The name of Bitcoin has dominated the world of cryptocurrencies since its inception back in 2009, though Litecoin, appearing two years later, became a strong contender and is still rising. It is often quoted as being the silver to Bitcoin’s gold. But is there any real difference between the two? After all, Litecoin was forked – a technical term – from Bitcoin, meaning that it is essentially a side-branch of the original, resulting from a change in software or algorithm. In this article Neuer Capital will tell you what exactly the difference is

 Different algorithms 

From a technical perspective, Bitcoin differs from Litecoin in that it uses the SHA-256 cryptographic algorithm. Litecoin, however, relies on a relative newcomer, called Scrypt.

The difference between these two systems is visible in the area of ‘mining’ for new coins, which is the process of adding new Bitcoin transactions (blocks) to the record of past digital currency transactions, creating a ‘blockchain’.

Mining often requires specialist high-powered computers, and bitcoin miners devote entire machines to confirming transactions for others. As a reward, they earn units of currency, hence they have ‘mined’ them.

Within the SHA-256 system, which has a more complex algorithmic program, users are better able to engage in parallel processing (running simultaneous actions), which allows them to employ more efficient and sophisticated means of mining.

Generally speaking, miners use a type of hardware known as ASICs (Application-Specific Integrated Circuits) which is superior to GPUs or CPUs in that systems can be custom-made for the task. The overall effect of this has meant that the world of Bitcoin mining is becoming more difficult to enter for those who don’t own specialist equipment, effectively closing off access to ‘newbies’.

Litecoin, on the other hand, with its use of Scrypt, is far more accessible. Scrypt was partly designed to avoid the sort of problem witnessed in the SHA-256 system, as it bypasses the requirement for custom hardware, allowing users to rely on CPUs and GPUs.

However, ASICs are slowly being introduced into the Scrypt system, which, if it continues, could eventually raise questions as to why it was created as an alternative in the first place.

 Transaction speed 

One possible advantage of Litecoin over Bitcoin relates to the relative transaction times.

The average transaction time for Litecoin is 2.5 minutes, whereas Bitcoin can take 10 minutes, though times vary according to traffic. This effectively means that Litecoin handles four times as many transactions, which in theory makes it the more attractive proposition to merchants, though some still take the risk of accepting ‘zero-confirmation’ transactions rather than wait for it to be confirmed. The safety of these transactions is debatable, though in recent times a number of security features have been introduced that essentially remove any danger.

One downside of this increased speed is the possibility of ‘orphaned’ or ‘stale’ blocks. This occurs when two mining pools produce a block at the same time. One of these blocks, unable to be linked to a ‘parent’ block, is ejected from the blockchain (hence the term ‘orphan’) and the miners do not receive a reward. This was a real problem in the past, though better communication procedures between miners are reducing this problem.

 Coin limit 

Another apparent difference between the two cryptocurrencies is the coin limit. Currently, Bitcoin cannot produce more than 21 million coins, whereas Litecoin’s limit is 84 million. In reality, though, it won’t really make much of a difference in the end, as there is no limit on how much the currencies can be divided

 Conclusion 

In the end, Bitcoin wins – at the moment – mainly as it is the first and original cryptocurrency, and is recognized globally. The perceived advantages in Litecoin, being faster and – in theory – easier to mine, are possibly exaggerated, though this does not mean that it should be ignored. It is a useful back-up to Bitcoin and many experts recommend that it is wise to use both side by side.

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