How Litecoin Works

How Litecoin Works

In most circles, the term “cryptocurrency” is synonymous with Bitcoin. While this is not necessarily correct, it is easy to see why it is the case, considering Bitcoin was, and still is, the most popular type of cryptocurrency. With that being said, Bitcoin is far from being the only cryptocurrency out there. At this point, there are dozens of different cryptocurrencies, some that are like Bitcoin and some that are not.

One of those other cryptocurrencies is Litecoin. If you’re thinking that Litecoin’s name is eerily similar to Bitcoin, you are exactly correct. If people consider Bitcoin to be the gold of the cryptocurrency world, Litecoin is the silver. This analogy makes sense on multiple different levels, but before we go any further it would be right for us to first explain how, exactly, Litecoin works.

How Litecoin Works

For someone who is entirely new to cryptocurrencies such as Litecoin, the explanation of how it all works is not overly complicated at all. In fact, it is beneficial to think of Litecoin exactly like you think of traditional, fiat currencies such as the USD. Litecoin is a currency that is bought, sold, and traded online just like traditional currencies. It can be stored in wallets that are comparable to online bank accounts, and can be transferred in the same way that you would move money to or from an online bank account, or e-wallet such as PayPal. The difference between cryptocurrencies and traditional currencies, however, is that litecoins are not being created by any central government or agency. Instead, they are mined. If the term “mining” used in relation to a strictly online currency confuses you, you are not alone.

In essence, Litecoin is able to function because millions of users are offering up computing power to support the network. As computing power is used to process and validate transactions, those who are behind the offered power are rewarded with litecoins. The reward is proportional to the power offered up. Because Litecoin is governed by an algorithm and no person or group of people, it is the algorithm that rewards them.

To dig a bit deeper, Litecoin has become such a feature in the mainstream now because of its overwhelming trustworthiness. In the aforementioned algorithm, it is written that there will only ever be 84 million litecoins mined. This is something that ensures you that there isn’t a single person or company sitting back creating litecoins, thus stuffing their own pockets. Over time, as more litecoins are mined, the reward the miners receive will be reduced such that the mining of litecoins slows as more litecoins are uncovered. Inevitably, however, there will reach a time when all 84 million litecoins have been mined.

If you have even the most basic understanding of Bitcoin, learning how Litecoin works will be simple. In short, Litecoin can be bought and sold online in much the same way as a person would buy and sell stocks. Once purchased, Litecoin can be used in the same way as any other currency. In almost every way, Litecoin is the quintessential cryptocurrency.

What is more interesting, however, is how Litecoin compares to Bitcoin. Like Bitcoin, the Litecoin algorithm works in such a way that there will never be more than 84 million litecoins ever mined. The finite number of litecoins that will ever be available is something that helps drive the value of the cryptocurrency, and also adds to the trustworthiness of it all. Unlike paper money and other fiat currencies, which are printed in unknown quantities and have 0 inherent value, Litecoin is transparent in how many there are and how many there ever will be.

The absolute biggest difference between Bitcoin and Litecoin is how fast it takes for a block of the currency to be generated. It is generally agreed that Litecoin transactions process 4x faster than Bitcoin transactions.

The algorithms governing Bitcoin and Litecoin are built entirely differently, but this is something that matters more to miners than it does the typical user. What end-users really need to know is that just about everything relating to Litecoin is faster than Bitcoin. Being that the time it takes transactions to process is a big complaint coming from Bitcoin users, it is easy to see why Litecoin has caught on.

Buying, Selling, Trading, and Storing Litecoin


When it comes to getting some Litecoin of your own, you will once again be happy to know that the process is identical to the process of acquiring Bitcoin. Before you can ever receive Litecoin, you will first need somewhere to store it. This is where the wallet comes in. A cryptocurrency wallet is identical to an online bank account because it is, quite literally, where your litecoins will be stored. There are thousands of wallets out there, and signing up for one is a process that takes just a few minutes.


Let’s say that, for whatever reason, there comes a time when you would like to sell some or all of your Litecoin holdings. If this is the case, you will be happy to know that selling is quite easy. At most exchanges, it is as easy as selecting how much you would like to get rid of, viewing the conversion into USD (or any other fiat currency), and authorizing the sale. Though the amount of time it will take for the USD to make it into your bank or PayPal account can and does vary, your role in the sale takes but a matter of seconds.


Rather than sell your Litecoin, let’s say that you wanted to trade it for another cryptocurrency you are interested in. Once again, this is where the exchange comes in. Most exchanges will facilitate trading between users, however some of the more popular names do not. In fact, many of the most popular exchanges only allow you to buy and sell cryptocurrencies. This is not always the case, but it is something worth looking into before creating an account if you think that you will ever want to trade.

If the exchange which you are on does facilitate trading, the process of trading Litecoin is similar to selling. The only difference being, of course, that you are exchanging Litecoin for another cryptocurrency rather than a fiat currency.


As was previously mentioned, most exchanges offer a wallet whereby you can store your Litecoin. This is easy and convenient, but far from the safest route of storing Litecoin. Because Litecoin exchanges are identical to e-wallet and banking institutions online, they are susceptible to being hacked. This means that if the exchange which you are using is a victim of a hack, there is a chance your funds will be stolen in their entirety. While this is by no means a common occurrence, it has happened before and can happen again.

If storing your Litecoin in an exchange’s wallet is not something you would like to do, there are other, safer ways whereby you can store your litecoins. Both of these methods play on the fact that Litecoin only exists online. If you would like to take on the task of storing and protecting your own Litecoin, you can purchase an external device that allows you to upload your litecoins and, literally, unplug them from the internet. Think of doing this in the same way you would load files onto a USB drive and unplug it from your computer. Once the files are on the USB drive and the drive is removed from a computer, no one can access them without the drive. In the same way, once your litecoins are loaded to an external device, and that device is then removed from the internet, the litecoins can no longer be accessed. The one pitfall to this external method of storage is that if you lose your external device, or break it, your litecoins will be lost forever.

Another safe way of storing Litecoin is by way of a service offered by many exchanges, known as cold storage. Cold storage is essentially the method of external storage discussed above, only you are employing a company to do it for you. This is the most hassle-free way to safely store your Litecoin, but it is not necessarily the most cost-efficient. The idea behind paying for cold storage is that the responsibility is taken out of your hands. There is no chance that you will lose your Litecoin, and this offers some added peace of mind.

Safety and Security of Litecoin

The great thing about the Litecoin network is that the cryptocurrency is able to be traded, bought, and sold without anyone knowing. What we mean by this is that if you are attempting to send someone money, the only people that will ever know about the transaction are you as well as the person or entity that is receiving the funds. The encrypted nature of Litecoin’s code means that while anyone and every can see the transaction, they cannot see who partook in the transaction. In that sense, there is no monetary system that offers more anonymity than Litecoin.

Unfortunately, the news is not all good. If you employ the services of a Litecoin exchange and/or wallet, the fact of the matter is that your level of security can vary dramatically. Because you need to supply certain amounts of personal information to these sites, the security of your information is only as strong as the security of the site to which you have given it. Fortunately, most of the top Litecoin exchanges employ security measures that are on par with those employed by a bank or other large financials institution.

Litecoin Value

The historical value of Litecoin is about in line with what you will see from most other now-popular cryptocurrenices. In the earlier days the cryptocurrency’s worth was very small and almost negligible. Before too long, the price of Litecoin began to rise and rise. Now, the value of a single Litecoin is in upwards of $50. There is a belief that the value will rise even further, but that remains to be seen.