Cryptocurrencies can simply be defined as a currency that is digital or virtual, which has been encrypted through computer software and secured by cryptography, hence the name given to them.
Here is our overview of Litecoin:
- ✔️Litecoin – introduction, and history
- ✔️What are Litecoin’s goals?
- ✔️Overview of Blockchain
- Consensus methods
- Differences between Litecoin and Bitcoin
- Having a closer look at the Blockchain of Litecoin
- Litecoin mining
- Use cases and applications for Litecoin
- Litecoin trading or exchange
- An introduction to crypto wallets
Cryptocurrencies, unlike paper money or fiat currencies, cannot be counterfeited and they have solved the issue of double-spending, which is one of the reasons why there is so much value attached to digital assets.
Overview – Cryptocurrencies
Cryptocurrencies are decentralized networks that are based on blockchain technology. The blockchain serves the purpose of a decentralized ledger, or DLT, which is distributed where transactions concerning cryptocurrency are recorded.
DLT ensures that the history of a digital currency or asset is both unalterable and transparent. Cryptocurrencies, such as Litecoin, can neither be issued by a bank nor can they be controlled by participants such as central banks or governments.
Litecoin – introduction, and history
There are numerous cryptocurrencies today and Litecoin is the sixth largest merely by market capitalization. The creation of Litecoin was inspired by the inaugural cryptocurrency Bitcoin.
Litecoin serves as a replica thereof in numerous ways.
However, instead of competing with Bitcoin, Litecoin complements it in numerous ways and various references to it have been made as to the silver to Bitcoin’s gold.
There are, however, also numerous differences that set it apart from Bitcoin such as Litecoin’s algorithm, the speed according to which transactions are processed, and the coin limit.
Founded in 2011 by Charles Lee, who is a previous employee of Google as an engineer, Litecoin experienced substantial growth soon after it was founded and launched.
2017 saw a substantial growth in cryptocurrencies where the market cap had increased by more than 3600% which subsequently increased Litecoin’s price by 8200%. During this time Litecoin surpassed Bitcoin’s performance and increased its value by 2000%.
This instance not only put Litecoin in the ranks of top cryptocurrencies, but it also allowed for the coin to achieve one of its major goals, which was to improve some areas on Bitcoin.
- Bitcoin was founded in 2009 and this lay the foundation for Litecoin and numerous other altcoins. Altcoins are alternative coins, and this is a general term used when referring to all coins other than Bitcoin.
- In 2011, Charles Lee created Litecoin by modifying the code associated and attributed to Bitcoin.
- In 2013 Litecoin’s market capitalization had reached $1 billion.
- Between 2013 and 2016 Litecoin continued to develop and grow steadily.
- By 2017, Segregated Witness had been implemented into Litecoin which resulted in the first lightning transaction to take place. By December of the same year, Litecoin’s price peaked at approximately $366.
- In 2018 Litecoin saw a decrease in pricing which subsequently reflected the wider trend identified in the cryptocurrency market.
What are Litecoin’s goals?
Litecoin was created to help users perform daily transactions by using both cryptocurrencies and the Proof-of-Work, or PoW, consensus algorithm. Bitcoin has longer transaction times whereas Litecoin’s are cheaper as well as faster.
Although Litecoin is known as the proverbial silver to Bitcoin’s gold, it has to be mentioned that Litecoin has taken a lot of things from Bitcoin while modifying and improving a substantial amount of them.
Bitcoin could be used as a store for value in addition to providing a perfect platform for long-term investments whereas Litecoin is ideal for payment processing due to the speed with which transactions can be executed and the lower cost.
Bitcoin is widely accepted as a payment method by numerous shops, stores, and websites and besides, many of these are starting to accept Litecoin as well. This has allowed the cryptocurrency market to provide numerous solutions and opportunities for users.
Future goals entail Litecoin becoming a peer-to-peer internet currency that offers low transaction fees and times, in addition to providing transactions to users which are almost instant and almost free.
Overview of Blockchain
Cryptocurrencies are based on blockchain technology and it contains blocks. These blocks store information regarding transactions like the date, time, and amount associated with the transaction.
These blocks also store information about the participants in transactions. These blocks also have information that distinguishes them from others, much like people have names.
Each block has a hash that tells it apart from other blocks. It is a unique, cryptographic code that is created through a special algorithm.
As soon as a block stores new data, that block is added to the blockchain. There are numerous blocks in the chain and for a new one to be added, four conditions must be met, these are:
- A transaction must occur.
- The transaction must be verified.
- The transaction must be stored in a block, and
- The block must be given a hash.
Any transaction made in cryptocurrency, such as a purchase using Litecoin will be saved on a new block containing the purchase, the amount, and other information such as the merchant’s details.
After a purchase has been made, the transaction is verified by a network of computers that rush to see the transaction has occurred in a way that is legit and fair. The details of the purchase including the time, currency amount, and participants are verified.
Transaction stored in a new block
Once verified, the transaction is approved and the transaction’s currency amount, the buyer’s digital signature in addition to that of the merchant, are all stored in a block.
Block receives a hash
Upon verification and approval, the block receives a hash that is unique to it and is added to the blockchain.
Once a block has been added to the blockchain, it can be viewed publically by anyone. This adds to one of the greatest benefits that blockchain technology has and is one of the reasons why blockchain technology is being applied in numerous industries around the world.
Consensus methods are a crucial part of a blockchain regardless of the blockchain type. The methods determine how fast, efficient, and secure a transaction is. The most common consensus methods in use today include, but is not limited to:
- Proof-of-Work, or PoW which is used by a blockchain network where there are miners who are responsible for the validation of transactions. The hash of a new block must be found so that it can be added to the network and the miner who finds the first, is rewarded. PoW uses a substantial amount of computational power.
- Proof-of-Stake or PoS is used by second-generation blockchain networks. It uses a different approach than PoW and does not require as much power consumption as the coins are staked by the nodes.
- Delegated Proof-of-Stake or DPoS involves node selection differently. Coin holders select the nodes which form part of the consensus method and subsequently, these coin holders also vote on choosing or kicking out a node.
- Practical Byzantine Fault Tolerance or PBFT is used when solving the Byzantine Generals Problem. Nodes have the ability to decide whether they accept or reject submitted information to maintain the internal state used to run computation based on new messages.
Differences between Litecoin and Bitcoin
The network that is used in Litecoin has the ability to process a block that contains transactions in merely 2.5 minutes whereas Bitcoin takes around 10 minutes. This shows the lightning-fast speed at which Litecoin can process a transaction.
Despite Litecoin being both faster and cheaper, Litecoin relies on miners to ensure that the network remains active as well as secure. Miners, and the PoW consensus method used, consume a substantial amount of energy/electricity to process these transactions.
This is one of the main reasons why PoW is considered an inefficient and environmentally detrimental way to secure crypto networks and why cryptocurrencies are faced with so much hostility.
There are numerous ways in which efforts are being made to reduce the impact that mining has on the environment and one of the reasons why Ethereum has gone from PoW to a proposed PoS.
The mining algorithm, Scrypt, is considered to be a lot more efficient than that of the conventional SHA-256. This allows for more users to enter the network and as a result, requires a lot less power equipment.
Bitcoin miners consist of larger firms and companies while Litecoin can still be mined by users who work independently and make use of specialized equipment.
Where the total cap on coins is concerned, Bitcoin only consists of a total of 21 million coins which can be mined as opposed to Litecoin’s 84 million. This is one of the more crucial differences where scarcity, price, and market availability are concerned.
It is also one of the reasons why Bitcoin is more expensive and why it is easier to get one Litecoin as opposed to one whole Bitcoin.
One of the advantages associated with having a large number of coins and subsequently lower prices relate to the usability of the coins. Users can trade whole amounts of coins rather than only being able to trade fractions thereof.
While Litecoin users have the ability to make use of 0.05 Litecoin, or LTC, or 10 LTC when making a payment, Bitcoin, or BTC users can only make payments infractions.
Having a closer look at the Blockchain of Litecoin
As already discussed, a blockchain is a list of recorded information or blocks which are strung together to form an entire chain, with more blocks that can be added. These blocks store important information on how Litecoin is sent, who sent it, and who received the Litecoin.
Transactions of this kind are added into the blocks and recorded, with the ability to be viewed by anyone, at any time.
There are two groups of people who are needed for a transaction to be completed or verified, these are users and miners. Both groups make use of reference clients such as Litecoin Core.
After installing and synchronizing with the Litecoin blockchain, a client now becomes a User Full Node. User nodes are important, and they provide several functions, including, but not limited to:
- Relay stations involve the sending of information to other nodes on the network regarding transactions that are attempting to be processed.
- Securing the blockchain
- Validators who keep records as User Nodes download the entire blockchain. Every single full node has a copy of the ledger which provides the blockchain with its decentralized nature.
- They serve as witnesses. Only one copy of the blockchain can remain valid through using the process involved with consensus. Should a block be added by two miners at the same time, these nodes will work together to choose which block is the real chain, the one which loses is orphaned and subsequently forgotten.
- They are regulators as the blockchain’s integrity is both implemented and reserved by nodes. User nodes have the ability to implement changes in the protocol. They can also regulate and create mathematical problems which have to be solved by manners for new blocks to be added to the blockchain.
Litecoin mining is done by miners who make use of specialized computers and hardware. Mining is done for two main purposes namely to secure the network and verify transactions and for new Litecoin coins to be created which are paid to miners as a reward for solving algorithms.
What hardware is used for Litecoin mining?
Although Litecoin mining is significantly less developed than Bitcoin mining, some of the same hardware is used during the mining process. ASICs are powerful computers that have been designed and manufactured specifically to solve the PoW of Bitcoin.
These are also available to use when mining Litecoin, but they are more difficult to purchase as Litecoin uses a different PoW function and Bitcoin miners will not be able to mine Litecoin.
The best mining hardware, which is specifically designed for Litecoin includes graphics cards, although they are not profitable. The only way to mine Litecoin is to purchase hardware such as the Bitcoin Antminer S7 ASIC and to mine Bitcoin and convert them to Litecoin.
Is it difficult to mine Litecoin?
Cryptocurrencies have the main advantage about the fact that the supply of the currency can be programmed and distributed at selected intervals. As opposed to gold, silver, and other physical commodities, which are subjected to demand and include subsequent price increases.
The difficulty attributed to Litecoin mining is one of its most important features. It has an algorithm that is updated depending on the total network hashing power.
This ensures that Litecoin blocks are generated on an average of every 2.5 minutes.
When comparing Litecoin to something like gold, it is easier to understand how mining and the price thereof works. In an imagined scenario, should the price of gold rise from 1,000 dollars per ounce to $2,200 per ounce, the increased price would urge and cause gold miners to increase production.
This might also lead to the emergence of more gold mining businesses to ensure that supply can increase. With the increase of $1,2000, it would create so much new gold supply that the price will decrease once supply surpasses demand.
However, Litecoin operates differently. There are no price increases which will spark an increase in the rate at which Litecoin is mined.
However, a sudden increase in the price may cause more miners to point hash power towards the Litecoin network.
Due to the difficulty associated with Litecoin mining, it ensures that new hash power will simply be balanced with a rise in the difficulty of the PoW algorithm used. Litecoin’s difficulty is adjusted with every 2,016 blocks or 3.5 days.
Litecoin profitability and block reward
To calculate the potential profit that can be made from Litecoin mining, users can make use of a variety of Litecoin mining calculators which determine profitability according to the hardware being used.
Profitability is based on the price of Litecoin, the hash power of the hardware, electricity costs, and the efficiency of the hardware.
Charles Lee, the creator of Litecoin, copied Bitcoin in numerous ways and change a few parameters. The goal behind Litecoin is to create faster confirmations and thus, Litecoin’s transaction time per block was set to 2.5 minutes instead of the 10 minutes it takes for a transaction to be verified on Bitcoin.
Also, the block reward for Litecoin was designed in such a way that a block halves after every 840,000 blocks. With each new block, miners would be rewarded with 50 Litecoin. In time, block rewards will become so small that no new Litecoin coins will be created as there are only 84,000,000 Litecoin.
Use cases and applications for Litecoin
As a vehicle for investment
The cryptocurrency market has increased in popularity in recent years and becomes attractive for beginners and more advanced, professional traders alike. Investors are particularly intrigued by the market’s growth.
Even though the market presents a level of substantial volatility, those who are willing to risk it and have the necessary risk tolerance, have the opportunity to gain substantial profits.
When compared to other cryptocurrencies, Litecoin has shown steady growth and holds a lot of potential for the foreseeable future.
Litecoin can be used in transactions where the money is sent overseas. Transactions are fast, secure, and more affordable than conventional payment methods such as bank and wire transfers.
Daily payment method
One of Litecoin’s goals is to be a viable digital currency that could ultimately replace fiat currencies where everyday purchases are concerned. Litecoin may be more limited where acceptance is concerned as opposed to Bitcoin, but this could change as popularity increases.
Litecoin trading or exchange
Litecoin can either be bought, sold, or exchanged through:
- Trading through a regulated broker that offers cryptocurrency trade through contracts for difference, or CFDs.
- Cryptocurrency exchanges that allow for the purchase or sale thereof such as Coinbase, Binance, and numerous others. Whereas cryptocurrency is decentralized, there are exchange platforms that can either be centralized or decentralized.
- Peer-to-peer which involve direct transactions between participants, the buyer, and the seller, with little or no intervention from a third party. Numerous crypto exchange platforms offer this and that merely facilitate the transaction.
- Through using a Bitcoin ATM – despite the name, there are 71 Bitcoin ATMs in major cities around the world that allow for the purchase of a variety of cryptocurrencies.
Trade/exchange through a Cryptocurrency Exchange Platform
There is no singular or official exchange through which Litecoin can be traded, bought, or sold, but a variety of exchanges cater for such transactions. In recent years, more exchanges have emerged to facilitate the trade and exchange of Litecoin.
However, despite the number of exchanges that have emerged, it still comes down to finding an exchange that securely offers services as the cryptocurrency market is, for the greater part, not only unregulated but a constant threat of cyber-attacks.
There is extraordinarily little protection that regulatory entities, such as those who regulate brokers, can offer those who make use of cryptocurrency exchange platforms as many do not offer regulation of their own.
It is therefore imperative that traders and investors self-regulate as far as practically possible to ensure that their funds and personal information are protected. When evaluating exchange platforms, investors and traders must consider the following factors:
- The exchange and the liquidity that it offers in addition to market depth. There must be equal amounts of both as it ensures that the exchange can fulfill orders adequately. It also decreases the risk of market dips which may result in losses.
- The fees charged for transactions when weighed against other exchanges and the industry average.
- The location of the exchange and whether deposits and withdrawals can be done in fiat currencies.
- Regulation, if any is available, in addition to reviews of other traders and investors.
- The history of the exchange especially where security threats are concerned.
- Customer support and how the exchange works to solve the queries, questions, or issues that investors or traders may experience.
Trading through a Broker
When trading through a regulated broker which offers cryptocurrency as a CFD financial instrument, traders are afforded a lot more peace of mind where client fund security is concerned, however, there may be other factors such as fees that may make this avenue a little less attractive.
When choosing a broker to facilitate the trade-in Litecoin, traders need to consider some of the following factors to ensure that they choose the right broker:
- Regulation – which not only ensures that client funds are protected but also ensures that trading is fair and legit as these brokers are often heavily overseen and audited.
- Account types offered – according to the trading needs and objectives of the trader and the associated trading conditions tied to the account types.
- Fees – which include both trading and non-trading fees such as the spread, commissions, inactivity fees, conversion fees, and numerous others.
- The type and number of financial instruments offered – how many cryptocurrency pairs can be traded, the availability of cross-pairs consisting of crypto and fiat, and more.
- Liquidity – which involves the broker’s ability to sell without the price being affected drastically. Increased liquidity also ensures lower transaction costs.
- Trading platforms – through which trades can be executed. Traders need to explore what the broker offers and evaluate whether it will meet their trading needs, objectives, and expectations.
- Deposit and withdrawal methods, fees, and processing times.
- Customer service – the quality thereof and promptness through which queries are resolved.
An introduction to crypto wallets
Litecoin is a cryptocurrency and therefore digital. Seeing that it cannot be handled physically, to enter into transactions, the user must have a digital or crypto wallet to hold their Litecoin.
Whereas a physical wallet is used for the storing of cash and cards, crypto wallets are used to store cryptocurrencies and also serve a purpose where transactions are concerned.
Numerous software programs serve as crypto wallets and even hardware that can hold digital currencies. However, users must ensure that their wallets, and subsequently their funds, are secured at all times.
Users are provided with a public and a private key and they are both linked. A private key is an extremely large and highly random number that is generated by a wallet program. This key provides the user of the wallet access to their funds and should never be shared.
Neither should this key be lost as, like an ATM Pin, it provides whoever uses its access to a crypto wallet. Public keys, however, can be shared with other people on the network in addition to these keys being used to generate addresses and used by others on the network to challenge ownership of cryptocurrency.
Private keys correspond with the wallet address of the user. These wallets can be used when sending and receiving Litecoin. These wallets are not bound to only one platform and users can gain access to their wallet either through a desktop, mobile device, web browser, or other hardware which has been designed to serve as a wallet.
Different types of wallets are available
These types of wallets are software that can be downloaded and installed on any desktop or personal computer. These wallets can be accessed regardless of the availability of an internet connection as it is a software application present on a computer.
These wallets are normally compatible with various operating systems including Ubuntu, macOS, Windows, Linux, and others.
These wallets are designed for download, installation, and use on smartphones. With the advent and increase in mobile phone technology, more opportunities have been created for trading and the use of software on phones to gain access to applications that normally needed a computer.
Mobile wallets can easily be obtained from either Google Play or the App Store depending on the device that the trader is using. However, care should be taken as there are a great number of scams and fraudulent apps in circulation.
Only official and verified wallet apps should be downloaded and used.
Cold and Hot Wallets
Cold Wallets are so-called because they are wallets that function offline. This type of wallet is considered the most secure as far as cyber-attacks go as they are harder to access by hackers and others with malicious intent.
Hot Wallets, on the other hand, are those which require an internet connection to work. These are often the target of hackers.
Users are often advised to make use of both a cold wallet, for the storing of capital, and a hot wallet for when transactions and everyday payments are made. This ensures that the majority of the user’s capital cannot be targeted and accessed as easily.
These wallets are web-based and thus require an internet connection. They can be accessed through cloud services through third-party software and they provide users with access to their crypto wallets much the same as the other wallets on this list do.
However, due to their online nature, these wallets may also be targeted by hackers, and users are advised to store most of their capital in an offline or cold wallet to ensure extra security of their funds.
Although it seems quite a contradiction seeing that Litecoin and cryptocurrencies are digital, Litecoin can be stored physically. This can be done by visiting Blockchain.info or Bitaddress.org where a physical copy, or paper copy, of the Litecoin address, can be obtained and printed out onto paper for safekeeping.
These are small, portable devices that store digital currencies. They can also be used to send and receive Litecoin, also, to be used to make purchases.
Tips and tricks when trading Litecoin
Spot trading or Derivatives
One thing that traders must realize is that there are two general categories associated with cryptocurrency trading. Spot trading is the more common of the two and involves the physical purchase of cryptocurrency tokens in a transaction that is settled instantly.
This allows the trader to withdraw their tokens from the exchange into their crypto wallet where they can be used for payments or they can be used in DApps.
Where derivatives are concerned, physical cryptocurrencies are not purchased but financial products which mimic the value of a certain asset. This means that the underlying asset, which is a cryptocurrency, is bought.
Derivatives are often traded at the same price as the coin itself and they have an expiration date. This means that the crypto derivative will be settled against the actual cryptocurrency at a date set in the future.
Staking and Defi
Numerous traders either forget or do not know that APR can be received on cryptocurrency holdings. When a cryptocurrency is bought on the spot market, traders can move it out of the exchange and lock them in a short-term Defi contract.
This allows the trader to place profit from the price movements of the currency to earn additional profits from their Defi investment.
When locking a cryptocurrency in Defi, traders can net an APR of up to 10%. This depends on the coin, which is locked, and which platform is being used.
Where cryptocurrencies are concerned, traders can choose a level of risk that they are comfortable with and that they can afford.
Those who have greater tolerance can make use of leverage and to decrease risk, traders can use a small fraction of their cryptocurrency holdings for trading and hedge the risk by making use of staking or Defi.
Strategies when trading or exchanging Litecoin
When trading, it is imperative to have a trading plan in place in addition to having a strategy that has been tried and tested in a risk-free environment before making use of it in a live trading environment.
Numerous strategies can be used when trading and it comes down to the trader’s own preference, their risk tolerance, time which they can dedicate to trading, capital that they have for trading, and numerous other factors which will determine what strategy is perfect for them.
Trading strategies are based on a set of predefined rules which provide the entry and exit points in trade and must be adhered to at all times.
Of the numerous trading strategies available for trading Litecoin, a common strategy is day trading. Day traders aim to enter and exit trades in quick succession throughout the trading day, they also aim to make small amounts of profits on these trades.
When day trading Litecoin, traders can take note of some of the following tips which could provide the traders with a competitive edge.
Ensure that you have the necessary education
There is a great variety of educational material available for both beginners and more seasoned traders. There are webinars, guidelines, seminars, training videos, and more that can assist traders in obtaining all the information they need before they start trading cryptocurrency.
These can also teach traders a great deal about the cryptocurrency that they are trading as each currency operates differently from others. Even though Litecoin was created based on Bitcoin, there are numerous differences between them.
Also, traders need to ensure that they stay updated on news on the markets and events that occur which may potentially affect their trading.
Daily chart consolidation
Traders need to familiarise themselves with the use of both price charts and volume graphs as historical prices can show the trader why Litecoin has been moving in a certain direction, why prices are increasing, what the volumes have been over a period, and more.
It also helps traders get an idea of where prices might be heading in the future and provide them with insight on which events may have triggered price increases or decreases.
Cryptocurrencies are known to peak during periods of consolidation where Litecoin, for example, tends to trade within a tight price range. This makes Litecoin a lot more attractive as it has a follow-through after a range is broken.
To obtain the best entries, traders can attempt to align patterns present on their daily candlestick charts in addition to their intraday time frame.
Should the trader have identified and confirmed the existence of a breakout on the daily, traders are urged to find a safe entry in a shorter timeframe, such as 15M.
Traders are not urged to buy where the resistance level was broken as they will see a breakout on a daily. It would be safer to rather enter should the trader have a pattern that backs their position up.
This may mean that the trader will have to wait for a pullback after the first push as it will provide them with an improved risk-reward ratio and lower prices.
Pullbacks that follow a big move are easier to trade instead of attempting to anticipate a breakout. Litecoin, especially, does not tend to head straight up without it first taking a break.
Ensure that a solid exit plan is in place
Once the trader has identified an advantageous entry point, they need to ensure that their exit point is just as effective. Exits should be based around daily as well as intraday resistance levels.
Where Litecoin is concerned, it helps the trader to scale out in strength as, due to the volatility of the market, an unrealized gain can transition into a substantial loss if care is not taken.
Final Thoughts – Pros and Cons of Litecoin
|Transaction processing speed is 2.5 minutes||Litecoin is not as widely accepted as Bitcoin|
|There are 84 million coins as opposed to Bitcoin’s 21 million||Subjected to regulation which could limit the use and cause severe price drops|
|Litecoin was built with the Scrypt algorithm which makes mining more accessible||Litecoin is not fully ASIC resistant which makes mining more difficult|
|Transaction costs are substantially lower||Litecoin may have been created to complement Bitcoin, but the more Bitcoin is used and accepted, the more it limits Litecoin’s potential|