Litecoin: an overlooked alternative

Despite its status as one of the oldest cryptocurrencies, Litecoin rarely attracts the same level of attention as bitcoin. This oversight is understandable, given Bitcoin has gained widespread traction as a medium of exchange and an asset class. Meanwhile, projects like Ethereum and Ripple have risen to prominence by bringing greater functionality to blockchain technology. But Litecoin still plays an important role in the crypto sector thanks to its quicker confirmations and enhanced privacy through Mimblewimble.

History

Litecoin was founded in 2011 by Charlie Lee, a Google employee at the time, who wanted to create a coin that addressed some of bitcoin’s limitations, primarily scalability. Lee built Litecoin using Bitcoin’s source code, the software programme serving as a set of instructions for how it operates. As such, he considered Litecoin a complement to Bitcoin rather than a competitor- silver to Bitcoin's gold.  

Lee caused controversy when he sold his entire LTC holding during the crypto rally at the end of 2017. His defense was he wanted to avoid a conflict of interest or accusations of manipulating the market due to the impact of his social media posts on litecoin’s price. Despite concern among some community members that he was abandoning the project, Lee remained involved and is a director of the Litecoin Foundation today. 

The similarities with Bitcoin mean Litecoin has served as its unofficial testing environment over the years. In April 2017, the Litecoin community implemented Segregated Witness (SegWit), an update designed to boost scalability by changing how blocks store data. The following month, it completed one of the first transactions on the Lightning Network, a ‘layer two’ protocol that processes transactions on behalf of a blockchain to reduce congestion. Bitcoin adopted SegWit in August 2017 and the Lightning Network in March 2018.  

Characteristics

Litecoin uses a ‘proof of work’ consensus mechanism, similar in many ways to bitcoin. Participants called miners compete for the right to process transactions and add them to the chain, earning block rewards in the form of newly minted LTC in return. However, there’s one key difference. When Lee designed Litecoin, he wanted to decentralise mining by making it more accessible. He replaced Bitcoin’s SHA-256 hashing algorithm, which requires energy-intensive mining rigs costing up to $14,000, with the proof-of-work algorithm Scrypt temporarily allowing Litecoin to be mined on a laptop computer. Manufacturers subsequently developed specialised mining rigs for Scrypt, which have become widely adopted by Litecoin miners, erasing the intended benefit of suppressing industrial mining.

Intending to improve scalability, Lee set Litecoin’s block speed- the frequency with which new blocks of transactions are added to its chain- at 2.5 minutes, four times faster than Bitcoin’s average of 10 minutes. This initially made it a more suitable payment method for small and frequent transactions, although the comparatively tiny block reward on the Litecoin network means that it needs more than one hundred confirmations to reach the same settlement assurance as the customary six confirmations on Bitcoin. The subsequent invention of the Lightning Network further erased any perceived advantage in transaction speed, although Litecoin does sport its own Lightning Network for instant casual transactions. 

Litecoin has undergone three halvings to date (2015, 2019 and 2023), where the reward paid to miners falls by 50%. These events take place every 840,000 blocks but because of the speed of its transactions, they occur on a four-year cycle, similar to bitcoin (which halves every 210,000 blocks). Litecoin’s maximum supply is also four times greater than Bitcoin at 84 million.

To enhance privacy, Litecoin implemented an upgrade called MimbleWimble in May 2022, named after a spell featured in the Harry Potter movies that stopped someone from sharing information. Blockchains are inherently transparent, meaning every transaction is recorded on a publicly visible ledger. But not everyone is comfortable with this level of transparency, so the MimbleWimble update introduced private litecoin transactions. Instead of sending LTC via the main chain, users move their coins to an ‘extension block’, which runs in parallel. Transactions processed on this block only reveal data such as the amount and wallet addresses to the counterparties, ensuring privacy. Once the transaction is complete, the coins can return to the main chain. Whether Bitcoin follows suit remains to be seen.   

Compliance  

Some jurisdictions have been progressive with crypto supervision, like the EU which created a custom framework called the Markets in Crypto-Assets regulation to promote transparency and protect consumers. Others have adopted a slower, more fragmented approach. For instance, despite the high profile cases brought against individual crypto firms by the US Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) classifies Bitcoin as a commodity. 

The CFTC also considers LTC a commodity, although the classification came about indirectly. In March 2024, the US Department of Justice accused crypto exchange KuCoin of violating the Bank Secrecy Act by failing to implement an anti-money laundering programme, required to prevent criminals from converting their proceeds into legitimate funds. In its complaint, the CFTC refers to litecoin as a commodity alongside other established cryptos:

“KuCoin solicited and accepted orders, accepted property to margin, and operated a facility for the trading of futures, swaps, and leveraged, margined, or financed retail transactions involving digital assets that are commodities including bitcoin, ether, and litecoin.”

Community

Founded in 2017, the Litecoin Foundation is the body responsible for supporting and promoting litecoin and its ecosystem. With a presence in Singapore and the US, it’s led by Alan Austin who joined the organisation in 2019 after spending most of his career in real estate. The Foundation supports core development, provides grants to developers, and lobbies governments on behalf of the crypto industry. 

The Foundation also hosts the Litecoin Summit. Now in its fifth year, the summit takes place in May in Las Vegas, Nevada and brings together a broad range of stakeholders to discuss the latest developments in the litecoin ecosystem and the crypto sector in general.  

Pros & cons

Litecoin’s greatest strength is its durability. According to analytics firm CoinGecko, more than 50% of the 24,000 coins it has listed since 2014 have ceased to exist, with the vast majority disappearing between 2020 and 2022. Apart from memecoin DOGE and Ripple’s XRP, LTC’s market cap far exceeds other coins launched around the same time (as of February 2025).  

Litecoin has also experienced significant network effects, where a product or service gains value based on its number of users. Analytics platform TradingView ranks it fifth in terms of daily active (wallet) addresses and sixth in transaction volume (as of March 2025), key metrics for measuring crypto adoption.  

As well as offering users speed and privacy, litecoin charges relatively low fees. Transactions cost an average of $0.005 (as of February 2025), which is lower than bitcoin ($0.96) and other leading protocols including Ethereum ($0.70), Avalanche ($0.05) and Solana ($0.01). 

Litecoin’s biggest weakness is its failure to gain greater traction. Despite the similarities, it trails Bitcoin across a range of performance metrics, not least market cap. What’s more, Bitcoin has attracted attention from institutional investors after the approval of spot bitcoin exchange-traded funds, companies diversifying their treasuries and US states seeking a hedge against inflation. Litecoin’s lack of competitiveness suggests that its downward trajectory against Bitcoin is unlikely to reverse.