Litecoin (LTC) is often described as “Bitcoin’s little brother”. In many ways LTC is very similar to BTC, they are both peer-to-peer “crypto currencies”.

Unlike fiat currencies (like the dollar or pound sterling), cryptocurrencies are not controlled by a central bank; the value of the coins derives from the computing power required to create them.

Despite what many people believe, neither currency is truly anonymous, rather they are pseudonymous. It is difficult, but not impossible, to trace transactions to people.

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It is hardly surprising that LTC is similar to Bitcoin; both currencies are “open source,” not copyrighted in any way. Ryan Ryhypnol created LTC based on the BTC model, but introduced a few modifications aiming to address several of Bitcoin’s problems.

Differences Between Litecoin and Bitcoin

– LTC uses a different algorithm, which relies on RAM as well as processor power, currently there are no LTC mining ASICs in development. This should keep the difficulty rising less quickly, and allow “normal” people to continue LTC mining.

– LTC transactions are designed to be verified faster, a new block is solved on average every 2.5 minutes vs. every 10 minutes for BTC.

– The maximum number of LTC coins is 4x that of BTC (48 million vs. 21 million)

– Today (Jan 2014) the price of LTC is 0.03x that of BTC.

Similarities Between Litecoin and Bitcoin

There are certain fundamental aspects of the crypto currency system that both Litecoin and Bitcoin share.

– It is essential that somebody can spend their coin only once. This is achieved by changing the hash code of the coins every time a transaction takes place by the network.

– The “network” is basically all the computers that are involved in minting the currency. They verify transactions which are then “written down” in a ledger called the blockchain.

– The information about the coins in circulation, and all the transactions, is stored on all the computers in the network (this is why it is called a peer-to-peer currency). Anybody with a BTC or LTC wallet has this information stored on their computers. This is a safeguard against fake transactions. If somebody tries to introduce “fake” data, it will not agree with that stored on most of the computers in the network and will be rejected.

The node which solves a block first (by finding a hash value that is short enough) is rewarded with a “block” of new coins. This is how crypto currencies are “mined”.

– The coins are designed to be produced at a steady rate. This means that when the computing power of the network increases, either through more people joining it, or through improvements in computing technology, the difficulty of the calculations increases.

Why it is More Sensible to Mine Litecoin Rather than Bitcoin?

The main problem with BTC, which Litecoin was designed to avoid, is the development of technologies with vastly improved hashing power.

Initially you could mine lots of coins with only the processor (CPU) of your computer. Then it was realised that graphics cards (which come with their own processors called GPUs) were actually much better at hashing. As more people became interested in mining, special multi-card setups were built especially for mining. Then companies started producing ASICs, specialised chips whose only function was mining BTC.

This vast increase in the hashing rate of the network caused the difficulty to skyrocket, especially after powerful ASICs became available (The Butterfly Labs Bitforce Single mines at 50Gh/s, and the monarch in development is planned to mine at 600 Gh/s).

The truth is that mining bitcoin is simply too difficult right now for people without access to the most powerful specialised chips. The difficulty of mining BTC has skyrocketed. Buying the new super powerful and very expensive ASICs is not the solution. When I ordered my butterfly Jalepeno (5Gh/s) in the summer, the difficulty was under 20 million, today the difficulty is 1.4 billion and the Jalapeño mines 0.002 coins a day.

Litecoin was especially designed to not work with ASICs. It uses a different proof-of-work algorithm which relies on the availability of RAM, rather than just processing power. Remember that with mining different crypto currencies, it is your relative, rather than absolute, computing power that is important.

Hopefully this means that there will not be the same jumps in LTC mining difficulty as was seen with BTC. This should keep it possible for normal people who cannot speculate with thousand of dollars to continue mining.

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