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What is litecoin?

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.

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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 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 free from government control or censorship.

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?

The blockchain is a shared digital ledger which holds a record of all litecoin transactions. Recent cryptocurrency transactions are grouped together into ‘blocks’ by miners. The blocks are then cryptographically secured before they get linked to the existing blockchain. Similar blockchain technology is used for a number of different cryptocurrencies, including litecoin and bitcoin.

What is mining?

Mining is the process of securing each block to the existing blockchain using mining software. Once a block is secured, new units of cryptocurrency get released. Miners can inject these units directly back into the market.

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 available – four times more than bitcoin.

Market cap

Litecoin has a much smaller market cap than bitcoin, but is still one of the most traded cryptocurrencies.

Algorithms

Miners must successfully solve hash functions in order 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.

Litecoin can be traded via a contract for difference (CFD) account with regional restrictions. This allows you to speculate on its price movements without owning the actual cryptocurrency. You aren’t taking ownership of litecoin. Instead, you’re opening a position which 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 in order 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 factors 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 this next few years, and what impact this could have on value.
  • Supply: there is a finite number of litecoins available to be mined (84 million). Availability can also fluctuate depending on the rate at which the coins enter the market.
  • Press: prices of litecoin can be affected by public perception, security, longevity and the prices of other cryptocurrencies such as bitcoin.
  • 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.

Disclaimer

​​CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

​CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee either any return and CMC Markets shall not be held responsible for any loss that you may incur, directly or indirectly, arising from any investment based on any information contained herein.


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