Litecoin is one of the earlier altcoins that emerged after the introduction of Bitcoin in 2009 and the subsequent emerging popularity of cryptocurrencies in the following years. Initially released in October 2011 and primarily maintained by the Litecoin Core Development Team, it is currently one of the top ten largest cryptocurrencies by market capitalization.
Pros: Advantages of Litecoin
Similarities to Bitcoin with Improvements
One of the advantages of Litecoin is that it is almost technically similar to Bitcoin. However, its developers introduced several modifications and improvements to its underlying blockchain technology to address the issues and limitations of the Bitcoin blockchain platform.
This cryptocurrency drew inspiration from Tenebrix and Fairbrix. These two were earlier cryptocurrency projects built on the Bitcoin source code. However, Tenebrix used the scrypt function to replace the SHA-256 cryptographic hash function used in the mining algorithm of Bitcoin, thereby improving the resource requirement of its blockchain platform.
Note that Bitcoin mining has become resource-intensive by 2011. Graphic processing units or GPUs became the standard hardware requirement. However, using a scrypt function, Tenebrix mining is possible using the available central processing unit or CPU resources.
There was one problem with Tenebrix: it did impose a supply cap unlike Bitcoin and its developers were free to claim 7.7 million units of the cryptocurrency at no cost. These drew criticisms. Charlie Lee, a former Google employee, introduced Fairbrix as an alternative to Tenebrix that featured the same scrypt function.
Lee further developed Litecoin using the same scrypt mining algorithm from Fairbrix but with the inclusion of a cap on the supply or number of cryptocurrencies that can be mined and introduced in circulation. It also has additional technical improvements.
Introduced to Prioritize the Speed of Transaction
Remember that it is similar to Bitcoin to a certain extent. However, its main selling proposition centers on being a lighter version of the more popular and first-ever cryptocurrency. The developers have long stated that if Bitcoin is “gold,” then Litecoin is “silver.”
Transaction speed is one of its key advantages. The Bitcoin blockchain platform can process a block every 9 minutes. Litecoin aims to process a block every 2.5 minutes, thereby allowing it to confirm transactions at a faster rate. Note that transaction speed varies across different platforms due to the volume of transaction traffic.
Speed makes this cryptocurrency ideal for smaller and day-to-day transactions or small purchases. As a comparison, take note that a merchant would have to wait about four times as long to confirm a payment made using Bitcoin.
Benefits of Scrypt Function and Single-Use Case
The scrypt function is a specific type of algorithm used to process transactions and achieve a consensus across the peer-to-peer network of computers. It enables greater access to participate in blockchain mining and within the network because it does not require using GPUs or custom-built processing units.
Note that the SHA-256 algorithm used in Bitcoin generally requires GPUs by default because they are more powerful than CPUs. But more Bitcoin miners are starting to utilize hardware tailor-fitted for SHA-256 to improve their processing output.
Hence, another advantage of Litecoin is that it is fundamentally more accessible for miners or those who want to participate in its blockchain network. There is no need for them to purchase more expensive hardware components. Of course, this is also true for other scrypt-based cryptocurrencies such as Dogecoin.
A single-use case of the entire Litecoin blockchain platform is also an advantage. Specifically, similar to the Bitcoin blockchain platform, this platform is intended only for cryptocurrency, thereby minimizing heavy traffic and bottlenecks due to overcrowding.
Blockchain has multiple applications outside cryptocurrencies. The Ethereum and Cardano platforms are designed to run not only their respective native cryptocurrencies but also other crypto-tokens and other distributed ledger applications such as supply chain management, NFTs or non-fungible tokens, and NFT or blockchain games, among others.
Other Notable Advantages and Selling Points
Litecoin has a lower transaction fee. when compared to Bitcoin, the Ether cryptocurrency of the Ethereum blockchain, and the Ada cryptocurrency of the Cardano blockchain. Hence, coupled with its fast transaction speed, it is indeed ideal for smaller transactions.
The fast transaction speed also makes it less susceptible to double-spending attacks because there is very little window or timeframe for attackers to attempt such attacks. It is also worth mentioning that a handful of exchange networks support exchanging this cryptocurrency for other cryptocurrencies and fiat currency.
Limits or caps in the supply of this cryptocurrency can also be another advantage. Its protocol states that there can be a maximum of 84 million Litecoin. Bitcoin is capped at 21 million. Both cryptocurrencies are deflationary. They are ideal assets for hedging against inflation.
Of course, there are also all the other advantages of cryptocurrencies. These include decentralized finance or the lack of centralized authority that would exert substantial and almost direct control over the currency, the absence of financial intermediaries that increase all costs associated with transactions, and borderless accessibility, among other
Cons: Disadvantages of Litecoin
Counterproductive Downside of Scrypt Function
The purpose of developing and introducing the scrypt function in blockchain mining is to make participation more accessible to more people. However, this can have an offshoot and thus, this can be a disadvantage of Litecoin.
Note that it is more complicated and expensive to design and deploy FPGA and ASIC devices for Litecoin mining because of the scrypt algorithm. FPGA and ASIC devices for Bitcoin mining are more practical because of the SHA-256 algorithm. This is counterproductive to the theoretical upside of using scrypt to make cryptocurrency mining more accessible.
It is important to note that this hardware-related downside is primarily due to the apparent novelty of the scrypt function. However, as it becomes more popular, there is an expectation that all deployment-related costs would go down in the future.
Litecoin Remains an Unpopular Cryptocurrency
Despite being one of the top ten cryptocurrencies in the world by market capitalization, Litecoin remains miles behind the largest cryptocurrencies, namely Bitcoin, the Ether crypto-coin of the Ethereum blockchain, and the Ada crypto-coin of Cardano.
Remember that its developers intend to introduce a lighter alternative to Bitcoin. As mentioned, it is supposed to be the “silver” while Bitcoin is the “gold.” However, it struggles to stay in the fifth ranking has occasionally slipped further below. The general public and investors have considered Ethereum as the true and primary alternative.
Even its creator dumped his coins. Lee announced that he sold all of his coins in December 2017. The market share of this cryptocurrency has also been shrinking, thereby indicating that lesser people are holding this asset for medium-to-long-term investment.
It is also not as widely accepted as the top three largest cryptocurrencies. Several currency and cryptocurrency exchange platforms do not include this cryptocurrency in their list of tradable currencies. Furthermore, merchants are more open to accepting Bitcoin or Ether as a mode of payment than lesser popular cryptocurrencies.
The Drawbacks of Blockchain and Cryptocurrencies
Of course, because it is based on blockchain technology, it naturally inherits its disadvantages. These include energy-intensiveness due to the computing and cooling requirements of miners, its possible negative environmental impacts and probable contribution to climate emergency, and the drawbacks of decentralization, among others.
It is important to highlight the drawbacks of decentralization. For starters, because the ledger used in the transaction is distributed across the peer-to-peer network of computers, data modification can be difficult. The network responsible for processing transactions must also remain synchronized at all times for a particular transaction to go through.
Then there are the disadvantages and criticisms of cryptocurrencies. There are strong warnings against trading or investing in these assets because of their extreme volatility. Furthermore, aside from other market factors, the fact remains that cryptocurrencies remain unaccepted in most parts of the world.
