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What is Litecoin?


Litecoin is a form of peer-to-peer cryptocurrency (digital money). It was created after Bitcoin, making it the second oldest cryptocurrency. Litecoin was founded by Charlie Lee, a former Google engineer, in 2011. Litecoin was reportedly developed to improve on perceived Bitcoin limitations. The focus was to achieve quicker processing (transaction) speeds, faster block times, cheaper transactions, and more efficient for everyday use.

Is Litecoin controlled by a central authority?

Litecoin is a decentralised, open-source global payment network. Every user has authority and control over their money. It can be used to make payments across the globe using blockchain technology, without the need for an intermediary. All transactions are recorded on a public ledger. Traders and investors sometimes use Litecoin to diversify their cryptocurrency portfolio. In fact, Litecoin is one of the most traded cryptocurrencies.

Blockchain is a shared database that stores data in blocks. Incoming data is stored on a fresh block, which, once full, gets chained onto a previous block. While a variety of information can be stored on the blockchain, one of its most popular uses is that as a ledger for transactions.

The advantages of blockchain for cryptocurrencies

Blockchain essentially allows cryptocurrencies to operate without the need for a centralised authority (e.g., banks or government). It keeps user data secure, lowers the risk of private information being hacked, and eliminates various processing and transaction fees. It also offers people in regions with unstable currencies or unpredictable financial infrastructures a more stable currency to transact with.

Differences between Litecoin and Bitcoin

While Litecoin is one of the most popular traded cryptocurrencies, it has a smaller market capacity than Bitcoin due to the bigger demand/smaller supply for and of Bitcoin. Litecoin not only processes transactions faster, it is also able to process more transactions over the same period of time. While the Bitcoin network requires approximately 9 minutes for transactions to be confirmed, Litecoin requires about 2.5 minutes. Both timeframes are largely dependent on network traffic.

Litecoin uses a different mining algorithm. Adding new cryptocurrency blocks to the blockchain requires the solving of hash functions. Litecoin uses Scrypt for this function. Scrypt has much higher memory requirements which historically made it less suitable for mining by AISC miners. However, with vast improvements in Scrypt capabilities including the introduction of Scrypt AISC mining machines in 2021, AISC-based miners are now able to generate a larger number of hashes per second.

Another difference between Bitcoin and Litecoin is to do with the number of coins each cryptocurrency is able to produce. No more than 21 million coins can be accommodated by the Bitcoin network, as opposed to 84 million coins by Litecoin.

Supply of Litecoins

Upon release, there was a total supply of 84 million coins. As of June 2022, there were just under 14 million Litecoins in circulation, available to mine. By design, the supply of Litecoin reduces over time in order to maintain the value of this cryptocurrency. A new block is generated on Litecoin’s blockchain every 2.5 minutes.

What impacts the price of Litecoins?

There are several ways that the price of this cryptocurrency is impacted. This includes supply and demand. While 84 million Litecoins were made available to be mined when the cryptocurrency was released, over time, this number has reduced considerably. Public perception is also a factor that can influence price, as is the rate of adoption of Litecoin as a payment method.

The price of Litecoin is typically quoted against the US dollar (USD). What this means is that to purchase Litecoin, you’d need to sell USD. To make a profit off buying or selling Litecoin requires consistent monitoring of price fluctuations. You can also trade Litecoin through a Contract for Difference (CFD) account. In this scenario, a trader usually speculates on the price fluctuations (movements) of the cryptocurrency without actually owning it. Litecoin CFDs are volatile.

What are CFDs?

Contracts for Difference (CFDs) are entered into between two parties (e.g., a broker and a trader) to buy the difference in the price of an asset, commodity, or currency pair from the time the contract is opened until it closes. A trader can trade CFDs on different underlying assets, commodities, or currency pairs without owning them. Instead, the trader speculates on their price movement.

CFDs are leveraged products. What this means is that traders can open bigger positions as they can trade on margin without having to deposit the value of the entire transaction. To open a leveraged position, the trader must deposit a percentage of the position’s value (margin), thereby potentially freeing up capital for additional transactions. However, leverage does come with risk. If the market moves unfavourably against the trader, for instance, substantial losses may be incurred.  This is where proper risk management is vital, as is stop-loss trading.

Selecting a CFD broker

Finding a trusted CFD broker with a robust reputation is important. Look for a CFD broker that comes with top-tier industry expertise and is reliable as far as customer support is concerned. Ensure that the broker offers a modern trading platform, with access to a range of educational resources, daily market news, and insights into financial and geopolitical news and events worldwide. Also, look for a CFD broker that offers low-cost and consistent spreads.

#source


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