May 18, 2021

Article at Kevin on Authory

What is Litecoin?


Litecoin has been holding its own against heavyweights like Bitcoin and Ethereum. That may be partly due to the low cost of payments to any merchant or customer in the world. Like Bitcoin, Litecoin is decentralized. There is no organization or individual in charge of how business is conducted in the Litecoin network.

It is known for having much faster transaction confirmation times than Bitcoin, and that has bolstered it somewhat in the market. It also has very efficient storage capabilities.

Perhaps most promising, Litecoin is fairly liquid--it trades in high enough volumes that anyone wishing to sell is likely to find a buyer.

Let's take a look at just what makes Litecoin viable.

What Is Litecoin?

This cryptocurrency falls into the category of general-purpose digital money. That is, it is intended for use in any type of transaction and is not limited, as some coins are, to any specific industry or cause.

Litecoin is nearly identical to Bitcoin, with the notable exceptions that it is much cheaper to use and transactions are faster.

Litecoin, as of now, has two main uses:

  1. It is traded for profit.

Investors and speculators buy Litecoin in hopes that it will rise in value, so they can sell it for a profit. So far, the rise and fall in value has followed the trends of Bitcoin. Because it costs less than Bitcoin, some investors are attracted to it, but this is not a significant factor simply because expensive coins can be purchased in small increments.

  1. It is used to buy goods and services.

Litecoin has gained a solid reputation among merchants and organizations that sell online, and many will accept Litecoin from buyers. Prices of items fluctuate with the value of Litecoin, and because it is volatile, those fluctuations can be frequent.

Litecoin is considered by some investors as a way to diversify. In other words, by owning some Litecoin in addition to Bitcoin, a portfolio of cryptocurrencies could have less risk built in. That is not to say that Litecoin has not been volatile, but over time, if the craze for cryptocurrencies calms down, Litecoin could come to be seen as less volatile due to its lower price.

What Block-Chain Technology is Litecoin Based On?

Whereas Bitcoin uses the SHA-256 algorithm, Litecoin uses the Scrypt algorithm. This is mostly of interest to those who are interested in becoming miners. Miners gather transactions, validate them, and then put them into blocks in the blockchain. This process is much simpler for the Scrypt algorithm. For that reason, Litecoin attracts miners.

For the investor, this different algorithm makes little difference, other than the fact that a cryptocurrency must be able to attract miners to keep functioning. In this regard, Litecoin seems to have some advantages that could give it longevity.

How Is It Different Than Other Cryptocurrencies?

The total number of Litecoins that can ever exist is 84 million. Currently, around 55 million coins are released, so investors have some inventory they can buy when it becomes available. Many other cryptocurrencies have already released all of their coins, so the only purchases that can be made are coins held by people who want to sell them.

Litecoin is much different than so-called altcoins. Altcoins tend to have ambitions to be a replacement for Bitcoin, touting features that Bitcoin does not have. So far, this has not happened. Litecoin is well suited to be number two, and offers no real alternatives to Bitcoin that would cause it to take over.

What Can Litecoin Be Used For?

Litecoin can be used for any kind of purchase where sellers accept Litecoin. It may also be traded, used to pay debts, or to transfer money to family members.

It should be said the Litecoin has gained a lot of acceptance across the world, though some countries have outlawed it. That acceptance helps give it value because it can be relied on to be used in transactions. As the dust settles, a currency like Litecoin could be a viable and attractive second choice.

The Bottom Line

Litecoin is not an overly ambitious cryptocurrency. Its founders say they see it is the "silver" to Bitcoin's "gold." In other words, it may remain a secondary currency that never achieves the value of Bitcoin. Nevertheless, it is quite popular, and speculators have made significant money from it. Of course, some have lost money as well.

For the short-term, Litecoin may continue to follow the patterns in Bitcoin's chart. There is little reason to expect it to behave differently than Bitcoin unless sudden popularity boosts it.

Those watching the cryptocurrency space should keep an eye on significant also-rans to see if they hold up. If they don't provide any opportunities their competition doesn't have, they could fade away over time. That's not to say that is inevitably Litecoin's fate, but it bears watching.