Explained: Litecoin and how it works

If there was one cryptocurrency that could be explained, both in tokenomics and in function, in reference to Bitcoin, it is Litecoin. It is a project from the era when a few bull runs had already solidified Bitcoin as the leading player in the cryptoverse. From Litecoin’s founder to its pricing over the years, it has followed a trajectory similar to Bitcoin, improving wherever it can. In this article, we discuss Litecoin, its creation, purpose and how it works.

The creator of Litecoin is Charlie Lee, a former software engineer at Google and former engineering director at Coinbase. A poker enthusiast from his early days, Lee was fascinated by crypto and how it could change the world. He was already sold on the idea of Bitcoin but wanted to make it better. So, his idea of a better cryptocurrency was Bitcoin but faster, more decentralised and capable of better scalability. So, he started working on Litecoin.

Like Bitcoin, Litecoin uses a proof-of-work consensus mechanism. It requires computing power from miners to solve complex equations to be able to create a block in the blockchain. The creator of a block is rewarded with Litecoins. Similar to Bitcoin, the crypto has a halving cycle that’s four years.

While Bitcoin has a new block created every 10 minutes, Litecoin needs a quarter of that time — just 2.5 minutes. The maximum circulation of bitcoin is 21 million, and Litecoin has a max circulation of 84 million, four times that of bitcoin. When it comes to transactions possible per second, Bitcoin is at a mere five transactions per second (TPS), while Litecoin can go up to 54 TPS.

Lastly, Litecoin costs a fraction of the network fee at $0.1 compared to the $2 — $10 of Bitcoin. However, like Bitcoin, Litecoin can also be broken down to 8 decimal points to get to its smallest unit — a photon.

Tokens and cryptos today have grand inaugurations and reserved percentages of coins for various involved parties in the project. But Bitcoin didn’t have any of these shenanigans as a true people’s coin where only solving problems could get you coins, not proximity to power. Litecoin followed bitcoin’s example and had no ICO of its own. Charlie Lee also went a step ahead and sold all of his holdings on a bullish day and now works on the project without any vested interest.

Satoshi created Bitcoin, but developments in the algorithm are up to the people. Any time more than 50 percent of miners agree on an improvement to the Bitcoin algorithm, the change is possible. This same exact system is copied by Litecoin, which makes it just as democratic as Bitcoin.

The similarities mentioned above were all pre-decided by a creator, but the pricing, volatility and fluctuations follow Bitcoin on account of the people. On most occasions, you can notice that Litecoin is up when Bitcoin is up and vice versa.

When Bitcoin was at its peak during Charlie’s tenure at Coinbase, the trend of ASICs was in full flow. That meant that people had no chance of being able to mine with just their computers, and the decentralised nature of Bitcoin was at risk.

Charlie wanted Litecoin to be as decentralised as possible, so he used a hashing algorithm known as Scrypt that could be mined using PCs. It is also the algorithm that dogecoin uses today.

This great thought, however, was undone when ASICs were developed specifically to mine using Scrypt. This meant that PCs once again lost their ground to the might of these computing megatrons.

Unlike the pseudonymous Satoshi Nakamoto, Litecoin has a known founder with all the qualifications needed to develop Litecoin. This saves Litecoin from being called a conspiracy, an alien technology or a communist revenge plan. However, it also means that no one is out calling Charlie Lee a messiah.

With better network capacity, transaction speeds and scalability, Litecoin is more suited for layer-2 solutions. In fact, the Lightning Network first began on Litecoin, and we can also see many smart contract layer-2 solutions popping up for Litecoin.

The search for a better Bitcoin came through a successful path with Litecoin. It is one of the few cryptos that don’t have a marketing budget. What it has is a community that supports it wholeheartedly, and the popularity of the crypto has only spread through this community - yet another similarity with the grand old crypto.