Interest in cryptocurrencies has fluctuated over the past few years as wealth flows into the cryptocurrency market with every bull cycle, creating millionaires.
What has remained constant despite the surge of new cryptocurrencies is the market dominance of Bitcoin, still the most valuable crypto since its launch. In recent years, Ethereum has become the strongest competitor for market share, grabbing the reins and overtaking Litecoin.
As cryptocurrencies vie for market share, Litecoin has managed to remain within the top twenty in terms of market capitalization, even after a decade.
To learn more about these three cryptocurrencies, please refer to these following articles:
What Is Bitcoin?
What Is Litecoin?
What Is Ethereum?
In this article, we’ll be looking at the differences between these three cryptocurrencies, particularly regarding consensus mechanism, hash algorithm, distribution, transaction speed and use cases.
Growth of the Cryptocurrency Market
Bitcoin was founded in 2009. Since then, the cryptocurrency market has arguably gone through three bull markets, specifically in 2013, 2017 and most recently in 2020, a particularly prominent year with various altcoins reaching all-time highs alongside Bitcoin’s ATH of $69,000 in November 2021. Other crypto market catalysts have included the DeFi Summer of 2020 and the market adoption of non-fungible tokens (NFTs). In addition, the periodic emergence of meme coins such as Dogecoin and Shiba Inu (in 2013 and 2020, respectively) has expanded the crypto market.
The expectation of widespread crypto adoption is also a major factor in the growth of the cryptocurrency market. International firms have incorporated cryptocurrency into their operations in recent years, including payment giant PayPal. With such developments, the market adoption of cryptocurrency has grown, with consumers’ awareness increasing.
Why Is Bitcoin So Popular?
Cryptocurrencies have existed for well over a decade. Yet, through all of the rapid developments in the crypto market, Bitcoin still remains the dominant cryptocurrency. It runs on a blockchain, a decentralized publicly distributed ledger that contains encrypted records of every transaction that’s ever been made on the network, thus ensuring data security. Bitcoin’s underlying blockchain technology enables peer-to-peer transactions and eliminates the need for control by governments or other centralized financial institutions.
The surge in Bitcoin’s popularity is also attributed to the profits it’s brought about for its investors. With a stunning 69,000% increase in price from $100 in 2013 to $69,000 in 2021, Bitcoin successfully captured the market’s attention. At the same time, altcoins (cryptocurrencies other than Bitcoin) have also begun gaining bigger market share, the most prominent one being Ethereum, which has risen in the ranks to claim second place in overall market cap.
Litecoin, previously ranked second in market cap right behind Bitcoin, has been overtaken by multiple new cryptocurrencies, but has still managed to remain within the top twenty cryptos by market cap. In addition, its token, LTC, has recently gained the market’s attention once again as its price rose by 35% in just one week in the midst of an ongoing bear market.
Litecoin vs. Bitcoin vs. Ethereum
Bitcoin, Litecoin and Ethereum are all open-source software platforms, and their codes are publicly accessible. Despite all three cryptocurrencies being blockchain-based, there are certain underlying differences between them.
Details
Let’s start off with some specific details pertaining to each of these cryptocurrencies.
Cryptocurrency
Litecoin
Bitcoin
Ethereum
Date Founded
October 7, 2011
January 9, 2009
July 30, 2015
Creator
Charlie Lee
Satoshi Nakamoto
Vitalik Buterin
Market Capitalization (Nov. 2022)
$149 billion
$318 billion
$5.5 billion
Consensus Mechanism
Since blockchains are publicly shared ledgers, they require an effective, fair, real-time, dependable and secure mechanism to ensure that all transactions taking place on the network are genuine. The consensus mechanism is essentially a set of guidelines to determine the validity of contributions made by the participants of the blockchain. In a blockchain’s dynamically changing environment, all participants have to agree on a consensus on the ledger’s status before transactions can be confirmed
There are two main types of consensus mechanisms: Proof of work (PoW) and proof of stake (PoS).
Using PoW, Bitcoin and Litecoin rely on miners, who solve complex mathematical equations using specialized hardware to add blocks to the networks. On the other hand, the Ethereum blockchain uses PoS, whereby validators stake their currency to validate new blocks on the blockchain. PoS requires significantly less computational power than PoW, which lowers both hardware requirements and energy consumption.
Hashing Algorithm
A hashing algorithm, which determines how incoming data is incorporated and verified on a blockchain, differs for the three cryptocurrencies. Bitcoin makes use of the SHA-256 algorithm and Litecoin uses Scrypt, while Ethereum previously relied on Ethash, no longer relevant since the network has switched to PoS as a part of its Ethereum 2.0 upgrade.
The SHA-256 algorithm utilized by Bitcoin uses the computational power of GPUs (graphics processing units) and, to a lesser extent, CPUs (central processing units) to verify transactions and blocks. The most common method for Bitcoin mining consists of the use of application-specific integrated circuits (ASICs), a hardware system that can be tailor-made to mine Bitcoins. However, many people prefer not to use ASICs because they’re expensive, challenging to maintain and necessitate specialized knowledge. Bitcoin mining has become more centralized and exclusive, as fewer people have the skills, resources and time to buy, set up and maintain ASICs. This compromises the security and resilience of the network.
Scrypt is a modified version of SHA-256, but is more memory-intensive, which is reputed to lessen its reliance on GPU arithmetic logic units (ALUs) and, consequently, ASIC mining equipment. Scrypt aims to make mining more accessible to individuals, as not all users can afford hardware equipment such as ASICs. This contributes to the decentralization of a network. Nonetheless, ever since Scrypt ASIC mining machines were built in 2021, Litecoin mining has once again fallen under the control of a few dominant players.
Distribution
Bitcoin (token: BTC) and Litecoin each have a supply cap on their number of tokens, with Bitcoin’s set at 21 million and Litecoin’s at 84 million. Since Litecoin has four times the supply of tokens, its network possesses greater liquidity as compared to Bitcoin. However, the scarcity of Bitcoin makes it more valuable.
Ethereum, on the other hand, doesn’t have any ceiling for its supply of ETH. Nonetheless, its rate of growth is limited to 4.5% per annum.
Mining Rewards
Miners are rewarded for their efforts in the form of a blockchain’s native currency.
In 2009, Bitcoin started off with a 50 Bitcoin reward per block mined. After going through three halvings, the reward is now set at 6.5 BTC. Similarly, Litecoin began with a reward of 50 LTC per block mined. Following two halvings, the current reward stands at 12.5 LTC per block, with a third halving scheduled for 2023, which will reduce the reward to 6.25 LTC.
These rewards are halved in order to limit the quantity of each cryptocurrency released into the circulating supply, thus creating scarcity. Bitcoin block rewards are halved every 210,000 blocks, while Litecoin block rewards are halved every 840,000 blocks. This difference is due to the different supply cap.
Since Ethereum now utilizes a PoS consensus mechanism, there are no rewards for block mining. Instead, participants are rewarded by staking their Ether on the network to participate in block validation. Depending on the staking program in which users choose to participate, their rewards can fluctuate anywhere from 2% to 20%.
Transaction Speed
Another significant difference among the three cryptocurrencies lies in their transaction speeds, or TPS.
Bitcoin processes approximately 5 TPS, and takes about 10 minutes to create a new block. In addition, Bitcoin software limits the size of a new block to 1MB. Not all Bitcoin transactions are processed within ten minutes. This is especially the case when the network is congested, due to a large number of transactions.
Litecoin processes 54 TPS, taking approximately 2½ minutes to create a new block. Transactions on Litecoin are roughly four times faster than Bitcoin’s. As a result, Litecoin is often regarded as a currency for day-to-day transactions, while Bitcoin is considered to be more of a store of value.
With its recent upgrade (The Merge), the Ethereum network is now able to handle up to 100,000 TPS.
Transaction Fee
Bitcoin: ~$1
Litecoin: ~$0.012
Ethereum: Ethereum employs a different mechanism, called gas, in place of transaction fees. The amount of computational work necessary to complete a transaction is measured in gas. On the Ethereum network, users must pay gas fees in order to complete a transaction. They’re correspondingly assessed a gas fee for each individual transaction.
Network Scalability
One of the biggest issues for the Bitcoin network is scalability. The more users trying to send funds over the network at a given moment, the more congested it becomes. Since transaction fees are defined on the basis of an auction, those who make higher bids get their transactions confirmed first. This leads to high network fees and longer confirmation times. Though Litecoin has much lower fees, its network experiences the same problem.
To speed up transaction time and lower transaction costs, Bitcoin and Litecoin have implemented some improvements. Among these are SegWit, which increases the block size limit by pulling signature data from transactions, and Lightning Network, which keeps transaction data off the blockchain.
Since Ethereum has switched over to PoS, problems with scalability aren’t as prominent. However, scalability has been a major issue for the popular Ethereum network while it was using a PoW consensus. Layer 2 solutions were implemented as a partial remedy for Ethereum’s former transaction rate of 12–15 TPS.
Use Case
The use cases for each of these three cryptocurrencies differ quite drastically.
Bitcoin: Bitcoin was created as a form of technology to allow for decentralized peer-to-peer (P2P) payments. However, its slow transaction speed makes it impractical for daily use, and it’s been referred to as digital gold, serving primarily as a store of value.
Litecoin: Litecoin was forked from Bitcoin’s code to tackle issues of cost and scalability. These differences make Litecoin more favorable for merchants, since payments and transactions can be carried out quickly at a cheaper rate.
Ethereum: Ethereum focuses on smart contracts, transfer of asset ownership and DApp (decentralized application) production. Smart contracts are software programs that take action when specific criteria are met. This procedure makes sure that every Ethereum transaction is secure for the user. Additionally, exchanges like the transfer of property or the exchange of money may be included in the contracts. Ethereum’s unique feature is that it allows programmers to directly interact with its underlying network, a capability that Bitcoin and Litecoin do not support.
Should You Invest in Any of These Coins?
The cryptocurrency market changes very rapidly, making it difficult for investors to choose the best investment options. With all the hype around the industry, many people are wondering if they should invest in either Bitcoin, #Litecoin or Ethereum. New currencies are created in the market every month, and there’s no guarantee they’ll remain popular. Still, the three dominant currencies compared in this article have a strong user base, experienced developing teams and are available on most exchanges.
All three of these currencies have already proven to be profitable for investors, and to have a good chance of growth in the next few years.
Closing Thoughts
The #cryptocurrency landscape has changed drastically since its inception. Recently, more attention has been brought to the regulatory environment surrounding crypto. Despite all of this change and uncertainty, Bitcoin and #Ethereum have managed to retain their positions as the top two cryptocurrencies by market cap. Litecoin, on the other hand, is no longer within the top three, but still holds its position among the 20 largest cryptocurrencies.
The crypto market is indeed an exciting one, with great potential despite its volatility and associated risks. If you’d like to take part in the market, sign up with #Binance today.
