Key takeaways
Set up in 2011 by former Google employee Charlie Lee, Litecoin (LTC) is a peer-to-peer cryptocurrency built on Bitcoin's original source code.
Litecoin is designed to offer faster, cheaper, and more efficient transactions for everyday use compared to Bitcoin.
Litecoin generates blocks four times faster than Bitcoin (every 2.5 minutes) and features a maximum coin supply cap of 84 million LTC - four times higher than Bitcoin's 21 million cap.
Unlike Bitcoin’s SHA-256 function, Litecoin uses the memory-intensive Scrypt hashing algorithm. While designed to allow standard computer CPUs and GPUs to compete, mining is now dominated by Scrypt-capable ASIC hardware.
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.
Blockchain Consensus: Litecoin uses a proof-of-work (PoW) mechanism to secure its decentralised public ledger. It utilises the Scrypt hashing algorithm, which was originally intended to make mining more accessible than Bitcoin mining, although today Litecoin mining is largely dominated by specialised Scrypt ASIC hardware.
Block Time and Speed: Litecoin generates a new block every 2.5 minutes (four times faster than Bitcoin’s 10 minutes), resulting in significantly quicker transaction confirmations.
Scarcity and Supply: It has a hard-capped maximum supply of 84 million LTC, exactly four times the supply of Bitcoin.
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
Litecoin targets a block generation time of approximately 2.5 minutes, compared with Bitcoin's 10-minute target. This shorter block time may result in faster transaction confirmations and potentially higher transaction throughput.
Number of coins
Both Bitcoin and Litecoin have a finite number of coins in circulation. Bitcoin has 21 million coins available, while Litecoin has an 84 million cap, four times higher than Bitcoin.
Market cap
Litecoin has historically had a smaller market capitalisation than Bitcoin, but remains one of the more established cryptocurrencies by market value and trading activity.
Algorithms
Miners must successfully solve hash functions to add new blocks of a cryptocurrency to the blockchain. Litecoin and Bitcoin use different mining algorithms to validate transactions and secure their networks:
Bitcoin uses the SHA-256 hash function.
Litecoin uses the Scrypt function, initially chosen to avoid mining being dominated by ASIC-based miners and allowing 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 can 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?
1. Open a long or short position
CFDs allow you to trade on both rising and falling prices. You don’t need to own Litecoin to take a short position and gain exposure to potential downward price movements.
2. Access to multiple cryptocurrencies
In addition to Litecoin, CMC Markets offers access to more than 40 cryptocurrency CFD markets, allowing clients to trade price movements across a range of digital assets from a single account.
3. 24/7 crypto CFD trading
Cryptocurrency markets operate around the clock. Crypto CFDs can be traded 24 hours a day, seven days a week, allowing you to respond to market movements outside traditional market hours.
4. No exchange account or wallet
Unlike buying Litecoin directly, trading Litecoin CFDs does not require you to hold or store the underlying cryptocurrency in a digital wallet. As you do not own the underlying asset, there is no need to manage wallet storage or transfer cryptocurrency between wallets.
Final thoughts on Litecoin
Ultimately, Litecoin is one of the longest-established cryptocurrencies and remains a widely recognised digital asset within the broader cryptocurrency ecosystem. While the cryptocurrency market has evolved significantly since Litecoin's launch in 2011, its long operating history, active trading market and close relationship to Bitcoin have helped it maintain relevance among traders and investors. For CFD traders, understanding Litecoin's characteristics and the factors that influence its price can help provide context when analysing cryptocurrency market movements.
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