Charles Lee, a former Google employee, introduced Litecoin to the world in October of 2013. To understand why he decided to create Litecoin, you first need to understand how the bitcoin network works and what issues it has.
Validation and confirmation of transaction on the bitcoin network
For a transaction to occur on the bitcoin network, a miner or a mining pool needs to include the transaction into a block of the blockchain and other miners need to validate it. Sometimes, the term “confirmation” is used instead of the term “validation.” Typically, both of these terms describe the same process.
Here’s how this process works: Every block on the blockchain network has information about transactions that have just occurred on the network right before the block was created. The network then determines the validity of these transactions by checking where the funds are coming from. If the network can check the chain and see that the funds that are leaving a wallet came to the wallet previously and didn’t leave the wallet before, then the network will deem the transaction as valid.
Every subsequent block on the network that confirms the validity of a transaction provides the network with a confirmation. For the network to accept the transaction, it needs at least six confirmations, which means that it needs to be able to check at least six blocks going back. When the network gets at least six confirmations, it considers the transaction to be “spendable.”
Without the confirmations, the transaction is still “in between” users. This is similar to what happens when you send a wire transfer to someone. The funds leave your account yet it takes them some time to get to the account of the receiving party. Many of the bitcoin wallets will show the transaction as “spent” even though in reality the transaction is still awaiting confirmations from the networks. Some wallets will show the status of the transaction as “n/unconfirmed,” where n is the number of confirmations that the transaction has already received. One of the goals of the bitcoin network is to create a block on the blockchain every 10 minutes or so.
Speed of transaction confirmation on the bitcoin network
Because it takes on average 10 minutes for the bitcoin blockchain network to create a block and the network needs at least 6 different blocks to confirm a transaction, this means that it can up to an hour or even longer for the network to confirm a transaction. There is no way for the users to force the network to produce confirmations faster than it does. The speed depends entirely on the network itself.
This is how Satoshi Nakamoto created the software for the network and this is what currently is becoming a problem. Here’s why it is a problem: as the popularity of the bitcoin network grows, so does the number of transactions on the network.
However, what is not growing is the size of bitcoin blockchain blocks and the speed of their creation, which means that the network can only include so many transactions in one block. Therefore, when there are a lot of transactions on the network, their confirmation starts taking a lot of time. This is making the use of the bitcoin network for small day-to-day transactions inconvenient and not practical.
The differences between Litecoin and Bitcoin
Charles Lee realized that the size of the blocks and the speed of their creation were a big problem back in 2013, which is why he created Litecoin. The biggest difference for end users is that it takes the Litecoin network about 2.5 minutes to mine a new block, instead of Bitcoin’s 10 minutes, meaning faster speeds when sending funds in Litecoin.
Charles Lee also increased the number of coins that the Litecoin network can have by 4x compared to Bitcoin. This means that there can be 84 million Litecoins in circulation. The Litecoin network is going to achieve this goal in the same way the Bitcoin network is going to achieve the goal of allowing miners to create 21 million bitcoins, which is by gradually decreasing the size of the reward for mining a block on the Litecoin network. Initially, the number of Litecoins awarded by the network for block mining was 50 coins. This number went down to 25 in October of 2015. The reward is going to be cut in half again some time in 2019. As of the writing of this article, the exact date is August 10, 2019. You can check the current prediction for this date as well as the explanation for how the decrease of the reward process works at www.LiteCoinBlockHalf.com
Litecoin as silver, Bitcoin as gold
For miners, the biggest difference between bitcoin and litecoin is the way the currencies require miners to show proof of work. The bitcoin network uses SHA-256 algorithm. This algorithm is based on calculations that require a lot of parallel processing. This is the reason why ASICs technology has become so popular with bitcoin miners. Litecoin uses algorithm called the Scrypt, originally “s-scrypt.” In practical terms, SHA-256 needs equipment with a lot of raw processing power, such as fast CPUs and GPUs, and Scrypt needs large amounts of high-speed RAM.
Because of all the differences described above, many users say that Litecoin to Bitcoin is what silver is to gold because it terms of standards that were used to hold value, gold and silver were considered almost identical for many centuries. Many governments all around the world treated the metals as virtually interchangeable, including the governments of the United States and most European countries.
There are more similarities between relationships of Bitcoin vs Litecoin and gold vs silver. Just like Bitcoin vs Litecoin, gold predates silver. Archeologists have discovered that gold mining goes back to around 4000BC. One of the first gold mining sites that archeologists have discovered in located in Varna, Bulgaria. In what is modern day Turkey, people began mining silver in around 3000BC.
One of the first written descriptions between gold and silver is located in the Code of Menes. Menes was a pharaoh in the ancient Egypt who lived between around 3,200BC and 3,100BC. The Code of Menes states that the value of one part of gold is equal to the value of two and a half parts of silver, which means that just like Bitcoin vs Litecoin, the value of gold has always been higher than the value of silver, even though both metals are considered to be precious and valuable.
What is of more interest to current investors and users of cryptocurrency is the timeline of gold and silver becoming actual currencies that people started to use in their daily lives for ordinary transactions. It took quite a bit of time for both gold and silver to become de-facto money. This happened about 600BC, when Lydia started creating coins out of precious metals, using them as actual storage of value. Lydia was a kingdom located on the territory of modern Turkey. According to Herodotus, Lydia was the first country to use coins made out of gold and silver. It was also the first country to have permanent retail stores.
Another factor of critical importance to modern investors is that both gold and silver have been considered to be vehicles of value storage for many centuries and continue to do so today.
Similarities between Litecoin and other cryptocurrencies
Just like most other cryptocurrencies introduced to the marketplace after Bitcoin, Litecoin fully utilizes the benefits of blockchain technology.
Litecoin is a decentralized currency and it doesn’t belong to anyone even though it does have a creator. Its creator, Charlie Lee, has announced on December 20, 2017 in a verified post on Reddit and on his twitter that he has sold all his litecoins and will not own any litecoins moving forward. He has decided to sell because he sees the Litecoin project as his child and wants to grow the network and the community, yet whenever he posts or says something about litecoin, people suspect that he has an ulterior motive for doing so. For this reason, he felt that people perceived him to have a conflict of influence when developing the network and talking about it. Selling litecoins that Lee owned made him very affluent. In his post, Lee said that moving forward he didn’t have to tie his financial success to the success of his invention.
Another similarity between Litecoin and bitcoin is that Litecoin is a fully transparent network. Anyone can check the status of the network, the number of blocks that the network currently has and all the transactions that have ever happened on the network by visiting litecoinpool.org.
Lee claims that one of the goals of Litecoin network is to take the weight off the Bitcoin network and become a way for people to conduct smaller, less significant transactions. Lee sees future in which you would use Litecoin to make purchases such as a cup of coffee and bitcoin to buy, say, a $200,000 home. He also considers Litecoin to be a testing platform for useful features that the bitcoin network could later adopt.