Litecoin is a fork of Bitcoin created as its better and faster alternative. Some people say that if Bitcoin is gold, then Litecoin is silver.
Litecoin project was planned and executed by Charles Lee as Bitcoin alternative, whose program code was taken as a base. Litecoin was launched on October 13, 2011.
Litecoin is supported by the simultaneous work of a large number of client copies, which open sourced at GitHub on October 7, 2011.
The Litecoin client is being constantly developed. As of version 0.8.6.1 operational fee was decreased by 20 times. Litecoin was designed by its creators as an evolution to Bitcoin and thus has some differences. Litecoin is the second largest cryptocurrency in the world. Its market capitalisation reached the peek at $950 million on November 28, 2013 when doubled in 4 hours.
Functionality and protection of the system is provided with the cryptographic algorithm scrypt.
In the Litecoin network data is recorded in the form of linked chain of blocks, each of them containing the hash of the previous. When the Bitcoin network generates new block in average every 10 minutes, the Litecoin network – every 2.5 minutes. Therefore, the transaction confirmation happens 4 times faster, which one of the main competitive advantages of that cryptocurrency.
In the Bitcoin and Litecoin networks transactions are made between addresses or wallets. Bitcoin addresses are comprised of 27-34 symbols and start with the figures 1 or 3. Litecoin addresses are comprised of 33 symbols and always start with the letter L.
To maintain the network and provide the necessary level of security (particularly to prevent “Double Spending” attacks) mechanism of cyclic hashing is used. In case the value of the block header hash is equal or below a specific target, the new block is generated.
Otherwise, the metadata in the header is changed and the hash recalculated. Once the block is found, the node sends it to the other connected nodes. They check that block and if there are no errors, the block is considered being added to the chain, and the next block must contain its hash.
The hashing result is almost unpredictable. Hence, the probability for creating a new block for each independent user equals the number of hashes per second (H/s) calculated on his hardware divided by the total number of hashes calculated across the network. The one who has created a new block gets strictly specific amount of coins. Initially that was 50 coins, which becomes two times less after each 840,000 blocks are generated.
The main and indisputable advantage of cryptocurrencies is their limited emission. Litecoin emission is limited to 84 million coins, which is 4 times less than Bitcoin amount. And no one will ever be able “turn on the press to print more.”
As a proof of the work done Bitcoin uses hash-function SHA256, which makes Bitcoin mining an extremely paralleled task. Litecoin uses scrypt. Scrypt hash-function uses SHA256 as a sub-routine, relying on the large number of arithmetic calculations, but also demanding fast access to large amount of memory.
That makes launching several instances of scrypt on GPU a much more complex task. But it also means, that ASIC for scrypt production costs would be much higher than those for ASIC for SHA256. Since modern GPU have large amount of memory, they are much more suitable for mining Litecoin. The process of using your hardware resources for getting cryptocurrencies is called mining, from mining in the meaning of natural resources exploration.
Because the probability of generating a new block and getting rewarded depends on hardware computational power, the probability of generating a new block for a separate user is close to zero. To improve their chances, individual miners get their power together into so called pools. Once a new block is generated the reward is distributed among pool members according to the computational power they bring to the pool.
Difficulty is a parameter which defines the demands for blocks’ hashes in Litecoin network. Since the network power is not constant, difficulty is recalculated by network clients in such a way, so that one block is generated approx. every 2.5 minutes. “Time Warp” attack is based on a bug inherent to Bitcoin and all its forks including Litecoin. The bug is when difficulty is recalculated the last block is processed with errors.
A villain is able to repeatedly try to solve the last block before recalculation by giving it a time stamp exceeding the current time by 2 hours which decreases the difficulty by 0.5%. Due to the bug those 2 hours are not accounted for during the next recalculation. When the difficulty becomes low enough you can start mining ‘fast’ Litecoin. In such way a villain possessing 51% of network power can lower the difficulty down to 1.
The basic element of the Litecoin payment system is a client open source software. Through a network application level protocol the client run on multiple computers are connected into the peer-to-peer network. Litecoin suppose anonymous money possession and transfer.
Litecoin peer network regulates the transactions, balances, and emission with scrypt. Like Bitcoin, Litecoin uses peer network principle and the absence of administrative centre, which makes it impossible for the government to regulate it and manipulate the exchange rate by altering the number of Litecoin in circulation.
Litecoin is exchanged for traditional currency and other cryptocurrencies on the online exchange markets. There have been an astonishing growth in number of online stores and web services lately that accept cryptocurrency as a payment method. However, the money refund in Litecoin network is impossible.