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Bitcoin’s dominating presence tends to drown out its contenders. But there are actually quite a few digital currencies that investors should be paying attention to.
Over the past couple of months, Litecoin has skyrocketed alongside its digital currency peers.
It became the third currency investors could purchase on popular digital currency exchange, Coinbase. And now, a hyped up digital currency public has some questions.
1. What is Litecoin?
2. How is it better than Bitcoin?
Over the course of this report, we will answer those questions. It’s best to start at Litecoin’s humble beginnings.
What is Litecoin?
In October 2013, former Google engineer Charles Lee introduced the world to a new altcoin: Litecoin.
The coin was introduced as the “silver” to Bitcoin’s “gold,” with Lee promising the digital currency would fix many of Bitcoin’s problems.
Litecoin is currently the fifth biggest currency, with a market cap of $1,782,973,718 billion. This makes it one of Bitcoin’s most aggressive competitors. If you are evaluating the two currencies from the surface, they could be twins — sharing dozens of valuable characteristics.
Like Bitcoin, Litecoin was created to provide a peer-to-peer transaction system. It allows individuals to make payments or transactions anywhere in the world without incurring fees.
Litecoin also operates as a global currency, eliminating the need to adjust value if you are exchanging money internationally.
And, like Bitcoin, Litecoin is decentralized. There is no centralized authority, building, or headquarters. The currency flows freely on the internet.
This means it is far more secure than paper currency. And since no government can regulate it or overproduce it, Litecoin’s value rests in the hands of the people.
Like almost all digital currencies, Litecoin is produced through a process called “mining.”
Miners use computers to process Litecoin transactions, which are presented as algorithms the computers must solve.
When the computers solve the problems, more Litecoins are added to the network and the miners are rewarded with their shares.
The mining process and the currency’s finite cap shield Litecoin against hyperinflation. It also allows the currency to regulate itself.
Every time a transaction is verified, the network becomes more secure.
It is clear that Bitcoin and Litecoin are similar in many ways, but they are also very different.
And it is from those differences that Litecoin gleans its value as a digital currency.
Why Litecoin is Unique
Bitcoin was the first digital currency in the world, and this has given it a leg up in the competition. But Bitcoin’s early arrival is also the source of many of its shortcomings.
Today the developers behind major digital currencies have identified Bitcoin’s weaknesses and altered their currencies to fix the issue.
This means that even though Bitcoin was the first technology to use certain technologies — specifically a groundbreaking network called blockchain — the currencies that followed may use that technology more efficiently.
The Better Blockchain
Blockchain technology is the foundation of all digital currencies. Envision it like this.
Every time a transaction or exchange happens in a digital currency network, that action is recorded in a “block.” Each of these blocks is attached to a slowly developing chain.
Anyone on the network has access to the information in the blockchain. This means that transactions are public knowledge, even if the users remain anonymous. This framework also makes digital currency very secure.
Litecoin actually uses this technology more efficiently than Bitcoin. The Litecoin blockchain generates a new block every 2.5 minutes. This is 7.5 minutes faster than Bitcoin can produce a block.
This will appeal to merchants who want a faster transaction. Of course, in the world of Bitcoin, merchants can accept a payment immediately if they forgo security. But in a digital security world that is generally unregulated, throwing caution to the wind often ends badly.
With Litecoin, you get both security and speed.
And this speed just kicked up a notch.
On May 10th, Segregated Witness (SegWit) was activated in the Litecoin blockchain. SegWit is the process in which blocks in the blockchain are made smaller by extracting signature data from transactions.
The first of these payments happened on May 11th. Money was sent from Zurich to San Francisco in under a second.
But Litecoin is valuable for more than just its speed. It also has widespread consumer appeal.
A Love of Rounded Numbers
In the world of digital currency, the number of coins that can exist is finite. There can never be more than a certain amount of Bitcoins in the world — and the same applies to Litecoins. But the total amount of coins that can exist varies by digital currency.
This actually works in Litecoin’s favor. Litecoin will publish more coins on the market than Bitcoin. This will appeal to consumers.
A study by Dr. Judith Holdershaw, a senior lecturer at Massey University, concluded that 57% of retail shoppers opt for a product with a rounded price. Even more telling, 4% of those customers paid more just to round the price. The proof is in the pudding: People like to pay with full numbers.
Because there will be less Bitcoin in circulation, it will have to be broken down into decimals. That means you will be paying .002 BTC for a cup of coffee.
Since more Litecoin’s can be on the market than Bitcoin, it is more likely that people will be able to buy commodities with whole numbers.
The Battle of Algorithms
Outside of transaction speed and volume, there is another key difference between the two currencies: their algorithms.
For those of you completely new to digital currency, digital currencies are composed of code.
In the case of Bitcoin and Litecoin, those codes use two different algorithms.
Bitcoin uses the SHA-256 hashing algorithm, Litecoin uses a scrypt hashing algorithm.
Now, both of these algorithms are powerful. But over the years, the SHA-256 has made it more complex to get Bitcoin through the mining process. Bitcoin miners have to employ increasingly complex technology to extract a relatively small amount of Bitcoins.
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