The history of altcoins began with Litecoin, the second ever cryptocurrency to launch after Bitcoin. Litecoin is a fork based on BTC designed to facilitate faster payments for smaller transactions. It has enjoyed large popularity due to being an alternative investing option and for offering much cheaper and faster transactions than Bitcoin.
In this article, I’m guiding you through Litecoin’s history, the way it works, and the three new features it has introduced since launch.
Computer scientist and ex-Google employee Charlie Lee invented Litecoin in 2011 by forking Bitcoin’s source code. Forking is a process in which you create a new cryptocurrency from an existing cryptocurrency – retaining its transaction history.
Read more about Charlie Lee here
Forking Bitcoin allowed Lee to create an entirely new asset and apply small changes to it in order to make his idea of improving Bitcoin’s transaction speed possible. Lee wanted to “make a coin that is silver to Bitcoin’s gold.” The project would be a decentralized blockchain network that facilities peer-to-peer (P2P) cash transfers, but for smaller transactions.
Lee joined Coinbase as director of engineering in 2013. At the time, Lee worked on Litecoin as a side project, deeming it not to be ready to grow. Four years later, he left the exchange in order to work on Litecoin full-time. Lee has later abandoned the project as its main developer and transfered ownership to the Litecoin Foundation.
Lee sold all of his Litecoin holdings in December 2017. According to a tweet, Lee made the decision after being accused of tweeting about the asset for personal benefit.
Litecoin reached an all-time-high of $355 in December 2017. In May 2021, the asset reached a new all-time-high of $410. Litecoin, trading under the name LTC, costs $52 as of September 2022 and has a market cap of $3.7 billion – making it the 23rd largest cryptocurrency.
How Does Litecoin Work?
The Litecoin blockchain removed Bitcoin's SHA-256 cryptographic algorithm and replaced it with Scrypt. At its core, Scrypt makes mining far more difficult compared to Bitcoin. The algorithm adds an additional layer of protection by adding randomly generated numbers to cryptographic mining.
But while scrypt requires more memory for mining than Bitcoin, it also requires far fewer resources. This allows Litecoin miners to produce a new block every 2.5 minutes – Bitcoin produces blocks every 10 minutes.
Lee introduced Scrypt to Litecoin in order to make mining far less expensive. In theory, this would make the network more decentralized by allowing more people to participate on the blockchain as miners. He also wanted to avoid or at least lessen the use of ASIC miners - special hardware that mines faster than normal computers.
Another notable difference is that Litecoin has a total supply of 84 million coins -- Bitcoin has a supply of 21 million. The supply is higher because Litecoin produces new blocks of transactions faster than Bitcoin. However, Lee kept Bitcoin's halving mechanism in order to mirror the deflationary effect it has on the token supply. As of this year, Litecoin miners have 14 million coins left to mine.
Litecoin is far more efficient than Bitcoin by processing blocks four times faster. This is why many crypto-friendly merchants and vendors accept payments in Litecoin. The general idea behind using Litecoin is that you can pay small transactions (groceries, grocery bills, utilities) that are confirmed incredibly fast and cost almost nothing in fees.
Litecoin’s New Features
Litecoin has adopted several new features over the past few years in order to keep up with the market. The goal for Litecoin is to scale with demand and maintain its decentralization and privacy while doing so. The sections below cover some of the most important feature integrations.
SegWit (Segregated witness)
Litecoin was the first project to adopt SegWit, a feature that improves scalability by segregating transaction signature data. The basic premise behind SegWit is to host the data outside transaction blocks, leaving more space inside them.
The feature was first implemented in Litecoin in order to test SegWit. Developers feared that the feature could break Bitcoin, therefore deciding to test it out on Litecoin first. Litecoin integrated SegWit in 2017 and faced zero issues. The successful update created demand for Bitcoin developers to introduce the feature on their own network.
The Lightning Network (LN) is another feature designed to improve the scalability of cryptocurrencies. LN works by creating an additional layer on top of an existing blockchain network, designed solely to process transactions. Think of LN as processing payments outside a blockchain network and then transfering the confirmation information back to the blockchain in order to signal which coins were transferred to which addresses.
LN was originally designed for the Bitcoin network. But much like SegWit, it was first introduced to Litecoin in order to give crypto users a way to test the feature in a real blockchain environment.
Although the feature had a smoothless implementation, LN found no real use case on Litecoin. The reason? Litecoin already offered cheap and fast transactions. This is why Litecoin's adoption of LN saw little to no growth while Bitcoin's very own LN saw tremendous growth during the first few months.
MimbleWimble is a privacy protocol that comes with a modified version of Proof of Work (PoW). The protocol improves privacy, decreases the chances of transaction identification, and diminishes traceability by obfuscating the individual inputs and outputs of a transaction.
Litecoin launched MimbleWimble on its testnet network in October 2020. The feature launched on mainnet in May 2022. Litecoin’s current lead developer works on making MW easier for non-technical users.
The MimbleWimble integration sparked large controversy regarding Litecoin’s standing in the regulatory arena. Many exchanges in South Korea and Thailand have decided to delist Litecoin after it has launched MW. The reason? MW adds a layer of privacy and anonymity that allows malicious actors to move money while conducting criminal activities.
Unlike SegWit and the Lightning Network, MW is not yet live on Bitcoin. Many developers are avoidant of implementing the feature in fear of breaking the network. Some are also reluctant due to the regulatory issues that Litecoin faced with its very own launch.
Litecoin truly is silver to Bitcoin’s gold. The cryptocurrency is four times faster than Bitcoin and charges less than a dollar for a single transaction. Due to having a first mover advantage in the altcoin market, Litecoin has attracted a ton of investors seeking to leverage LTC’s cheap price and high growth potential.
11 years have passed since its launch, but Litecoin is still being actively developed to this day. Although Charlie Lee has left the project, a decentralized entity called the Litecoin Foundation has many developers working on the asset. One of the latest features to launch is MimbleWimble, a privacy layer that makes LTC transactions more anonymous.
Speculators are interested in Litecoin because it offers cheaper and faster transactions, making it ideal for smaller payments. But because it doesn’t offer much utility besides that, it does not enjoy huge bursts of volume and investments like other altcoins. Despite this, many investors still trade Litecoin.
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