Litecoin

Definition of Litecoin

Launched in the year 2011, Litecoin is an alternative cryptocurrency based on the model of Bitcoin. Litecoin was created by an MIT graduate and former Google engineer named Charlie Lee. Litecoin is based on an open-source global payment network that is not controlled by any central authority. Litecoin differs from Bitcoins in aspects like faster block generation rate and use of script as a proof of work scheme. 

Litecoin

Litecoins were launched with the aim of being the “silver” to Bitcoin’s “gold,” and have gained much popularity since the time of inception. Litecoin is a peer-to-peer internet currency. It is a fully decentralized open-source, global payment network. Litecoin was developed with the aim to improve on Bitcoin’s shortcomings and has earned industry support along with high trade volume and liquidity over the years. The broader differences between the two cryptocurrencies are listed in the table below.

 BitcoinLitecoin
Creation20092011
CreatorSatoshi NakamotoCharles Lee
Coin Limit21 Million84 Million
Block Generation Time10 Minutes2.5 Minutes
AlgorithmSHA-256Scrypt
Initial Reward50 BTC50 LTC
Current Block Reward (as of June 2014)25 BTC50 LTC
RewardsHalved every 210,000 blocksHalved every 840,000 blocks
Difficulty Retarget2016 Block2016 Block

Litecoin is designed to produce four times as many blocks as Bitcoin (1 new block every 2.5 minutes to Bitcoin’s 10), and it also allows for 4x the coin limit, making its main appeal over Bitcoin to do with speed and ease of acquisition. However, because Litecoin uses scrypt (as opposed to Bitcoin’s SHA-2) as a proof-of-work algorithm, the use of mining hardware such as ASIC miners or a GPU mining rig requires significantly more processing power.

Litecoin is consistently among the largest cryptocurrencies in terms of market capitalization (though still remaining far below that of Bitcoin) and it currently has more than 50 million coins in circulation. 

How Litecoin Is Made

Like all cryptocurrencies, litecoin is not issued by a government, which historically has been the only entity that society trusts to issue money. Instead, being regulated by a Federal Reserve and coming off a press at the Bureau of Engraving and Printing, litecoins are created by the elaborate procedure called mining, which consists of processing a list of litecoin transactions. Unlike traditional currencies, the supply of litecoins is fixed. There will ultimately be only 84 million litecoins in circulation and not one more. Every 2.5 minutes (as opposed to 10 minutes for bitcoin), the litecoin network generates a what is called a block – a ledger entry of recent litecoin transactions throughout the world. And here is where litecoin’s inherent value derives.

The block is verified by mining software and made visible to any “miner” who wants to see it. Once a miner verifies it, the next block enters the chain, which is a record of every litecoin transaction ever made.

Mining for Litecoin

The incentive for mining is that the first miner to successfully verify a block is rewarded with 50 litecoins. The number of litecoins awarded for such a task reduces with time. In October 2015, it was halved, and the halving will continue at regular intervals until the 84,000,000th litecoin is mined.

But could one unscrupulous miner change the block, enabling the same litecoins to be spent twice? No. The scam would be detected immediately by some other miner, anonymous to the first. The only way to truly game the system would be to get a majority of miners to agree to process the false transaction, which is practically impossible.

Mining cryptocurrency at a rate worthwhile to the miners requires ungodly processing power, courtesy of specialized hardware. To mine most cryptocurrencies, the central processing unit in your Dell Inspiron isn’t anywhere near fast enough to complete the task. This brings us to another point of differentiation for litecoins; they can be mined with ordinary off-the-shelf computers more so than other cryptocurrencies can. Although the greater a machine’s capacity for mining, the better the chance it’ll earn something of value for a miner.

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What Is Bitcoin, and How Does It Work?

We translate Bitcoin into plain English. So even if you have no technical background, you’ll be able to understand everything. you’ll know more about Bitcoin and how it works than ninety nine percent of the population. 

Before we talk about Bitcoin, I want to take a moment and talk about money, what is money exactly? At its core, money represents value. If I do some work for you, you give me money in exchange for the value I gave you, I can then use that money to get something of value from someone else in the future. Throughout history, value has taken many forms and people have used a lot of different materials to represent money, salt, wheat shells and of course gold have all been used as a medium of exchange.

However, in order for something to represent value, people have to trust that it is indeed valuable and will stay valuable long enough for them to redeem that value in the future. Up until one hundred years ago or so, we always trusted in something to represent money. However, something happened along the way, and we’ve changed our trust model from trusting something to trusting in someone. Let me explain. Over time, people found it too cumbersome to walk around the world carrying bars of gold or other forms of money.

So paper money was invented. Here’s how it worked. A bank or government would offer to take possession of your bar of gold, let’s say, worth a thousand dollars. And in return, that bank would give you receipt certificates, which we call bills amounting to a thousand dollars. Not only were these pieces of paper much easier to carry, but you could spend a dollar on a cup of coffee and not have to cut your gold bar into a thousand pieces.

And if you wanted your gold back, you simply took a thousand dollars in bills back to the bank to redeem them for the actual form of money. In this case, that gold bar whenever you needed. And so paper began its use as money, as an instrument of practicality and convenience. However, as time progressed and due to macroeconomic changes, this bond between the paper receipt and the gold it stands for was broken. Now, to explain the path that led us away from the gold standard is extremely complex.

But suffice to say that governments told their people that the government itself would be liable for the value of that paper money. Basically, we all said, let’s just forget about gold and trade paper instead. So people continued to trade with receipts that are backed by nothing but the government’s promise. And why did that continue to work? Well, because of trust, even though there is no actual commodity backing paper money, people trusted the government and that’s how fiat money was created.

Fiat is a Latin word that means by decree, meaning the dollars or euros or any other currency for that matter, have value because the government orders it to. It’s what’s known as legal tender coins or banknotes that must be accepted if offered as payment. So the value of today’s money actually comes from a legal status given to it by a central authority, in this case the government. And so the trust model has changed from trusting some thing to trusting someone.

In this case, the government. Fiat money has two main drawbacks. One, it is centralized. You have a central authority that controls and issues it, in this case, the government or central bank. And two, it is not limited by quantity. The government or central bank can print as much as they want whenever needed and inflate the money supply on the market. The problem with printing money is that because you’re flooding the market with more money, the value of each dollar drops.

So your own money is worth less. When you see prices rising throughout the years. It’s not necessarily that prices are rising as much as that the purchasing power of your money is dropping. You need more dollars to buy something that used to cost less. Once Fiat money was in place. The move to digital money was pretty simple.

We already have a central authority that issues money, so why not make money, mostly digital, and that that authority keep track of who owns what.

Today we mainly use credit cards, wire transfers, PayPal and other forms of digital money. The amount of physical money in the world is almost negligible and it’s getting smaller with each year that passes. So with money today is digital. How does that even work? I mean, if I have a file that represents a dollar, what’s to stop me from copying it a million times and having a million dollars? This is called the double spend problem. The solution that banks use today is a centralized solution.

They keep a ledger on their computer, which keeps track of who owns what.

Everyone has an account and this ledger keeps a tally for each account. We all trust the bank and the bank trust their computer. And so the solution is centralized on this ledger, in this computer. You may not know this, but there were many attempts to create alternative forms of digital currencies. However, none were successful in solving the double spend problem without a central authority. Whenever you give any one control over the money supply, you’re giving them enormous power.

And this creates three major issues. The first issue is corruption, power corrupts and absolute power. Corrupts absolutely when banks have a mandate to create money or value, they basically control the flow of value in the world, which gives them almost unlimited power. A small example of how power corrupts can be seen in the Wells Fargo scandal, where employees secretly created millions of unauthorised bank and credit card accounts in order to inflate the bank’s revenue stream without their customers knowing about it for years.

The second issue of a centralized system is mismanagement if the central authorities interest isn’t aligned with the people it controls. There may be a case of mismanagement of the money, for example, printing a lot of money in order to save a certain bank or institution from collapsing as what happened in 2008. The problem with printing too much money is that it causes inflation and basically erodes the value of the citizens money. One extreme example for this is Venezuela, where the government has printed so much money and the value of it has dropped so much that people are no longer counting money but are doing it instead.

The last issue is control. You are basically giving away all control of your money to the government or bank. At any point in time. The government can decide to freeze your account and deny you access to your funds, even if you use only cold, hard cash. The government can cancel the legal status of your currency, as was done in India a few years back. This was the state of things until two thousand nine. Creating an alternative to the current monetary system seemed like a lost cause.

But then everything changed. In October of two thousand eight, a document was published online by a guy calling himself Satoshi Nakamoto. The document, also called a white paper, suggested a way of creating a system for a decentralized currency called Bitcoin. This system claimed to create digital money that solves the double spend problem without the need for a central authority. At its core, Bitcoin is a transparent ledger without a central authority. But what is this confusing phrase even really mean?

Well, let’s compare Bitcoin to the bank, since most money today is already digital. The bank basically manages its own ledger of balances and transactions. However, the banks ledger is not transparent and it’s stored on the bank’s main computer. You can’t sneak a peek into the bank’s ledger, and only the bank has complete control over it. Bitcoin, on the other hand, is a transparent ledger. At any point in time, I can sneak a peek into the ledger and see all of the transactions and balances that are taking place.

The only thing you can’t figure out is who owns these balances and who is behind each transaction. This means Bitcoin is pseudo anonymous. Everything is open, transparent and trackable, but you still can’t tell who’s sending what to whom. Let’s explain this with an example. You can see on your screen certain rows from Bitcoins ledger. We can see that a certain Bitcoin address sent ten thousand bitcoins to another Bitcoin address in May of 2010. This specific transaction is the first purchase that was ever made with Bitcoin, and it was used to buy two pizzas by a guy named Lazlo Lazlo published a post back in 2010 asking for someone to sell him two pizzas in exchange for ten thousand bitcoins.

Well, someone did. And now the price of these two pieces is worth well over one hundred million dollars today. Bitcoin is also decentralized. There’s no one computer that holds the ledger with Bitcoin. Every computer that participates in the system is also keeping a copy of the ledger, also known as the block chain. So if you want to take down the system or hack the ledger, you’ll have to take down thousands of computers which are keeping a copy and constantly updating it.

Like most money today, Bitcoin is also digital. This means there’s nothing physical that you can touch in Bitcoin. There are no actual coins, there are only rows of transactions and balances. When you “own” Bitcoin it means that you own the right to access a specific Bitcoin address record in the ledger and send funds from it to a different address. So what does all of this mean? Why is Bitcoin such big news? Well for the first time since digital money came into existence we now have an alternative to the current system.

Bitcoin is a form of money that no government or bank can control. Think about the time before the internet, how centralized the Flow of information was. Basically if you wanted information you could get it from a few major players like the New York Times, The Washington post and other like them. Today, Thanks to the internet, information is decentralized and you can communicate and consume knowledge from around the world with the click of button. Bitcoin is the Internet of money and it’s offering a decentralized solution to money. Bitcoin has several advantages over the current system. First, it gives you complete control over your money. With Bitcoin, you and you alone can Access your funds. No goverment or bank can decide to freeze your account or confiscate your holdings. Bitcoin is cheaper to use than traditional wire transfer of money orders. Also, unlike fiat currencies, Bitcoin was designed to be digital by nature, this means you can ad additional layers of programming on top f it and turn i tinto “smart money” but more on that in later videos. Finally, Bitcoin opens up digital commerce to 2.5 billion people around the world who don’t have access to the current banking system. These people are unbanked or underbanked because of where thet leave and the reality that they have been born into. However, today, with a mobile pone and a click of a button they can start trading using Bitcoin, no permission needed. Today there are several merchants online and offline that accept Bitcoin. You can order a flight or book a hotel with Bitcoin if you like. There are even Bitcoin debit cards that allow you top ay at almost any store with your Bitcoin balance. However the road toward acceptance by the majority of the public is still a long one.

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