From Bitcoin Wiki
Revision as of 07:29, 11 March 2013 by Sgornick (talk | contribs) (Vulnerability to mining monopoly: Fix year.)
Jump to: navigation, search

What is Litecoin?

Litecoin is an alternative cryptocurrency based on Bitcoin. While some think of it as silver to Bitcoin's gold (see criticism), it is more accurately defined by its faster block rate (2.5 minutes) and its use of scrypt for the primary hashing done in mining.

While scrypt provided resistance to GPU-based mining early on, GPUs are currently the most efficient hardware with which to mine Litecoins. One of the aims of Litecoin was to provide a mining algorithm that did not compete with Bitcoin and with the rise of ASIC mining for Bitcoin, this aim will again be satisfied as Litecoin becomes the primary use for GPUs in cryptocurrency mining.

Differences from Bitcoin

Scrypt Proof of Work

Litecoin uses scrypt as a proof-of-work scheme. Scrypt adds memory-intensive algorithms to reduce the efficiency of the kind of parallelization that GPUs offered in early Bitcoin mining. This led to Litecoin primarily being mined with CPUs at the beginning. Later CPU-based mining was largely replaced by more energy-efficient GPU-based mining, currently the dominant Litecoin mining technology.

Faster Confirmations

The Litecoin blockchain differs from Bitcoin in that it generates blocks every 2.5 minutes on average (four times Bitcoin's rate). This means that merchants who accept 1-confirmation transactions get that first confirmation more quickly. Unfortunately, this increases the number of hashes that are wasted in mining since miners will working from the non-best block more of the time.

84 Million Litecoins

Litecoin started with miners generating 50 coins per block as with Bitcoin, but to maintain Bitcoin's inflation rate chage schedule, the block reward gets halved every 840,000 blocks. As a result, the newtork is scheduled to produce a total of 84 million litecoins.

Different Addresses

Litecoin addresses start with L due to their version number. Otherwise, they are generated identically to Bitcoin addresses.

(Slight) Premining

Litecoin had two blocks premined, one more than the minimum single genesis block needed to start a block chain.



Besides a faster first confirmation, Litecoin does not provide any other features over what Bitcoin provides. Because of this and Litecoin's later start, detractors claim Litecoin is unlikely to match or surpass Bitcoin's value or user-base.

Not Silver to Gold

Litecoin cannot be "silver to bitcoin's gold", because Bitcoin itself is both gold and silver: While in the long-run, the BTC unit may be too valuable for everyday trade ("gold"), there are other, much smaller units that can just as well serve the purpose of "silver" while being naturally/automatically "converted" to/from BTC.

Vulnerability to mining monopoly

Similarly to Bitcoin, Litecoin can be attacked by a rich entity (on the scale of big corporations and governments). Also similarly to Bitcoin, this attack becomes more difficult to orchestrate the higher the hash rate of the network. However, because Litecoin is designed to be inefficient on all common computer components (both CPUs and GPUs), a malicious entity needs only produce a single piece of specialized/custom hardware to overtake all the commodity mining systems combined.

A rough estimate is that there is about $600 of hardware to produce 1 Khash/s on the Litecoin network. So as-of March 10, 2013 the Litecoin network hashrate was 1,500 Khash/s, and the total equipment necessary to 51% Litecoin then is roughly $900K USD (or about 2,000 AMD HD 5970s). There are tens of thousands of GPUs that will be no longer adequate for mining on the Bitcoin network which could switch to Litecoin though a rise of the Litecoin exchange rate would need to occur to keep an incentive for new GPU hashing capacity to be added.

Pyramid Scheme

Since the aforementioned reasons mean Litecoin has no future potential, it effectively functions as a pyramid scheme, rewarding those who get in sooner at the expense of those who adopt it just before it finally fails (and are left with nothing). This is not the case for Bitcoin, since it has significant potential to become a long-term currency and continually be beneficial to adopters no matter when they begin using it.

External links

See also