Tempted to start investing in cryptocurrency? There are plenty of ways you can and many coins and tokens to invest in. However, it can be difficult for crypto newbies to know where to begin or which specific cryptocurrency might be best to build your portfolio with.
While many individuals start with Bitcoin, there are many different types of cryptocurrencies out there, like Ethereum, Litecoin, and Dogecoin.
Below, we’ll look at Litecoin versus Bitcoin, as well as the similarities and differences between the two markets.
Litecoin vs. Bitcoin: An Introduction
Litecoin may be a relative newcomer to many crypto investors’ lexicons. Litecoin is considered in the cryptocurrency market to be an altcoin, which is the term used for coins and tokens that aren’t Bitcoin.
So, before we delve into the differences and similarities between Litecoin and Bitcoin, we’ll quickly give an overview of both.
What is Litecoin?
Litecoin is a cryptocurrency that dates back to 2011 when it was created by Charlie Lee, a former Google computer scientist. Litecoin came about from a fork of the Bitcoin blockchain—meaning that it’s something of a Bitcoin offspring. In fact, Litecoin is often considered to be Bitcoin’s “little brother.”
Despite the “little brother” moniker, Litecoin is one of the largest cryptocurrencies in the world. As of July 19, 2021, Litecoin was the 13th biggest cryptocurrency in the world, data from CoinMarketCap.com show. Litecoin works in a very similar fashion to Bitcoin, allowing peer-to-peer, instant payments to be transacted across the globe.
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Litecoin was designed as a faster alternative to Bitcoin, which is what makes it attractive to crypto traders and investors. It can create blocks on the chain (blockchain!) four times faster than Bitcoin, for example.
Back in 2017, the first time there was a wave of cryptocurrency buying among mainstream retail investors, Litecoin reached as high as $359.13 in December of that year. Around that time, founder Charlie Lee announced on Reddit that he was selling and donating all his Litecoin tokens. Prices tumbled throughout 2018, getting to as low as around $25.
In 2021, as stay-at-home orders and stimulus package checks drove investors back to buying cryptocurrency, Litecoin soared again, reaching as high as $386.45 in May. However, the market fell along with other cryptocurrencies, and as of July 19, 2021, Litecoin was trading at around $113.65.
What is Bitcoin?
Bitcoin is a cryptocurrency employing blockchain technology—essentially a decentralized ledger system—to operate. It’s decentralized, meaning that it isn’t issued or managed by a central authority, like a government. And usually Bitcoin is used as a currency to conduct transactions, or as an investment to buy, sell, and trade.
Since its initial inception in 1998 to its market debut in 2009, Bitcoin has become the largest and most recognizable cryptocurrency out there. And it’s the crypto that most others, including Litecoin, are trying to catch up with.
As mentioned, there was a wave of cryptocurrency buying among retail investors in 2017. That year, the price of Bitcoin went from $963.77 on Jan. 1 to $19,497.40 by mid-December–a more than 1,900% move! However, the crypto frenzy cooled in 2018, causing prices to plunge to the $3,000s by December 2018.
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It took a pandemic and stay-at-home orders to drive the price of Bitcoin to new highs again. Other factors that potentially drove the price of Bitcoin included signs that institutional investors were warming up to the digital coin, as well as a decision by PayPal Holdings to allow customers access to cryptocurrencies.
Bitcoin was trading at around $5,000 when stay-at-home orders went into effect in the US in mid-March 2020. It went on to soar to $29,000 by the end of December 2020. Bitcoin eventually reached a new record high of about $63,000 in April. However, volatility plagued Bitcoin again in 2021, with prices plummeting, and on July 19, 2021, they were around $30,000.
Litecoin vs Bitcoin: Similarities
We already noted that Litecoin was somewhat born of Bitcoin. For that reason, it makes sense that there’d be a lot of similarities between the two. Here is a rundown of some of the ways that the two stack up.
Storage and Transactions
One way in which Litecoin and Bitcoin are similar is how they are transacted and stored. Both can be purchased or traded for US dollars. And when it comes to actually making transactions using either crypto, the underlying processes involving validation and confirmation are more or less the same.
As for storing Litecoin and Bitcoin, investors need a hot wallet or cold wallet in order to keep their holdings. Much the same with many other cryptocurrencies.
Proof of Work and Algorithms
Both Bitcoin and Litecoin use a “proof of work” algorithm, albeit they use different specific algorithms. Essentially, a proof of work algorithm is a process or ecosystem by which miners or other actors active on the crypto’s blockchain network validate ownership. It also relates to how new coins are mined.
Since new Litecoins and Bitcoins are both mined by solving complex equations, new blocks added to the blockchain are validated by the network using this proof of work protocol. It’s an energy-intensive process and one that both Litecoin and Bitcoin use (again, in slightly different ways) to summon new coins.
While you may not be able to use Bitcoin or Litecoin to purchase goods or services everywhere—although some businesses will accept crypto as a form of payment—the basic utility for both Bitcoin and Litecoin comes from their ability to store value.
With that in mind, both operate and are used like any other currency, in that they can be used to pay for stuff. If the person on the other side of the transaction is willing to accept it, that is. While it may be relatively rare to find a business willing to accept Litecoin for, say, a pizza, that may change in the future if and when crypto becomes a more common form of accepted payment.
In that case, the utility of cryptos will increase substantially.
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Bitcoin vs Litecoin: Differences
As we’ve laid out, the battle between Litecoin versus Bitcoin is something akin to a slap-fight between two brothers or cousins. The two have several similarities, in other words. But that doesn’t mean there aren’t some rather stark differences between the two, as well.
Availability and Distribution
In terms of availability, Litecoin reigns supreme. Bitcoin is limited to a supply of 21 million coins, and the majority of them have already been mined. Conversely, Litecoin’s supply is limited to four times that amount: 84 million total coins. This is because Litecoin’s developers created it to process transactions four times faster than Bitcoin, and thus, produce four times as many coins.
So, while there may be more Litecoins (eventually) on the market, it’s important to remember that cryptos like Bitcoin and Litecoin can be divided up and sold as fractionals. For example, an investor could purchase 1/10,000 of a Bitcoin, which, in effect, can help mediate the scarcity effects over time.
For many in the crypto space, the prospect of earning rewards via the mining process is a selling point. And this is another important area in which Litecoin versus Bitcoin differ to a degree.
Bitcoin mining rewards gradually reduce over time, as fewer and fewer Bitcoins remain to be mined. At first, a miner would be rewarded 50 Bitcoins for mining a block, a reward that falls by 50% every four years or so, until the reward reaches zero. That won’t happen until the next century, though. The current reward is 6.25 Bitcoins.
As for Litecoin, the mining and “halving” process is similar. But the rewards are different. Miners can currently earn 12.5 Litecoins per block—twice as much as Bitcoin miners.
As mentioned, Litecoin processes transactions a whole lot faster than Bitcoin—four times faster. Transactions occur on the blockchain, where they are confirmed and validated. And this takes a little bit of time: For Bitcoin, something like ten minutes. That means that a new block is mined and added to the chain every ten minutes.
But Litecoin is faster. Since Litecoin processes transactions four times faster than Bitcoin, the same validation and confirmation process occurs roughly every two-and-a-half minutes.
The reason Litecoin is so much faster is partly due to design by the founder Charlie Lee, who made tweaks to the original Bitcoin system. Litecoin transactions are also faster due to the fact that there’s less congestion on the network. The transaction time accounts for the amount of time it takes for a block to be verified and added to the blockchain.
Transaction fees also tend to be cheaper on the Litecoin network, usually totaling around 3 to 4 cents on average per transaction. Meanwhile, Bitcoin’s average transaction fee is around $7.60.
Fees are partly lower on the Litecoin network because the design sets aside coins to incentivize miners, which isn’t incorporated into the transaction fees.
Whether you choose to invest in crypto will ultimately come down to you—your goal, risk tolerance, etc. And whether or not you should do it is a question best suited for a financial professional.
That said, if you are looking at investing in Litecoin versus Bitcoin, you can use the above criteria to help gauge your decision. There are pros and cons to each, and though they’re similar in a number of ways, it may simply come down to price. The price of a Bitcoin is, as of June 2021, around $40,000, whereas the Litecoin price is around $165.
In addition to price, altcoins like Litecoin can demonstrate greater volatility. However, it’s also true that transaction fees and costs tend to be lower with Litecoin.
If you do decide to pull the trigger and invest, the steps to invest in Litecoin are more or less the same as they are to invest in Bitcoin—so, at least there’s one easy aspect to making the decision. And also remember that there are other cryptos out there, too. It’s not merely a choice between Litecoin versus Bitcoin, it can also be a decision between Litecoin versus Ethereum, for example, too.
Photo credit: iStock/Pekic
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