Litecoin (LTC) is a cryptocurrency created by Charlie Lee, a former employee of Google and Coinbase. Litecoin was made public on October 7th, 2011 under the MIT/X11 license.
Taking Bitcoin as a model, which Lee considers a “brilliant invention”, as he often likes to point out in his public speeches or on his Twitter profile, this coin was born with the “noble” purpose of speeding up the confirmation of blocks and allowing mining LTC with CPUs. For bitcoin, before the advent of ASICs, it was necessary to use GPUs or FPGAs.
Lee’s dream was to create digital silver in order to facilitate and speed up transactions of small amounts. He believed that bitcoin was like digital gold and could be used as a store of value and/or an ideal means of exchange for transactions of substantial amounts.
Like Bitcoin, Litecoin is a public service protocol created and continuously made available through the execution of a program whose source code, reference implementation, is publicly available:
- Bitcoin: https://github.com/bitcoin/bitcoin
- Litecoin: https://github.com/litecoin-project/litecoin
For both Bitcoin and Litecoin, each released version of the program is compiled using deterministic and reproducible compilation techniques, so as to guarantee the integrity of each release on the various supported platforms and operating systems (e.g. macOS, Microsoft Windows, GNU-Linux, etc.).
At the source code level, Litecoin is technically a fork of Bitcoin, practically identical; it shares and incorporates all the Bitcoin protocol modifications, except in the case in which the latter are in contrast with the peculiarities of Litecoin.
(as we can see in Fig 1, and Fig 2, the history of Litecoin’s modifications is similar to that of Bitcoin)
Main differences between Bitcoin and Litecoin
Although technically similar, the main differences between Litecoin and Bitcoin are the following:
- Proof of work (PoW): Litecoin uses the scrypt algorithm while Bitcoin uses SHA256 which therefore uses a sequential function that requires a lot of RAM, making the possible creation of dedicated hardware for mining unprofitable.
- In Litecoin the difficulty is calculated so as to give rise to the production and confirmation of a block every two and a half minutes, while in Bitcoin this occurs every 10 minutes, therefore in Litecoin the blocks are created and confirmed 4 times faster than in Bitcoin.
For both Litecoin and Bitcoin the reward for miners is reduced by 50% every 4 years, so both are non-inflationary currencies with a scheduled production.
More precisely, for Bitcoin, the reduction of the reward, called “halving”, takes place every 210 thousand blocks while for Litecoin every 840 thousand blocks; consequently, while Bitcoin has a total supply of 21 million, Litecoin has a limit equal to 4 times that of Bitcoin, 84 million.
Both in the first block of Bitcoin and Litecoin (called genesis block), there is the title of a newspaper demonstrating that that block can not have been created before the date of publication of the newspaper with that title.
Bitcoin: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”
Litecoin: “NY Times 05/Oct/2011 Steve Jobs, Apple’s Visionary, Dies at 56”
One could speculate on the fact that Steve Jobs‘ serious illness and passing had long been known and that therefore the title of the NY Times was predictable, not to say “already written”, but certainly that was not the case with the date.
In any case, when the Litecoin blockchain was made public, Charlie Lee had only mined 150 litecoins, but from the available documentation, it is not clear whether the 50 litecoins of the genesis block were included or not.
Litecoin’s higher confirmation speed of blocks (two and a half minutes compared to Bitcoin’s 10 minutes) can only be advantageous and appreciable for small payments.
In fact, for large transactions, it is rational to have very high-security requirements.
Even assuming that Litecoin has the same computing power as Bitcoin, to enjoy the same security (for BTC it is standard practice to wait for 6 confirmations, equivalent to one hour of network work), Litecoin would need 24 confirmations (equivalent to one hour of network work) and not 6 confirmations (equivalent to 15 minutes of network work), as superficially could be deduced.
Reduced block confirmation times increase the possibility for miners to generate orphaned blocks and temporary network separations, creating confusion and inconvenience for both miners and users.
Calculating the difficulty
Like for bitcoin, the adjustment of the difficulty happens every 2016 blocks, that is every three and a half days, while in the case of Bitcoin the days are 14.
This is certainly an advantage if the computational power of the network drops drastically but, at the same time, the difficulty would be unstable and more easily manipulated, so potentially exploitable for attacks against the security of the Litecoin blockchain.
Correction of the Bitcoin error when calculating the difficulty
Bitcoin recalculates the difficulty every 2016 blocks but, for a classic programming error, only counts the last 2015.
Litecoin, in the calculation of the difficulty, corrects this error.
It would seem just a detail, but this inaccuracy exposes Bitcoin to a form of attack – with different variants – which is theoretically possible but not probable because it is not economically viable and would require calculation resources similar to those required for a 51% attack.
To correct this error in the Bitcoin protocol, a hard fork would be necessary, but it is considered impractical and irrational for the opportunity costs that follow.
The size limits of the Litecoin blocks are the same as Bitcoin’s. Since the generation of Litecoin blocks is four times more frequent than Bitcoin, the capacity and resources required to maintain the nodes at full capacity are four times greater.
This increases the risks of centralizing Litecoin, as with any other blockchain with large blocks.
In Litecoin the classic addresses (legacy, Pay-to-PubkeyHash – P2PKH) have as prefix the letter ‘L’, in Bitcoin the prefix is ‘1’, this prevents from sending litecoin to Bitcoin addresses and vice versa.
Until recently, Pay to script hash (P2SH) addresses had the same ‘3’ prefix for both cryptocurrencies, making it possible to make mistakes such as sending litecoins to bitcoin addresses and vice versa, with the result of losing both the cryptocurrencies.
Recently, the prefix P2SH for Litecoin was changed to the letter ‘M’ to avoid transaction errors.
The adoption of the new format, however, has not yet been adopted by all LTC wallets in circulation, complicating the payments to and from addresses with the prefix ‘M’ or ‘3’.
Litecoin’s native Segwit bech32 addresses are prefixed with ‘ltc1’ while Bitcoin is prefixed with ‘bc1’.
Litecoin can be considered complementary and functional to Bitcoin. It is no coincidence that it is used as a test and verification environment for the changes made on the Bitcoin protocol (since Litecoin’s economic value is extremely lower than Bitcoin’s, the risks are reduced to a minimum). It is no coincidence that the adoption of Segwit and the first transaction on Lightning Network were also made on Litecoin.