Litecoin (LTC) is a peer-to-peer cryptocurrency that was set up by Charlie Lee (a former Google employee) in 2011. It shares many similarities with Bitcoin and is based on Bitcoin’s original source code.
Litecoin was designed to be used for cheaper transactions, and to be more efficient for everyday use. In comparison, Bitcoin was being used more as a store of value for long-term purposes. The coin limit market cap is much higher on Litecoin than Bitcoin, and the mining process is far quicker. This means transactions are faster and cheaper, although generally smaller in size.
Like Bitcoin, Litecoin is a form of digital money. Utilising blockchain technology, Litecoin can be used to transfer funds directly between individuals or businesses. This ensures that a public ledger of all transactions is recorded, and allows the currency to operate a decentralised payment system.
How does Litecoin work?
Litecoin involves the creation and transfer of digital coins via an open source, cryptographic protocol. It uses blockchain technology to record a decentralised, public ledger of all transactions.
What is the blockchain?
A blockchain is the decentralised, public ledger or list of a cryptocurrency’s transactions. Completed blocks, comprised of the latest transactions, are recorded and added to the blockchain. They are stored in chronological order as an open, permanent and verifiable record. An ever-evolving network of market participants manage blockchains, and they follow a set protocol for validating new blocks. Each ‘node’ or computer connected to the network automatically downloads a copy of the blockchain. This allows everyone to track transactions without the need for central recordkeeping.
What is mining?
Mining is the process of attaching new transaction records as blocks to the existing blockchain. Once a block is secured, new units of cryptocurrency known as ‘block rewards’ get credited to the miner. Miners can inject these units directly back into the market. Due to their crucial role in the process, miners can exert ownership of their bitcoin within the blockchain.
What are the differences between Litecoin and Bitcoin?
While there are many similarities between Bitcoin and Litecoin, some of the subtle differences include:
Transaction speed
While Litecoin requires more sophisticated technology to mine than Bitcoin, blocks are actually generated up to four times faster. Litecoin also processes financial transactions a lot quicker, and can also process a higher number of them over the same time period.
Number of coins
Both Bitcoin and Litecoin have a finite number of coins in circulation. Bitcoin has 21 million coins available, while Litecoin has 84 million cap, four times higher than Bitcoin.
Market cap
Litecoin coins currently have a smaller value compared to Bitcoin, but are still one of the most traded cryptocurrencies.
Algorithms
Miners must successfully solve hash functions to add new blocks of a cryptocurrency to the blockchain. Litecoin and Bitcoin use different mining algorithms, with Scrypt being the hash function used for Litecoin, and SHA-256 the hash function used for Bitcoin. Scrypt was initially chosen by the Litecoin development team to avoid mining being dominated by ASIC-based miners. This would allow CPU and GPU-based miners to compete. The Scrypt mining algorithm is more memory-intensive, and this was initially less suited to ASIC miners, giving other miners more opportunity. However, Scrypt-capable ASIC-based miners have developed over time. This means CPU and GPU-based miners no longer have valid mining tools due to the inferior computational powers, and ASICs are able to generate far more hashes per second.
How to trade Litecoin
When you buy Litecoin on an exchange, the price of one Litecoin is usually quoted against the US dollar (USD). In other words, you are selling USD in order to buy Litecoin. If the price of Litecoin rises, you will be able to sell for a profit, because it is now worth more USD than when you bought it. If the price falls and you decide to sell, then you would make a loss.
With CMC Markets, you trade Litecoin via a contract for difference (CFD) account. This allows you to take a position on its price movements without owning the actual cryptocurrency. You aren’t taking ownership of Litecoin. Instead, you’re opening a position that will increase or decrease in value depending on Litecoin’s price movement against the dollar.
CFDs are leveraged products. This means you only need to deposit a percentage of the full value of a trade to open a position. You won’t have to tie up all your capital in one go by buying Litecoin outright, but can instead use an initial deposit to get exposure to larger amounts. While leveraged trading allows you to magnify your returns, losses will also be magnified as they are based on the full value of the position.
What are some factors that affect Litecoin’s price?
Litecoin’s volatility is likely to be driven by similar factors to Bitcoin, for example:
Regulation: cryptocurrencies are currently unregulated by governments and central banks. There are questions about how this could change in the next few years and what impact this could have on value.
Supply: Litecoin has a fixed maximum supply, meaning only a predetermined number of coins will ever be created. However, the amount available in the market at any given time may vary depending on issuance rates, mining activity and holder behaviour. Changes in effective supply and demand dynamics could influence price volatility.
Adoption: Litecoin hasn’t currently been adopted by businesses or consumers as a method of payment. But some see potential in the blockchain technology and think this could become more widely adopted in the future.
*Please note we may, at our sole discretion, restrict your ability to go short.
Why trade Litecoin with CMC Markets?
Open a long or short position*
CFDs allow you to trade on both rising and falling prices. You don’t have to own Litecoin in order to sell it (go short), which is not possible on cryptocurrency exchanges.
Efficient use of capital
Leveraged trading means you only deposit a percentage of the full value of a trade in order to open a position. With mainstream cryptocurrency exchanges, you would need to deposit the full value of the contract. Remember that both profits and losses will be magnified, and for retail clients, you could lose up to the amount of your deposit.
No exchange account or wallet
Unlike trading the underlying Litecoin, there is no need to open an exchange account or wallet to hold the Litecoin you have bought. This means no waiting for approval from the exchange, no concerns about keeping your wallet secure, and no fees if you want to withdraw funds later.
Trade with an established provider
CMC Markets is a regulated provider. We have over 30 years of experience in the industry and offer support for all our clients whenever the markets are open.
Trade responsibly
Cryptocurrencies are not yet widely accepted today as a medium of exchange. The outlook for cryptocurrencies is binary – it’s likely they’ll either fail or take over the world. These are some of the factors that drive the higher risk and higher potential reward nature of the cryptocurrency market.
Disclaimer: This article provides general information only. Past performance is not a reliable indicator of future results. It has been prepared without taking account of your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any financial instruments, or as a recommendation and/or investment advice. It does not intend to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any financial instruments. You should consider your objectives, financial situation and needs before acting on the information in this document. CMC Markets believes that the information in this article is correct, and any opinions and conclusions are reasonably held or made on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this document. CMC Markets is under no obligation to, and does not, update or keep current the information contained in this document. Neither CMC Markets nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this document. Any opinions or conclusions set forth in this article are subject to change without notice and may differ or be contrary to the opinions or conclusions expressed by any other members of CMC Markets. Investing in CMC Markets derivative products carries significant risks and is not suitable for all investors. You do not own, or have any interest in, the underlying assets. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Spreads may widen dependent on liquidity and market volatility. It's important for you to consider the relevant Product Disclosure Statement ('PDS') or Information Memorandum (for CMC Pro accounts) and any other relevant CMC Markets documents before you decide whether or not to acquire any of the financial products. Please visit our site to view the PDS, Information Memorandum, our Target Market Determination for CFD products and our Financial Services Guide (FSG) containing information about our services, including our fees and charges. CMC Markets Asia Pacific Pty Ltd ABN 11 100 058 213 AFSL No. 238054
