At CMC Markets, you can trade Litecoin through CFDs. This allows you to speculate on the price movements of the cryptocurrency without owning it in actual form. You do not then become its owner, but open a position whose value will rise or fall depending on the price movement against the dollar.

CFDs are leveraged instruments. This means that you only need to deposit a certain percentage of the total value of the transaction to open a position. You won’t have to commit all your capital to a single trade right away when buying Litecoin, but instead just use margin, which gives you exposure to higher trade values. Leverage gives you the opportunity to multiply your profits, but it also has an impact on losses, as profits and losses are calculated on the face value of the transaction.

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