Although Bitcoin dominates much of the crypto market and media since it was the first to market, there are many other options for people interested in investing in cryptocurrencies.
There are actually thousands of different types of cryptocurrencies, or altcoins, on the market today. Two of the most popular cryptocurrencies are Litecoin and Ethereum, which are both often in the top five list by market cap.
Why are these coins so popular, and what’s the difference?
While often compared, these coins are actually quite different from a technical standpoint, and when investors look at putting their money into Litecoin vs. Ethereum, different people might choose one over the other for different reasons.
Let’s dive into the details.
Ethereum vs. Litecoin: Key Similarities and Differences
• Both cryptocurrencies can be purchased on most major exchanges.
• Both have fast transaction times (faster than Bitcoin).
• Both are open source, peer-to-peer networks.
• Both currently use Proof of Work mining, but Ethereum may switch to Proof of Stake.
• LTC has a supply limit of 84 billion coins. Ethereum doesn’t have a fixed supply limit.
• Ethereum has lower block rewards for validators, which keeps the supply in check.
• Litecoin has transaction fees, while Ethereum has gas fees.
• Litecoin is primarily used as a currency, whereas Ethereum can also be used to create contracts and transfer property.
Major Features of Litecoin
Litecoin (LTC) was created in 2011 by former Google employee Charlie Lee. It is actually a fork of the Bitcoin blockchain, making it similar to Bitcoin in a number of ways.
A fork happens when miners don’t agree on an update made to a proof-of-work blockchain. The updated version becomes a fork of the original version, and the miners who didn’t agree to the update continue to mine the original blockchain. Charlie Lee initiated an update to the Bitcoin blockchain, but not enough miners agreed to the update, so it became a fork which was named Litecoin.
Lee’s goal in creating Litecoin was to make a faster, fairer, and cheaper version of Bitcoin. Litecoin has lower transaction fees than Bitcoin and it’s up to four times faster to mine each block. It takes 10 minutes to mine a Bitcoin block, but only 2.5 minutes to mine a Litecoin block.
This means that it takes less time for each transaction to be completed as well. Litecoin also has a much larger total supply than Bitcoin.
There are 84 million Litecoins, but only 21 million Bitcoins. Like Bitcoin, each Litecoin can be divided up to 8 decimal places.
In 2017, the Litecoin network implemented both Segregated Witness, or SegWit, and the Lightning Network Protocol. These were both updates meant for the Bitcoin blockchain, but the Bitcoin mining community couldn’t agree about them as quickly as the Litecoin community did.
Since the market cap of Litecoin is smaller, it’s less risky for the network to try out new updates than it would be on the Bitcoin network. In this way, Litecoin has become a testing ground for new functionality.
SegWit increased the number of transactions that could be completed each second by only storing the most important data on the main blockchain. With less data on each block, mining goes more quickly, and transaction times speed up.
The Lightning Network enables small transactions to process off of the main blockchain. This makes it possible to do every day transactions, like buying a cup of coffee, and have the transaction go through fast enough.
Litecoin Mining
Litecoin is built using the same Proof-Of-Work protocol as Bitcoin. This means that a network of miners compute complex calculations to keep the Litecoin blockchain running, and they receive newly minted Litecoins as a reward for their work. However, Litecoin mining differs from Bitcoin mining with its use of the Scrypt hashing algorithm.
Bitcoin miners can pool together, causing centralization in the network. This puts the network at risk of being overtaken by a group of miners who ban together. The Scrypt algorithm prevents miners from pooling together.
Litecoin Transaction Fees
As buyers and sellers make transactions using LTC, they get queued in what’s called a mempool. When miners mine new blocks, each new block can hold a certain amount of transaction data.
The data from the lined up transactions gets put inside the new blocks, and when that happens the transaction goes through. Miners get rewarded with fees for each transaction. The fee for a LTC transaction is usually $0.05.
Like Bitcoin, Litecoin is meant to be a transactional currency and/or a store of value. This differs from Ethereum, which has an added layer of functionality to its design.
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Major Features of Ethereum
Bitcoin enthusiast and programmer Vitalik Buterin came up with the concept for Ethereum and released a whitepaper outlining its uses in 2013. Other developers who believed in the idea helped code the Ethereum blockchain, which went live in 2015.
Although Ethereum can function as a medium of exchange similar to other cryptocurrencies, its main purpose is to act as a decentralized application platform. The ether token (ETH) acts as the fuel for contracts and applications built on the platform. Users can create smart contracts on the Ethereum blockchain.
These contracts can contain information or exchanges such as property transfers, sets of rules, monetary exchanges, or other agreements.
The rise of initial coin offerings, or ICOs, that occured in 2017 was largely due to Ethereum. The network allows developers to easily build their own custom token projects and sell tokens to investors.
Ethereum is a much faster blockchain than both Bitcoin and Litecoin. Blocks are mined every 10 to 20 seconds.
Another main difference between ETH and LTC is that there is not a capped supply limit of Ethereum. Since the Ethereum blockchain was designed to be a platform for decentralized application services, the team decided not to cap the supply. Ethereum has a much lower block reward than LTC or BTC, which keeps the supply in check.
Ethereum and Litecoin are similar in that they are completely open-source, peer-to-peer networks. This means that anyone can read their source code or join their network, and anyone can purchase equipment to mine Litecoin.
Ethereum Mining
Currently, Ethereum uses a Proof-of-Work mining system similar to Litecoin. The network is considering switching to a Proof-of-Stake (POS) consensus, which would replace miners with validators. Validators lock up some of the coins they hold, and their mining power depends on how many coins they have staked.
Once they have staked, they start validating blocks, and they vote on which blocks they think can be added to the blockchain. If the block they voted for gets added to the chain, they receive a reward proportionate to their stake. POS requires a lot less energy and fewer resources than POW, since POW miners have to do much more ‘work’ to mine blocks.
Ethereum Gas
While Litecoin has transaction fees, Ethereum uses a different system called gas. Gas is a unit that measures the amount of computational effort required to execute operations such as ETH transactions. This is similar to calculating how much gasoline it would take to get a car from one place to another. When users send ETH, they pay a gas fee to complete the transaction.
Price Differences Between LTC and ETH
Litecoin and Ethereum are both popular cryptocurrencies, but their individual token price tends to be quite different. This is partly because the market cap for each coin differs, but also because the supply of Ethereum is much larger than that of Litecoin.
Litecoin has a max supply of 84 billion coins, while Ethereum doesn’t have a capped supply limit. So even though Ethereum might have a larger market cap, the price of 1 ETH could still be much lower than the price of 1 LTC.
Why Invest in Litecoin or Ethereum?
Unlike many small cryptocurrencies, both Litecoin and Ethereum are likely to stick around for the long term. This is important for investors because they don’t want to put their money into a coin which might disappear or shut down.
Both coins have been around since the early days of the crypto industry, they have strong followings, dedicated teams working on them, and are available on most of the major exchanges.
One risk of owning Litecoin is that the SegWit functionality may be implemented on the Bitcoin blockchain in the future. This would remove one of the advantages that Litecoin currently has over Bitcoin.
For users looking to transact in cryptocurrencies, there are reasons for choosing either coin. Technically, Ethereum transactions can be faster than Litecoin transactions due to faster block generation time. However, the Ethereum network stores a lot more information than the Litecoin network, which can affect transaction times. Litecoin is geared more towards purchases and transactions, while Ethereum is designed for other types of information exchange and application building.
Litecoin is often called the silver to Bitcoin’s gold. It is seen as a safe alternative investment, but one that may never grow in value as much as Bitcoin. LTC is up against a lot of competitors, making its path to adoption unclear.
However, its similarities to Bitcoin may ultimately make it useful. As the use of Bitcoin grows, it will be hard for the BTC network to handle all of the transactions. LTC could become a secondary choice for handling similar types of transactions and getting better transaction rates.
The Ethereum network has tremendous potential for decentralized applications, but whether that will translate into the ETH token having value is yet to be seen.
One important metric to look at is the community support for each coin. To compare, there are currently about 2,700 tweets each day about Litecoin, vs. 10,800 about Ethereum.
Ethereum processes nearly 20 times more transactions each second than Litecoin does. Since the Ethereum network has a unique technology offer, it’s community of developers and supporters is much stronger. In order for Litecoin to succeed, it has to have a clear value for investors.
Many crypto investors choose to hold a diversified portfolio of coins, which could include some of both ETH and LTC.
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