Mining differences

Just like bitcoin, litecoin is a crytocurrency that is generated by mining. Litecoin was created in October 2011 by former Google engineer Charles Lee. The motivation behind its creation was to improve upon bitcoin. The key difference for end-users being the 2.5 minute time to generate a block, as opposed to bitcoin's 10 minutes. Charles Lee now works for Coinbase, one of the most popular online bitcoin wallets.

ASIC Mining

For miners and enthusiasts though, litecoin holds a much more important difference to bitcoin, and that is its different proof of work algorithm. Bitcoin uses the SHA-256 hashing algorithm, which involves calculations that can be greatly accelerated in parallel processing. It is this characteristic that has given rise to the intense race in ASIC technology, and has caused an exponential increase in bitcoin's difficulty level.

Litecoin, however, uses the scrypt algorithm – originally named as s-crypt, but pronounced as 'script'. This algorithm incorporates the SHA-256 algorithm, but its calculations are much more serialised than those of SHA-256 in bitcoin. Scrypt favours large amounts of high-speed RAM, rather than raw processing power alone. As a result, scrypt is known as a 'memory hard problem'.

The consequences of using scrypt mean that there has not been as much of an 'arms race' in litecoin (and other scrypt currencies), because there is (so far) no ASIC technology available for this algorithm. However, this is soon to change, thanks to companies like Alpha Technologies, which is now taking preorders.

GPU mining

To highlight the difference in hashing power, at the time of writing, the total hashing rate of the bitcoin network is over 20,000 Terra Hashes per second, while litecoin is just 95,642 Mega Hashes per second.

For the time being, 'state of the art' litecoin mining rigs come in the form of custom PCs fitted with multiple graphics cards (ie: GPUs). These devices can handle the calculations needed for scrypt and have access to blisteringly fast memory built into their own circuit boards.

There was a time when people could use GPU mining for bitcoin, but ASICs have made this method not worth the effort.

Transaction differences

The main difference is that litecoin can confirm transactions must faster than bitcoin. The implications of that are as follows:

• Litecoin can handle a higher volume of transactions thanks to its faster block generation. If bitcoin were to try to match this, it would require significant updates to the code that everyone on the bitcoin network is currently running.
• The disadvantage of this higher volume of blocks is that the litecoin blockchain will be proportionately larger than bitcoin's, with more orphaned blocks.
• The faster block time of litecoin reduces the risk of double spending attacks – this is theoretical in the case of both networks having the same hashing power.
• A merchant who waited for a minimum of two confirmations would only need to wait five minutes, whereas they would have to wait 10 minutes for just one confirmation with bitcoin.

Transaction speed (or faster block time) and confirmation speed are often touted as moot points by many involved in bitcoin, as most merchants would allow zero-confirmation transactions for most purchases. It is necessary to bear in mind that a transaction is instant, it is just confirmed by the network as it propagates.

Bitcoin Litecoin image via Flickr. Mining Rig image via Wikipedia. Mining USB devices Image via Shutterstock.

Another difference in the two currencies is in the mining of the coins. Mining is the use of processing power to run a block of coins, creating new virtual money. Bitcoin mining has become rather specialized, with high-yield rigs and special chips for mining.

Litecoin asserts users will be able to make a profit mining the currency with off-the-shelf personal computers, whereas BTC increasingly demands (and inspired the creation of) high-powered, customized mining rigs. Litecoin was designed to produce four times as many coins as Bitcoin by the end of its production life cycle—84 million. The mining rewards are 50 Litecoins, vs. Bitcoin’s original 25.

Litecoin was launched in October 2011 by Charles Lee, an MIT graduate who currently works at a major tech company. Lee, heads the Litecoin Development Team, a team of six spread across the United States, Canada, the U.K., and France.

Other active digital currencies include PPcoin, Ven, Terracoin, Feathercoin and Novacoin, in addition to context-bound currencies like Second Life’s Linden Dollars, Tencent’s QQ Coins and Facebook Credits.

At the intersection of open-source enthusiasm and crypto-currency there are, as one might imagine, a fair number of people running their own projects on the LTC platform. With time it could rival Bitcoin in the same way that Gmail rivals Outlook or Bing rivals Google.

But Bitcoin is not the only such magical make-believe money. Another virtual currency, Litecoin (LTC), is set to push our economy slightly further along the way to a place where non-state currencies are common.

“The development team doesn’t see LTC as a competing currency to BTC,” Litecoin’s Anton Yemelyanov told the Daily Dot. “There is no association between these cryptocurrencies (other than Litecoin stems from Bitcoin).”

Well, OK.

What makes LTC interesting in the near term is Mt. Gox’s plans to begin trading the currency alongside Bitcoin. Mt. Gox is responsible for 80 percent of the worldwide exchange of Bitcoin, so its adoption of Litecoin shines a light on the currency.

Mt. Gox has been pummeled by repeated distributed denial of service attacks (DDoS) and has pushed back plans to open LTC trading, but it has stated its interest and intention clearly.

“We were planning on (introducing Litecoin to the exchange) two weeks ago,” Mt. Gox said in an April 24th press release (PDF), “but events derailed that plan. Right now we are focused on overall stability of the exchange, and will launch LTC when we are ready. Otherwise we could be further complicating things.”

Litecoin is already traded on two smaller exchanges, BTC-E and Vircurex. A single Litecoin is currently valued at around $2.80.

One of the big complaints during the panic sell-off of Bitcoin several weeks ago was that Mt. Gox, BitInstant and others were taking a long time verifying transactions. So the idea of greater speed, a claim LTC makes regarding its currency’s transactions, may prove attractive.

“Usually the most favorable aspect of Litecoin as seen by users,” said Yemelyanov, “is its transaction confirmation time, which is 2.5 minutes instead of 10. Litecoin opponents will quickly argue that it is not as secure as Bitcoin’s confirmation (this can be argued both ways), but people don’t care when they transfer (low dollar) payments.”