What is Litecoin? A Basic Beginners Guide. Litecoin has taken the world by storm.

As more and more people are embracing the world of cryptocurrency, people are looking for investment opportunities outside of Bitcoin and Ethereum. Litecoin clearly looks like a popular choice.

Consider this: The price of litecoin has increased by 7,291% from the beginning of 2017! In comparison, bitcoin only increased by 1731%.

Image Credit: Coin Market Cap

That graph is scary!

Anyway, in this guide, we are going to do a deep dive on litecoin. Lets take a peek underneath the hood and see how it functions.

While the identity of the Bitcoin creator Satoshi Nakamoto is shrouded in mystery, Litecoins creator Charlie Lee is very active on social media and his blog. Charlie Lee is an ex-Google employee who had the vision to create a lighter version of Bitcoin.

While Bitcoin was seen as gold and a store of value for long-term purposes, Litecoin was seen as the silver and a means of a transaction for cheaper and everyday purposes. So, on October 7 2011, litecoin was released via an open-source client on GitHub. The Litecoin Network went live on October 13 2011. It is basically a fork of the Bitcoin Core client.

Image Credit: Coindesk

If we are to truly understand Litecoin, comparisons with Bitcoin is a must. Litecoin, by their own admission, is a clone of Bitcoin.

So, what are some of the fundamental differences that set it apart from bitcoin? Lets explore them one by one.

One of the most fundamental and technical differences between the two is their mining procedure. Both use Proof-of-work consensus mechanism. Proof-of-work is pretty straightforward to understand.

The miners use their computational power to solve extremely hard cryptographic puzzles. The puzzle solving needs to be extremely hard, if it is simple then miners will keep mining blocks and drain out the entire bitcoin supply.

However, while the puzzle solving part is difficult, checking to see if the solution of the puzzle is correct or not should be simple.

And that, in a nutshell, is proof of work.

Now, both bitcoin and litecoin go about this a little differently.

Bitcoin uses the SHA-256 hashing algorithm for its mining purposes. Before long, miners discovered that they could exponentially increase their mining power by joining together and forming mining pools via parallel processing.

In parallel processing, program instructions are divided among multiple processors. By doing this, the running time of that program decreases greatly and that is basically what the mining pools are doing.

The SHA 256 puzzles require a lot of processing power, and that gave rise to specialized application-specific integrated circuits aka ASICs. The only purpose that these ASICs served was bitcoin mining.

These mining pools would basically have an entire powerplant of ASICs designed specifically for bitcoin mining.

So, to combat these issues, Litecoin uses the Scrypt algorithm.

Scrypt was originally named s-crypt however it is pronounced as script. While this algorithm does, in fact, utilize the SHA 256 algorithm, its calculations are way more serialized than the SHA-256 in bitcoin. As such, parallelizing the calculations is not possible.

What does this mean?

Suppose we have two processes A and B.

In bitcoin, it will be possible for the ASICs to do A and B together at the same time by parallelizing them.

However, in Litecoin, you will need to do A and then B serially. If you try to parallelize them, the memory required becomes way too much too handle.

Scrypt is called a memory hard problem since the main limiting factor isnt the raw processing power but the memory. This is specifically the reason why parallelization becomes an issue. Running 5 memory hard processes in parallel requires 5 times as much memory. Now, of course there can be devices manufactured with tons of memory in it, but two factors mitigate this effect:

Scrypt has been deliberately designed to make sure that mining is accessible and democratized as possible. However, recently companies like Zeus and Flower Technology have managed to create Scrypt ASICs. This would, unfortunately, mean the demise of their dream of democratized mining.

Average block mining speed in Litecoin is 2.5 mins when compared to bitcoins 10. This graph shows the block creation time for litecoin:

Image Credit: Bitinfocharts

Because of network congestion and slow block mining times, the median time waiting time for transactions can fluctuate up to 29 mins!

Image Credit: Blockchain.info

This feature is extremely useful for merchants who need to do a lot of mini-transactions per day. Using litecoin, they can get two confirmations within 5 mins while just one confirmation in Bitcoin will take at least 10 mins.

Another major advantage of the faster block creation time is the variance in miner rewards. Since the time between blocks is so small, more and more miners get the opportunity to mine blocks and earn the mining rewards. What this means is that the mining rewards should theoretically be more well-distributed in Litecoin and, by extension, it should be more decentralized.

However, there are some disadvantages that come along with the faster transaction speed.

Firstly, since the block creation time is so low, it leads to the formation of more orphaned blocks.

What exactly are orphaned blocks?

Mining, in every sense, is a competition between miners. You have a bunch of miners and pools desperately trying to mine the next block that will be added to the chain. There have been instances when more than one miner was able to come up with a blockchain which could be added the chain.

In situations like these, the network decides which block is to be added next. The other block then proceeds to become an orphan i.e. a perfectly legitimate block which wont have any transactions in it

In litecoin, since the downtime between the blocks is so low, the chance of miners mining orphaned blocks increases exponentially. Orphaned blocks are just a drain on the system.

Secondly, there is an immense strain on the blockchain. Look at the number of transactions happening in the litecoin chain.

Image Credit: BitInfoCharts

Now, while it is true that litecoin was made specifically for transaction volume, it still puts immense strain and clogs up the blockchain.

Litecoin solved this problem to the great extent by introducing Segwit. We have covered Segwit in great detail before. In here we are just going to give you a brief overview of what it is. Before we continue, a huge shoutout to Professor Donald J Patterson and his Youtube channel djp3 for the explanation.

We are going to be using bitcoins example and script.

Following is what the transaction looks like in script form.

Suppose Alice wants to send 0.0015 BTC to Bob and in order to do so, she sends inputs which are worth 0.0015770 BTC. This is what the transaction detail looks like:

Image courtesy: djp3 youtube channel.

The first thing that you see:

Is the name of the Transaction aka the hash of the input and output value.

Vin_sz is the number of input data since Alice is sending the data using only one of her previous transactions, it is 1.

Vout_sz is 2 because the only outputs are Bob and the change.

This is the Input data:

See the input data? Alice is only using one input transaction.

Below the input data is her signature data.

Now, this signature data can cause 2 major problems:

So, thats where Segwit came up with a simple solution.

Sidechain as a concept has been in the bitcoin circles for quite some time now. The idea is very straightforward; you have a parallel chain which runs along with the main chain. The side chain will be attached to the main chain via a two-way peg.

This is what Blockstreams initial idea of the Bitcoin blockchain and a sidechain looked like:

What Dr. Wiulle thought of was simple why not add a feature to this sidechain? This feature would include the signature data of all transactions, separating it from the main chain in the process. This feature would be called Segregated Witness aka Segwit.

This is what a block would look like once it implements segwit:

So by removing the signature data from the transactions, it was killing two birds with one stone, the block space got emptier and the transactions became malleable free.

Since litecoin implemented Segwit, the load on their chain has considerably decreased.

Image Credit: Charlie Lee twitter

On July 2015, the bitcoin network was subjected to a flood attack.

A flood attack is an attack where the network is flooded with spam transactions, which basically fills up the blocks and clogs up the blockchain.

In this particular attack the network was congested with thousands of transactions and at one point there were around 80,000 transactions in the mempool!

So how does Litecoin save itself from flood attacks? According to Charlie Lee, they do it by making the attack as economically infeasible as possible. This is what he said in his interview with cointelegraph.

The reason why it is immune to this attack is because it was attacked in a similar fashion (though to a much smaller degree) years ago. I noticed this flaw in Bitcoin and patched it in Litecoin.

The fix implemented in Litecoin is just to charge the sender a fee for each tiny output he creates. For example, in this specific attack, the sender is charged one fee for sending to 34 tiny outputs of 0.00001 BTC. With the fix, that fee would be 34 times as much. So it would cost the attacker a lot more to perform the spam attack. The concept is fairly simple: the sender should pay for each tiny output he/she creates.

One of the most exciting features that litecoin is introducing is the Atomic Swap.

Atomic swap enables a cross-chain exchange of coins without the need of a third party. Eg. If Alice had 1 bitcoin and she wanted 100 litecoins in return, she would normally have to go to an exchange and pay certain fees to get it done.

With the implementation of Atomic Swaps, suppose Alice has 1 BTC and Bob has 100 LTC, they could simply swap their coins with each other, without going to through an exchange and paying any unnecessary transaction fees.

Atomic swaps work by utilizing Hashed timelock contracts.

Hashed timelock contracts or HTLCs are one of the most convenient applications of the payment channels. In fact, the Lightning Protocol is an implementation of the HTLC.

So, what is an HTLC? Till now we have seen channels which use timelocks. An HTLC extends that by introducing Hashlocks along with the timelocks.

Originally posted here:

What is Litecoin? A Basic Beginners Guide - Blockgeeks