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How Litecoin Works: An Introduction To The Cryptocurrency


Litecoin Basics: What Is Litecoin?

Litecoin is a peer-to-peer electronic cash system that transfers funds overseas at high speeds. This digital currency is a member of the cryptocurrency class, as it utilizes cryptography to secure the Litecoin network, verify transactions, and regulate the creation of new coins.

Litecoin is open source technology that was created in October of 2011 by Charles Lee, and is maintained by the Litecoin Core team on GitHub with the help of volunteers.

Litecoin is denoted by the acronym LTC, and the symbol Ł.

Table Of Contents
Misc. Details
What Determines The Value Of A Litecoin?
Where Are Litecoins Stored?
Securing Your Litecoins
How Litecoin Transactions Work
Litecoin’s Censorship Resistance
Is Litecoin Private?
How To Mine Litecoins
How To Buy Litecoins
Cryptocurrency Exchanges That Sell Litecoin

Introduction To Litecoin

Like Bitcoin, Litecoin is a mined cryptocurrency that enforces scarcity and deters inflation by design. In accordance with Litecoin’s design, there may be no more than 84 million Litecoins in circulation at any given moment.

This helps to stave off inflation, which fiat currencies are subjected to due to the ease with which bank notes (dollar bills) can be printed. Taking a page out of Bitcoin’s book, Litecoins have to be mined to increase the quantity in circulation, and mining comes at a cost (requires a significant amount of energy, and therefore is yet another deterrent to inflation, helping to maintain an acceptable level of scarcity).

This achieves the digital equivalent of the effect that gold coins had, with the exceptions that gold has an intrinsic value and is expensive to mint due to the high cost of gold (gold is electrically conductive, lasts long, and has its uses in electronics). Gold coins are naturally scarce. Digitally, cryptocurrencies achieve that by requiring a costly process such as mining.

Gold has become so costly and ‘valuable’ that it is no longer suitable for use as a currency, due to the fact that it is not divisible enough. One ounce of gold could buy hundreds of burgers. Imagine trying to divide an ounce of gold!

Being a digital currency, Litecoin is highly divisible (not all digital currencies are) and that compensates for the high value of one Litecoin (I’m not going to write the value here, as it varies). You don’t have to spend one whole Litecoin. For example, you could spend 0.01 LTC on a small item such as a burger.

You could also buy that burger without giving out your credit card number or PayPal e-mail address (in a theoretical world where Litecoin is accepted everywhere).

Key Differences Between Litecoin And Bitcoin Include:

  • More frequent block generation than Bitcoin.
  • Lower transaction fees than Bitcoin.
  • A higher supply limit than Bitcoin (84 million LTC).
  • Litecoin uses the Scrypt algorithm as opposed to SHA-256, which Bitcoin uses.

Misc. Details

Date Released: October 7, 2011
Consensus Algorithm Proof-Of-Work (PoW)
Hash Algorithm Scrypt
Language C++
Node Software Litecoin Core/Litecoin Daemon
Supported OS (for Litecoin Core) Linux, Windows, MacOS
Blocks Generated Every 2.5 Minutes
Block Explorer BlockCypher
Limited Supply Yes: 84 Million LTC
GitHub Litecoin Project
Website Litecoin.org

Key Benefits Of Litecoin

Key benefits of Litecoin include, but are not limited to:

  • The ability to transfer funds internationally without costly wire transfers, and it takes minutes to complete a transaction, even if it has to go all the way around the world.
  • Mining is required on the network for transactions, incurring a cost per transaction. This helps to deter attacks on the network, making them potentially costly for the attacker (although this isn’t guaranteed for all scenarios).
  • It isn’t at the mercy of centralized financial institutions such as banks and money transfer services which have minimum account balances or monthly fees, ATM withdrawl fees just so you can use it, and require you to give out excessive amounts of personal information to send or receive money.
  • It is easy to create a Litecoin wallet and accept funds. Just install the app and store your private key in a safe place (NOT on your computer or phone).
  • It’s decentralized design helps to ensure accessibility around the world, without the geographic distance issues that servers and ISPs face. For example, it is likely that there are miners close enough to you, while a centralized server may not be if the owner isn’t operating in your area.
  • You can support the network and increase local accessibility by purchasing a miner of your own.

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Disadvantages Of Litecoin

  • The mining process is energy intensive.
  • It is not as widely accepted as Bitcoin or fiat currencies.
  • Some technical knowledge is necessary to properly secure your coins. Some people fail to back up their private keys, resulting in them losing access to their funds if their computers malfunction.
  • Scaling it up in the future is a challenge, and there are now faster cryptocurrencies out there, such as Raiblocks.
  • For the reason above, you may have to switch to a newer cryptocurrency if it takes over and causes the price of Litecoin to decline. However, this is an easily accomplished task.

What Determines The Value Of A Litecoin?

The value of a Litecoin is determined by demand and supply, and the price in USD is equal to Litecoin’s market cap in USD divided by its circulating supply in LTC. If you’re just getting started with cryptocurrencies, or you are interested in cryptocurrency investing, one of the most informative things you could do is look at current cryptocurrency statistics.

These include their market caps, circulating supply, and price history (going all the way back to their inception, ideally).

Where Are Litecoins Stored?

Litecoins are stored in wallets on the blockchain (specifically, Litecoin’s blockchain network). Litecoin wallets can be accessed anywhere in the world so that you won’t have to withdraw them for travelling. Another good thing about international, decentralized cryptocurrencies like that is all Litecoins are the same, and are equally accessible anywhere in the world, provided that you have Internet access.

One of the greatest financial benefits of this wallet-based system is that there is no bank involved. You don’t have to have a minimum balance to keep your wallet, you don’t have to spend $30 on wire transfer fees (unless you are exchanging your coins for fiat currency such as the USD).

Some may view exchanges such as Coinbase or Coinspot as banks, or the equivalent of banks, but they don’t actually store coins. They can create and provide access to wallets on the Litecoin network for your convenience, but they don’t (and cannot) store Litecoins as a bank would store dollars.

Banks serve the purpose of storing conventional, physical currencies for safekeeping, which is why they are (in some ways) at odd with cryptocurrencies such as Litecoin (bear in mind that not all cryptocurrencies work the same way, for example: XRP tokens are stored by a company named Ripple).

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Litecoin Wallets

There are many exchanges that can store Litecoin, including Coinbase and Binance. However, this isn’t the safest way to go due to the fact that they make theft much easier. You can use a wallet app such as Exodus or Litecoin’s official wallet app instead.

If you’re on a desktop computer, you can run a full node (so it will download the blockchain, taking some time) and just use Litecoin Core (which is also the official Litecoin wallet app for desktop computers), which gives you more control over your wallet than other apps.

Litecoin Core lets you create a new address for each transaction you receive, further enhancing security (or you can use this to provide additional privacy as well). It is also extremely fast.

Litecoin Security: Protecting Your Coins

Never give anyone your wallet's private key! 
There is no reason to do so, and it provides access to all your coins. 
Whoever gets your private key, has all your coins. 
To receive coins, you only need to provide your public key.

Don’t store your coins on exchanges. Only deposit the amount that you want to sell. If you’re buying it on an exchange, you can just send it to a normal Litecoin wallet afterwards for safekeeping.

Don’t use an exchange to store all your coins. After buying them on an exchange such as Coinbase or Coinspot, send as many of them as you can to an offline wallet (only keep the ones you intend to sell on the exchange). Always look up reviews and ask around before trying an offline wallet. Not all are legitimate.

Also, don’t buy hardware wallets off Ebay. There are too many fakes there (which will steal your coins). Hardware wallets are actually among the most secure, and you should buy them directly from the manufacturer.

When visiting a website to download a wallet, or you’re logging into an exchange. Always check the URL in your address bar to ensure it is the right one. If you aren’t sure, do a quick Google search and take a look at the top results, and do your best to ensure it is authentic. There are phishers with fake websites that mimic known exchanges with slightly different URLs.

Also check for SSL and extended validation (or EV, often denoted by a green COMPANY NAME LLC (US) in your browser’s address bar.

Regarding the protection of your credentials: A green padlock (which is absolutely necessary for exchanges, so don’t use any exchange if their website doesn’t use SSL) in your browser’s address bar indicates that the website you’re visiting has SSL, which encrypts your connection and helps to protect your login credentials from theft.

Go to the websites of Binance, Coinbase, and Coinspot, and you’ll see that they all have the green padlock mentioned.

Coinbase has extended validation, denoted by Coinbase, Inc. (US) on the left side of your address bar if you use Firefox or Chrome. If you’re visiting the Exodus Wallet website, you’ll see ‘Exodus Movement Inc (US)‘. If you don’t see that, you’re not on the Exodus or Coinbase website.

You may not see an EV certificate on every legitimate website, as it can be expensive, but they must all at least have SSL to encrypt your credentials before transmitting them to the server, otherwise a thief may intercept them and log into your account.

With good security practices, and if you ensure that your computer is free of infections, 
Litecoin Core and similar desktop/laptop wallet apps can be safe compared to an exchange for coin storage.
Litecoin Core makes it easy to back up your wallet to a file, 
and to generate new wallet addresses, which provides security benefits.

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Litecoin Transactions

You can send Litecoins to people by transferring them from your wallet to the recipient’s wallet. For example, if you want to send 0.5 LTC to Martin, you would copy and paste Martin’s wallet address into your wallet app, type 0.5 LTC into the quantity text field, and click send! You could also have Martin provide a QR code that you can scan with your phone, avoiding the inconvenience of typing a wallet address.

There is a small miner’s fee that goes to Litecoin miners who help to support the network. In the case of a single transaction (which is not necessarily an entire block, by the way), that fee is a small fraction of a Litecoin.

Other Details:

  • Your wallet app uses your private key to sign outgoing transactions to confirm that it is you trying to move coins from your wallet.
  • The wallet app broadcasts the transaction to other nodes on the network (yes, it is a node that initiates a transaction).
  • The node broadcasting your transaction to other Litecoin nodes could be Litecoin Core (i.e. your own full node).
  • The nodes must verify that the transaction is legitimate by verifying the hashes to preserve chain integrity and prevent tampering/theft.
  • A minimum number of confirmations (done by nodes) is required for a Litecoin transaction to be completed.

Censorship Resistance: Can Litecoin Transactions Be Blocked?

Under normal circumstances, Litecoin transactions cannot be blocked or reversed. This is due not only to the fact that Litecoin uses an immutable blockchain to store transactions, but also because there is no central authority operating Litecoin (only maintaining its source code).

It is theoretically possible for thousands of nodes and miners to collude to block transactions. This is extremely difficult and unrealistic. Using a centralized service such as a custodian service or an exchange will nullify its censorship resistance, as such services are in possession of your wallet and can confiscate your funds and block your transactions. Whoever has your keys controls your wallet and can take your funds.

Litecoin Privacy: Is Litecoin Anonymous?

The privacy of Litecoin is dependent on how you use it. If you use an exchange or custodian service to store or transfer your coins, you will have no privacy. This is because such services associate your name and contact information with your wallet and can easily track your transactions as a result.

If you want privacy, use a hardware wallet or another which is not on an exchange or custodian service (no online/web wallets). Aside from that, your transactions and wallet address can still be linked to accounts that are on centralized services that store the transaction data. Note that Litecoin’s blockchain is public and all transactions can be viewed by anyone in the world.

Litecoin now offers an optional privacy feature called Mimblewimble (MWEB) that can help to protect your privacy on the Litecoin blockchain. Note that it is not enabled by default and is not supported by all wallet apps nor exchanges. Not everyone wants you to have privacy!

Which Stores Accept Litecoin?

Retailers and other organizations that accept Litecoin include, but are not limited to:

  • Overstock.
  • CheapAir.
  • Free Software Foundation.
  • NordVPN.
  • Private Internet Access (PIA) VPN.

How To Mine Litecoins

Litecoins are mined by solving complex cryptographic puzzles, and miners are currently rewarded with 25 Litecoins per block (this is subject to change, as the algorithm halves this amount every 4 years, or every 840,000 blocks until 84 million LTC is produced). Litecoin mining uses the scrypt algorithm, as opposed to the SHA-256 algorithm that Bitcoin uses.

Sadly, the profitability of mining tends to decline over time for the other cryptocurrencies as well.

Increases LTC prices can help to compensate for that, though. If the 25 LTC was halved to 12.5, then theoretically, a 200% price increase would fully compensate for that loss of profit.

An example of a Litecoin miner is the Antminer L3+. It is an ASIC miner that is built specifically to mine Litecoin.

Bear in mind that mining difficulty can increase as well (negatively affecting mining profits). This is a more technical subject which won’t be discussed on this page.

How To Buy Litecoins

Litecoins can be purchased using fiat currency such as US dollars via cryptocurrency exchanges such as Coinbase, using another cryptocurrency such as Bitcoin on Binance, or within the Exodus wallet app with the help of the ShapeShift cryptocurrency exchange. Litecoins can also be sold using the same exchanges. If you purchased them, they should be sent from the seller (or exchange) to your Litecoin wallet.

Read my guide on how to buy cryptocurrency safely.

Trading Litecoins

Litecoins can be traded quickly and easily with many other cryptocurrencies due to the fact that Litecoin trading pairs are common on exchanges. So you can sell Litecoin for Bitcoin or sell Litecoin for Ethereum. Litecoin is also available in various stablecoin trading pairs so you can hedge against decreases in Litecoin’s price, for example: LTC/USDT, LTC/USDC, LTC/BUSD, or LTC/TUSD.

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Major Cryptocurrency Exchanges That Sell Litecoin

Exchange Details
Coinbase United States – Allows buying/selling cryptocurrencies with/for fiat currency. Works only in certain countries.
Coinspot Australia – Allows buying/selling Litecoin with/for fiat currency.
Binance China (works internationally) – Cryptocurrencies only. You cannot buy Litecoin with fiat here.
ShapeShift Cryptocurrencies Only.

Further Reading on Litecoin’s older brother: How Bitcoin Works.

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