Stories about cryptocurrency fill the headlines, such as the one about a man who purchased $27 in bitcoins in 2009, forgot about them and then discovered they are now worth $980,000. Stories like these spark interest and fuel the question “Should I invest in cryptocurrency, and if so, which one is best?”
Bitcoin was the first to market — launching in 2009 — but people were thinking about the concept of cryptocurrency much sooner. In fact, Professor Milton Friedman, who earned a Nobel Prize in economics, remarked in 1999 that “I think the internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing but that will soon be developed is a reliable e-cash.”
Nine years later, the digital currency bitcoin was born.
A couple of years after bitcoin was created, litecoin was launched, which is a similar blockchain technology but has a couple of major differences. If you aren’t sure which cryptocurrency is best, here is a quick guide detailing several major differences between bitcoin and litecoin to help your decision.
Litecoin and bitcoin both have a specific coin limit and an amount awarded for discovering blocks during the mining process. The total limit for bitcoin is 21 million coins, and litecoin has a limit of 84 million coins. Once the cryptocurrencies reach these coin limits, no newer currency is released into the system.
The reward for mining is also “halved” at predetermined points of time. Bitcoins are halved every 210,000 blocks, while litecoins are halved every 840,000 blocks. For example, bitcoin blocks are mined about every 10 minutes, which works out to about 144 blocks per day on average. At this rate, it would take approximately four years until the value of the reward would halve again. Right now, verifying a block is rewarded with 25 BTC, so the next time halving occurs, this reward will decrease to 12.5 coins.
Bitcoin and litecoin use a “proof of work” algorithm during the mining process, which helps safeguard and deter attacks and abuses of the cryptocurrency networks. The algorithm rewards people when their mining hardware solves complicated puzzles that validate transactions and release new coins into the system.
Bitcoin uses the SHA-256 algorithm, which favors processing power to mine the cryptocurrency. Litecoin uses the “scrypt algorithm,” which favors high-speed random access memory instead of processing power.
Another key differentiator is that the scrypt algorithm can be used on computers that are less powerful, making it possible for people to get started mining Litecoin on personal computers, saving the expense and learning curve of purchasing a specialized mining computer.
Litecoin processes transactions much faster than those for bitcoin; however, this speed does have drawbacks — such as “orphaned blocks.” Orphaned blocks occur when two litecoin miners produce blocks at similar times.
Even with the risk of orphaned blocks, faster transaction times do have benefits. For example, merchants that need transactions confirmed wait only 2.5 minutes with litecoin as compared to 10 minutes with bitcoin, which provides a distinct advantage when making purchases.
The interest in cryptocurrencies is growing, with this currency category offering something that fiat currencies can’t match, including decentralization, deregulation, transaction transparency, and anonymity. Without a centralized bank, the value of the currency is not easily manipulated by any institution, and payments are far more secure because anyone can verify transactions, which reduces the risk of fraud.
But deciding to use a cryptocurrency is just the beginning. After making that choice, you have to decide which one is best. Litecoin or bitcoin? Litecoin or Ethereum? Litecoin or Dash? If you’re planning on mining, litecoin mining is easy to get started with because the proof of algorithm is easier and the setup is less expensive. This currency is also good for people conducting many transactions, because transaction fees are simple and confirmation times are fast. But as with all new endeavors, it’s important to test, review your experience and results, and iterate as needed.
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