What is litecoin? How to buy litecoin?

Litecoin was created by Charlie Lee in October 2011. Lee is a former employee of Google, who designed it to complement Bitcoin by solving some of its issues, like transaction times, fees, and concentrated mining pools.

Litecoin is a peer-to-peer Internet currency that enables instant, near-zero cost payments to anyone in the world. Litecoin is an open source, global payment network that is fully decentralized without any central authorities. Mathematics secures the network and empowers individuals to control their own finances. Litecoin features faster transaction confirmation times and improved storage efficiency than the leading math-based currency. With substantial industry support, trade volume and liquidity, Litecoin is a proven medium of commerce complementary.

Litecoin is one of the most exciting projects out there. Founded and championed by ex-Google employee Charlie Lee, Litecoin serves as the silver to Bitcoin’s gold. However, that statement just doesn’t do Litecoin enough justice. Time and again, Litecoin has proven itself to be a trailblazer in the crypto space. Litecoin is one of the forked protocol of Bitcoin’s original code. So, should you invest in Litecoin? How would you go about it if you wanted to buy Litecoin? Let’s explore that in this articles.


Litecoin and Altcoins: Why You Shouldn’t Invest Just in Bitcoin

One of the broadest generalizations of cryptocurrencies is “Bitcoin and Altcoins.” In other words, Bitcoin and coins that are not Bitcoin. So, if Bitcoin is the leader of the crypto-economy, why would you want to invest in any other coins? Well, it turns out that there are a lot of reasons:

Bitcoin is Expensive.
How does a cryptocurrency get its value? Well, there are two parts to it. A crypto’s value is made up of its:

Intrinsic value: The value that the token gains from the credibility and utility of its project.
Speculative value: The value that the token gains from speculative traders who expect its price to fluctuate in the near future.
Speculative investors are a valuable part of any ecosystem. However, it is hazardous for a token to be priced purely on its speculative value. For real sustenance, a token needs to be heavily dependant on its intrinsic value. So, how does a token gets its intrinsic value? The intrinsic value is created by the underlying project and how much percentage of this value is captured by the token.

As of right now, a majority of Bitcoin’s price is based on pure speculation and hence can be overvalued. In the near future, when Bitcoin gets more utility, their price will be made more of intrinsic value. However, for now, Bitcoin’s price tends to get inflated based on pure speculation. As such, it is difficult for investors who are not that well-to-do to make a meaningful investment in Bitcoin.

Bitcoin is Full of FOMO Investors

Fair or not, being the most popular cryptocurrency, Bitcoin gets a lot of attention. As such, a lot of naive and newbie investors enter the space who have no better reason to invest other than “I don’t want to be left out.” The problem with this is that they don’t have any real knowledge of the blockchain. They are not buying Bitcoin because they are interested in the blockchain technology and its potential, they are doing so because someone told them to invest in it. The moment someone famous criticizes Bitcoin or cryptocurrencies, these investors will sell all their assets, crashing the market in the process. Now, we are not saying that Litecoin is free form this phenomenon, however, the fact is that since it is less popular than Bitcoin, it has comparatively less number of FOMO investors.

Altcoins are Cheaper

Altcoins trade for very low prices when compared to Bitcoin. This is great for two reasons:

1. It is much more affordable than Bitcoin, meaning an average investor can still make a pretty substantial investment with the altcoin. Eg. $10,000 won’t buy you 2 BTC but it will buy you 125 LTC(litecoin).
Because these coins are so cheap, they have tremendous upside potential. The price of litecoin increased by 7,291% from the beginning of 2017 to November 2017! In comparison, bitcoin “only” increased by 1731%.

2. If the altcoin of choice has good quality and potential, then there is every chance that the price will appreciate significantly soon.

Altcoins are More than Just Coins

While Litecoin, quite like Bitcoin, is a payment mechanism, there are tons of coins out there which provide a lot more utility than being a pure payment coin. Most of the altcoins are based on some pretty revolutionary ideas which could change the world. Ethereum, NEO, and EOS are smart contract platforms which can be used to developers around the world to build their applications. Golem allows people to lend their computing power to anyone connected to the Golem network. Because of these different utilities, these altcoins have much higher upside potential.

Altcoins Can be Mined Easily
Bitcoin uses the proof-of-work consensus mechanism. Proof-of-work is pretty straightforward to understand.

The miners use their computational power to solve tough cryptographic puzzles. The puzzle solving needs to be extremely hard. If it is simple, then miners will keep mining blocks and drain out the entire bitcoin supply.

However, while the puzzle solving part is difficult, checking to see if the solution of the puzzle is correct or not should be simple.

And that, in a nutshell, is proof of work.

Solving the puzzles and getting a solution should be tough.
Checking to see if the solution is correct or not should be difficult.
Now, both bitcoin and litecoin go about this a little differently.
Bitcoin uses the SHA-256 hashing algorithm for its mining purposes. Before long, miners discovered that they could exponentially increase their mining power by joining together and forming mining pools via parallel processing.

In parallel processing, program instructions are divided among multiple processors. By doing this, the running time of that program decreases significantly and that is basically what the mining pools are doing.

The SHA 256 puzzles require a lot of processing power, and that gave rise to specialized “application-specific integrated circuits aka ASICs. The only purpose that these ASICs served was bitcoin mining.

These mining pools would have an entire powerplant of ASICs explicitly designed for bitcoin mining.

How to Buy Litecoin
Mining, as initially envisioned by Satoshi, was supposed to be a very democratic process. The idea was that any average Joe could sit on his laptop and contribute to the system by becoming a miner. However, with the rise of the ASIC plants, the average Joes have no chance to compete with the big companies.

However, altcoins mining is comparatively much more straightforward. Litecoin, e.g. uses the Scrypt mining algorithm.

Scrypt was initially named “s-crypt” however it is pronounced as “script”. While this algorithm does utilize the SHA 256 algorithm, its calculations are way more serialized than the SHA-256 in bitcoin. As such, parallelizing the calculations is not possible.

What does this mean?

Suppose we have two processes A and B.

In bitcoin, it will be possible for the ASICs to do A and B together at the same time by parallelizing them.

However, in Litecoin, you will need to do A and then B serially. If you try to parallelize them, the memory required becomes way too much too handle.

Scrypt is called a “memory hard problem” since the main limiting factor isn’t the raw processing power but the memory. This is precisely the reason why parallelization becomes an issue.  Running five memory-hard processes in parallel requires five times as much memory. Now, of course, there can be devices manufactured with tons of memory in it, but two factors mitigate this effect:

Ordinary people can compete by buying simple day-to-day memory cards instead of super-specialized ASICs.
Pound-for-pound, memory is way more expensive to produce than SHA-256 hashing chips.
Real-world utility
Bitcoin has some significant obstacles to overcome before it becomes a proper means of payment. The chief obstacle, of course, is the scalability issue. Long story short, Bitcoin’s throughput and transaction times are pretty low for it to be used as payment in regular day-to-day transactions. Plus, some people prefer using Bitcoin as a store-of-value rather than a means of payment.

On the other hand, altcoins like Litecoin have a much higher transaction speed. Bitcoin can only manage 7 transactions per second while litecoin can do 56 transactions per second.

Portfolio Diversification
Finally, every investor should diversify their portfolio.

If you are entering the crypto game, then it goes without saying that you should start with Bitcoin. All said and done, Bitcoin remains the premier cryptocurrency. However, it is wrong to put all your eggs in one basket, as the adage goes. An educated and serious investor will always be looking to invest in as many coins as possible.

Technological Advances of Litecoin
Litecoin’s working process is similar to Bitcoin. Both of them leverage the blockchain technology to enable payment transfer between two entities without the need for a third-party. However, the reason why many people hold Litecoin in high regard is because of their willingness to experiment with potentially disruptive technologies. In our previous guide on Litecoin, we have already mentioned how Litecoin has worked on the following technologies:

Lightning Protocol:Using hash timelock contracts (HTLCs) to create off-chain payment channels to exchange multiple micro-transactions without going through the blockchain. This is a scalability technique that many coins like Bitcoin, Litecoin, Decred, etc. are looking to use to increase their throughput.
Atomic Swap: Atomic swap enables a cross-chain exchange of coins without the need of a third party. Eg. If Alice had 1 bitcoin and she wanted 100 litecoins in return, she would normally have to go to an exchange and pay certain fees to get it done. This technique also utilizes HTLCs.
SegWit: Segregated Witness is the process by which the block size limit on a blockchain is increased by removing signature data from Bitcoin transactions. The signature data is kept in extended blocks which are attached to the main blockchain via side-chain.
Privacy and Fungibility
One property that Litecoin has recently looked into adding is “fungibility.” On January 28, 2019, Lee tweeted the following:

“Fungibility is the only property of sound money that is missing from Bitcoin & Litecoin. Now that the scaling debate is behind us, the next battleground will be on fungibility and privacy. I am now focused on making Litecoin more fungible by adding Confidential Transactions.”

So, what is fungibility? Investopedia defines it as follows:

“Fungibility is a good or asset’s interchangeability with other individual goods or assets of the same type.”

Suppose you borrowed $20 from a friend. If you return the money to him with ANOTHER $20 bill, then it is perfectly fine. You can even replace the money to them in the form of 1 $10 bill and 2 $5 bills. It is still fine. The dollar has fungible properties (not all the time though).

However, if you were to borrow someone’s car for the weekend and come back and give them some other car in return, then that person will probably punch on the face. If you went away with a red Impala and came back with another red Impala, then even that is not a done deal. Cars, in this example, are a nonfungible asset.

Cryptocurrencies use a transparent open ledger system to log their transactions. Everyone who is part of the blockchain’s network can observe the transactions in it and more importantly, everyone can see the trail of those transactions. So, suppose you own a bitcoin which once was used in some illegal transaction, eg. buying drugs, it would forever be imprinted in the transaction detail. What this in essence does is that it “taints” your bitcoin.

In certain bitcoin service providers and exchanges, these “tainted” coins will never be worth as much as “clean” coins. This kills fungibility and is one of the most often used criticisms against bitcoin. After all, why should you suffer if one of the previous owners of your bitcoin used it to make some illegal purchases?

Using privacy functions could mitigate this and give cryptocurrencies some much-needed fungibility. Litecoin is looking to integrate the MimbleWimble protocol to implement privacy. Lee tweeted:

Thanks for reading this article.