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 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.
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.
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.
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.
While there are many similarities between bitcoin and litecoin, some of the subtle differences include:
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.
Litecoin has a much smaller market cap than bitcoin, but is still one of the most traded cryptocurrencies.
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.
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 spread bet or contract for difference (CFD) account. 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.
Spread betting and 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.
Open a long or short position*
Spread betting and 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 you could lose more than the amount you deposit to open a position.
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 29 years’ experience in the industry and offer support for all our clients whenever the markets are open.
Cryptocurrencies are still relatively new for most people and can be extremely volatile. We want our clients to have access to in-depth educational materials to support their trading.
Litecoin’s volatility is likely to be driven by similar factors to bitcoin, for example:
Cryptocurrencies, which are generally unregulated in themselves, are high-risk, speculative investments, which will impact any cryptocurrency CFD trades that you enter with us. The value of cryptocurrencies, and therefore the value of CFD Trades linked to them, is extremely volatile. They are vulnerable to sharp and sudden changes in price due to unexpected events or changes in market sentiment. CFD Trades are leveraged products. Therefore the combination of increased volatility and leverage has the potential to significantly increase your losses if the market moves against you, relative to CFD Trades based on other products. Furthermore, there are general risks in trading cryptocurrencies. Cryptocurrencies are unregulated in Singapore and you may not be entitled to certain regulatory safeguards. There are also cybersecurity risks, given cryptocurrencies are virtual currencies. Accordingly, you should only invest in cryptocurrency CFD Trades if you consider that you have the knowledge and experience of, and fully understand the risks associated with, both CFDs and cryptocurrencies.
*Please note we may, at our sole discretion, restrict your ability to go short.
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.