Within 2 years of Bitcoins creation in 2009, the value of a Bitcoin had reached $30 USD from mere fractions of pennies. In addition to this, mining power had started to become centralised , moving away from individuals mining using GPU power to specialised hardware called ASICs (application-specific integrated circuits). This lead many to think they had missed the boat on Bitcoin.
In 2011, Charlie Lee, a former google engineer, announced the debut of the “lite version of Bitcoin” which was hyped as being silver to Bitcoins Gold. Litecoin forked directly from Bitcoin source code, meaning it was essentially copied from Bitcoin, hence making it very similar and with a view “not change what’s working (from Bitcoin) unless there was a good reason to”. This meant it was just as secure as Bitcoin. There were a number of changes made however in order to offer an improved alternative to Bitcoin without competing directly.
Litecoin vs Bitcoin Algorithm
The most important distinction between Bitcoin and Litecoin is the implementation of Scrypt, a newer encryption algorithm to use for proof of work mining. While Bitcoin uses SHA-256 which is run on a computer’s GPU, Scrypt uses a computer’s CPU. This meant that Litecoin would not compete for hardware resources with Bitcoin, allowing end users to mine both Bitcoin and Litecoin.
Litecoin vs Bitcoin transaction speed
With the intention of becoming more practical than Bitcoin for everyday use, Litecoin was created to have faster transaction confirmations. Litecoin confirms transactions 4 times faster than Bitcoin. While Bitcoin typically confirms transactions in just under 10 minutes while Litecoin can do it in 2.5 minutes. This makes it more attractive to merchants and is one of the main reasons it has grown in popularity.
However, there is much discussion on methods to speed up transaction time on both networks. Due to the similarity of the protocols, any 2nd layer solution can be used on both Bitcoin and Litecoin. For example, the implementation of the lightning network could be used to speed up transaction times on both networks.
Litecoin vs Bitcoin fees
Fees are paid to the miners by senders of transactions to process and validate the transaction. Litecoin fees are currently as much as 20x lower at the moment. Once again, this makes it much more practical and attractive than Bitcoin for everyday use. It seems that Litecoin is the clear winner.
Once again however, the answer may not be as simple. Bitcoin processes more than 10x as many transactions as Litecoin. The competition to have a transaction you have sent to the network and be included in a block and confirmed dictates how high a fee you pay. With more transactions, there is more competition to have your transaction confirmed hence the fees will be higher on a network with more transactions. When Bitcoin was younger and processed the same amount of transactions as Litecoin does now, the fees for Bitcoin were similar to Litecoin’s current fees. It would suggest that if and when Litecoin grows to Bitcoins size the fees would be comparable.
Litecoin vs Bitcoin scalability
Litecoin currently has more “room to grow” however since it handles much fewer transactions this doesn’t really mean anything. Both have limitations on the number of transactions it will be able to handle and scalability is a major talking point when it comes to the future of both Bitcoin and Litecoin. The Lightning network and SegWit are proposed solutions which can be implemented. Since they are so similar, any successful solution could be implemented on both networks. Often, Litecoin is called Bitcoin’s “testnet” since essentially it provides a real-world testing ground for changes and improvements to the technology which could then be implemented on Bitcoin.
Litecoin vs Bitcoin security
While the protocols for both Litecoin and Bitcoin are protected by strong encryption, the fundamental system underlying both is vulnerable to a 51% attack. This attack requires a person or group to control 51% of the hashrate (the amount of work being done on the network) in order to rewrite the history of the blockchain as they see fit. So, the more decentralised the mining network is the more difficult it is to carry out such an attack. In the same way, the more popular the network (and in turn a higher hashrate) the more difficult to carry out such an attack.
When Litecoin was created, ASICs had started to become popular and thus the mining work being done had shifted towards centralised pools. These pools set up mining ASICs at an industrial scale and currently the top 5 pools make up around 60% of the Bitcoin hashrate.
It was believed that the Scrypt algorithm would keep mining limited to regular CPU’s and ASICs could not be used for mining Litecoin. While this was true for a few years, manufacturers managed to create Scrypt ASICs to allow Litecoin mining. Ironically, this has made Litecoin mining less profitable for the masses, and thus shifted the distribution of mining to pools, to become even more centralised than Bitcoin.
While Litecoin started off with a valiant attempt to remain more distributed and thus more secure, currently as of July 2020 it is more centralised and has a much smaller total hashrate.
Bitcoin vs Litecoin popularity
Currently Bitcoin has a Market cap of 167b vs 2.7b for Litecoin. 61x that of Litecoin.
Bitcoin subreddit on Reddit.com has 1.5m members compared to 215k members for Litecoin. 6.9x members. Also when we checked there were 4.2k members online on r/bitcoin vs 650 members on r/Litecoin. A 6.5x difference.
The search term “Bitcoin” has 389m results on Google vs 62m results for “Litecoin”. A 6.2x difference
As well as the raw numbers, Bitcoin is accepted by more merchants and more wallets than Litecoin.
Conclusion
Litecoin was created to be a lite version of Bitcoin, with faster transactions, lower fees and increased decentralisation. So far it has managed to maintain 2 out of 3 of those goals in having cheaper faster transactions. Currently as a merchant it would make more sense to accept Litecoin vs Bitcoin due to the lower fees and faster confirmations. This is probably enough to allow it to grow to a point where it is stable long term and even in the face of direct competition can hold its own.
One further advantage Litecoin has to help it grow is that it is developed under the supervision of Charlie Lee, who acts as a “benevolent dictator”. This allows Litecoin to implement changes much faster than Bitcoin which requires consensus among a multiple groups.
However, given that it has lost the ability to stay decentralised, Litecoin needs to grow while it is faster and cheaper and get to a point where it is a stable currency with enough people invested that it can hold on to its position by reputation alone.. The Bitcoin community is actively working on solutions that would allow transactions that are also fast and cheap. While both Litecoin and Bitcoin have a problem with not being able to keep up with increasing volume expected in the future, once Bitcoin figures out these issues, given it has such bigger following currently, Litecoin may have trouble justifying its existence.
In the end, there is no reason why multiple competing Cryptocurrencies can’t exist concurrently, and at the moment both Bitcoin and Litecoin have advantages and disadvantages. The future however remains a little more unclear especially if both cryptocurrencies become more similar in their use case.
