What is Litecoin?
Litecoin is an alternative cryptocurrency based on Bitcoin. It differs from Bitcoin in that it targets a faster block rate (2.5 minutes) and uses scrypt for the primary hashing done in mining.
While scrypt provided resistance to GPU-based mining early on, GPUs are currently the most efficient hardware with which to mine Litecoins. One of the aims of Litecoin was to provide a mining algorithm that did not compete with Bitcoin and with the rise of ASIC mining for Bitcoin, this aim will again be satisfied as Litecoin becomes the primary use for GPUs in cryptocurrency mining.
In March 2013, Litecoin reached a market cap of $10 million and acheived a network strength above two gigahashes/second. This compares roughly to a network strength for Bitcoin of two terahashes/second.
Differences from Bitcoin
Scrypt Proof of Work
Litecoin uses scrypt as a proof-of-work scheme. Scrypt adds memory-intensive algorithms to reduce the efficiency of the kind of parallelization that GPUs offered in early Bitcoin mining. This led to Litecoin primarily being mined with CPUs at the beginning. Later CPU-based mining was largely replaced by more energy-efficient GPU-based mining, currently the dominant Litecoin mining technology.
The Litecoin blockchain differs from Bitcoin in that it generates blocks every 2.5 minutes on average (four times Bitcoin's rate). This means that merchants who accept 1-confirmation transactions get that first confirmation more quickly. Unfortunately, this increases the number of hashes that are wasted in mining since miners will working from the non-best block more of the time.
84 Million Litecoins
Litecoin started with miners generating 50 coins per block as with Bitcoin, but to maintain Bitcoin's inflation rate chage schedule, the block reward gets halved every 840,000 blocks. As a result, the newtork is scheduled to produce a total of 84 million litecoins.
Litecoin addresses start with L due to their version number. Otherwise, they are generated identically to Bitcoin addresses.
Litecoin had two blocks premined, one more than the minimum single genesis block needed to start a block chain.
Besides a faster first confirmation, Litecoin does not provide any other features over what Bitcoin provides. Because of this and Litecoin's later start, detractors claim Litecoin is unlikely to match or surpass Bitcoin's value or user-base. It remains to be seen if the use of a different mining algorithm and faster block times add sufficient value for Litecoin's long-term survival.
Not Silver to Gold
Litecoin cannot be "silver to bitcoin's gold", because Bitcoin itself is both gold and silver: While in the long-run, the BTC unit may be too valuable for everyday trade ("gold"), there are other, much smaller units that can just as well serve the purpose of "silver" while being naturally/automatically "converted" to/from BTC.
Vulnerability to mining monopoly
Similarly to Bitcoin, Litecoin can be attacked by an entity that can match or exceed the hashrate of the network. Such a "51% attack" becomes more difficult to launch and maintain as the hash rate of the network grows. However, this argument posits that Litecoin is designed to be inefficient on all common computer components (both CPUs and GPUs) meaning that a malicious entity need only produce a small batch of specialized/custom hardware to overtake all the commodity mining systems combined.
There is however an argument that scrypt is not designed to be inefficient but is instead designed to be highly dependent on memory bandwidth. Since the high-speed cache RAM on modern processors already takes up most of the die space, no sizeable improvement could then be made by creating custom chips. If we accept this argument we then estimate the cost of attack utilizing GPUs that are avilable today.
To do so we start with an estimated cost of hardware at $600 per megahashes per second and the March 14, 2013 Litecoin network hashrate of 2,500 megahashes per second. The total amount of equipment necessary to match and takeover the Litecoin network via 51% attack is then an estimated $1.5M USD (or about 5,000 AMD HD 5970s). There are tens of thousands of GPUs that are in the process of being made unprofitable for mining on the Bitcoin network ASICs. While these GPUs may be redeployed for Litecoin, a proportional and sustained rise of the Litecoin exchange rate would be required to support this additional GPU mining activity.
- Litecoin website
- Litecoin forum
- Litecoin block explorer
- Litecoin network graphs
- Litecoin wiki
- Litecoin Global Exchange (virtual stock exchange)