Litecoin vs. Bitcoin vs. Ethereum: Differences & Comparison

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There was a time when only those ‘in the know’ knew about digital currencies, but today that is no longer possible. Awareness of cryptocurrencies is rising along with the growing crypto community, while more and more investors are getting involved in the digital assets trading process with an increased understanding of their perspectives. 

In this article, we are going to explore three of the major cryptocurrencies: Bitcoin, Litecoin, and Ethereum. We’ll discover the key differences between them; compare them in terms of transaction speed, scalability, algorithm, and mining; and price them to see which is the best investment.

In a nutshell, the main difference between Litecoin, Ethereum, and Bitcoin is the cryptographic algorithm. This algorithm affects the process of mining new coins. Bitcoin is encrypted with the SHA-256 algorithm, whereas Litecoin Network and Ethereum Network use Scrypt and Keccak-256, respectively.

Why is Crypto so Hyped Now?

People have been buying and selling cryptocurrencies for several years now. However, 2020 demonstrated that this type of investment can be more profitable than stocks or gold. Many cryptocurrencies have grown immensely in price following another Bitcoin bull run, especially those that make up the top ten at CoinMarketCap. What has changed in the past few months that has pushed the hype upward so much?

There are several reasons why cryptocurrencies are globally hyped today. First of all, there is a possibility that they are heading to mass adoption as many multinational companies, including such giants as PayPal, have implemented crypto in their businesses. This has allowed users and merchants to hold, buy, accept, and sell digital money. Some of the major banks are also gradually joining the movement, announcing their intentions to explore the possibilities of blockchain and cryptocurrencies.

Secondly, most digital tokens have limited supplies, meaning that they cannot be devalued like fiat currencies, whose cost rises when supply decreases. That is why many organizations have begun investing in Bitcoin and other altcoins, converting cash into Bitcoin as a more sound store of value.

Another reason is the possibility of paying for products, software, and services in a fast and efficient manner, as thousands of merchants around the world accept digital assets, especially Bitcoin, as a payment method.

Why Are Bitcoin and Litecoin So Popular?

Bitcoin and Litecoin are cryptocurrencies that have been around for years now. As such, they are considered to be the pillars of the crypto community. One of the reasons they are so popular is their underlying blockchain technology. It enables peer-to-peer transactions and eliminates the need for control from governments or other centralized financial institutions. 

Bitcoin and Litecoin markets behave according to supply and demand. The absence of intermediaries makes transactions quick and easy with, minimal fees, and eliminates third-party frauds.

Both currencies represent global, digital payment methods with the purpose of making online financial transactions transparent and secure. Blockchain, which is a decentralized publicly distributed ledger, contains encrypted records of every transaction that has ever been made, thus contributing to data security. These considerations make Bitcoin and Litecoin very attractive.

Finally, another reason for the popularity of both cryptocurrencies is the potential of quick and easy profits that they bear. The past several years have shown investors a simple way to multiply wealth, causing constant growth in the number of followers.

Litecoin vs. Bitcoin vs. Ethereum

Bitcoin is the first blockchain-based cryptocurrency, so it stands apart from all other projects that have subsequently appeared. All cryptocurrencies other than Bitcoin are called altcoins, and they are often created to overcome some of Bitcoin’s limitations.

As a result, altcoins often use different protocols and encryption algorithms, with Litecoin and Ethereum taking ranks among the most well-known. The key points that differentiate them from each other are mining algorithms, the block generation time, the total number of coins, transaction speed, market capitalization, and price differences.

What are Algorithms and Mining?

Bitcoin, Ethereum, and Litecoin use different cryptographic algorithms, which influence how new coins are created. Bitcoin makes use of the SHA-256 algorithm, Litecoin uses Scrypt, while Ethereum Network relied on Ethash, which is now not relevant since the network has switched to Proof of Stake (PoS) as a part of its Ethereum 2.0 upgrade.

With SHA-256, the bigger the network, the higher the difficulty of finding a new block, and thus the higher energy consumption. Bitcoin mining requires the use of expensive mining devices called Application-Specific Integrated Circuits (ASICs), which are expensive and consume a lot of energy. As a result, standalone miners can no longer make profits, having to join mining pools.

Scrypt, by contrast, was designed to allow anyone with a personal computer to mine Litecoin. It uses simple and affordable CPU and GPU hardware systems. With Litecoin, end-users still have a chance to get profits as standalone miners.

Bitcoin and Litecoin are similar in terms of using a Proof of Work (PoW) consensus mechanism for mining. The process of mining means using high-powered computers and special hardware to solve complex puzzles, necessary to validate transactions and generate new blocks. The first miner, or node, to confirm the block is rewarded with new coins. The transactions are recorded on a public ledger, which is also stored by nodes.

Ethereum blockchain has obviated the need for mining now that it has switched to the Proof of Stake consensus algorithm. The participants stake their coins in the system and everyone has a fair chance of getting a reward, depending on the size of the stake. 

What is TPS, and How Does It Affect the Cryptos?

Another way in which the three cryptocurrencies differ is the transaction speed. Bitcoin network can process just 4–5 transactions per second (TPS) on average, and 7 at maximum. It takes approximately 10 minutes to create a new block.

As for the Litecoin network, its speed is 56 TPS, and it takes 2.5 minutes to confirm a block, which is four times faster than Bitcoin. However, this improvement has a drawback in the form of the so-called orphaned blocks which occur when two miners produce blocks at the same time.

Ethereum 2.0, launched in November 2020, promises to handle 100,000 TPS. Currently, its speed is 12–15 transactions per second on average, confirming blocks every 15 seconds.

The Lack of Scalability and the Impacts on Bitcoin Network

One of the biggest issues of the Bitcoin network is related to the lack of scalability. The more users try to send funds over the network in a given moment of time, the more congested it becomes. As transaction fees are defined on the basis of an auction, those who make higher bids get their transactions confirmed. This leads to high network fees and longer confirmation times. Though Litecoin suggests much lower fees, it still has the same problem.

To speed up transaction time and lower transaction costs, Bitcoin and Litecoin have implemented some scalability improvements. Among them are SegWit, which increases the block size limit by pulling signature data from transactions, and the Lightning Network, which keeps the transaction data off the blockchain.

Ethereum blockchain does not have this problem. Now that it has finally switched to PoS, the problem of scalability is no longer relevant for this network.

Total Coin Supply and Block Rewards

Litecoin and Bitcoin have a preset coin limit on the amount miners receive for validating transactions. Once they reach their supply limits, no new coins will be issued.

According to a predefined protocol, the Bitcoin supply is limited to 21 million BTC to prevent inflation. On average, 900 new Bitcoins are being mined per day. With Bitcoin halving occurring every four years, rewards for mining blocks have decreased significantly. After the last halving, in 2020, miners got only 6.5 BTC for a block confirmation, compared to 50 BTC during the first four years.

Litecoin has a limit of 84 million LTC. Just as with Bitcoin, the rewards were 50 coins per block after the coin’s creation, with halving following every four years. The last Litecoin halving took place in 2019, reducing the rewards to 12.5 LTC per block. The next halving is expected in 2023.

Unlike these two currencies, Ethereum has no final issuance cap. However, it has an annual minting limit of 18 million coins. With the transition to PoS, block rewards are no longer irrelevant. Instead, the participants now get rewards for staking their coins in the network, with the size of these rewards fluctuating from 2–20% across various staking programs. 

Cryptocurrencies Swing High

In 2020 the prices of major cryptocurrencies increased immensely following another Bitcoin bull run. After a slight fall, the upward trend has continued. The Bitcoin price reached an all-time high of over $42,000 on January 9, 2021. Within the year BTC price skyrocketed to its all-time high of $61,000. This growth led to the increase of the Bitcoin trade market.

The year 2020 marked the second enormous increase in ETH price as wel, as its price jumped from $131 at the beginning of the year to almost $750 on December 31.

Litecoin has grown as well. It started the year at the level of $56 per LTC, finished at around $125, and seems to be still rising.

Market Capitalization of the Cryptocurrency

Another integral difference between the three currencies is their market capitalization. At the time of writing, Bitcoin’s market cap is over $737 billion, which is higher than that of such companies as PepsiCo, Toyota, HSBC, Citigroup, and Netflix. Such volume pushed the value of the entire cryptocurrency market to exceed $1 trillion for the first time.

Ethereum market capitalization has exceeded $141 billion, and Litecoin’s volume has reached $10 billion, making it the sixth-largest cryptocurrency in the world.

Future Projects of Smart Contracts

Litecoin is planning to partner with the M.Pay platform, allowing customers to exchange LTC for fiat in 13,000+ ATMs in South Korea.

On December 1, 2020, Ethereum started its move to Ethereum 2.0 based on the Proof of Stake mechanism. The transition will be realized in four phases, bringing some upgrades and improving the blockchain. Sharding, the layer-one solution, and Plasma, the layer-two solution, will be installed to solve the scalability issue.

Bitcoin is likely to install scaling and privacy protocol upgrade Taproot, with the lightning network upgrade still growing.

Will Ethereum Overtake Bitcoin?

Considering the past bullish trends of the market, we can see that Bitcoin has always led to the rise of other altcoins, whose values are often pegged to it. Now, it has continued to rise after breaking through the previous high.

Bitcoin differs a lot from Ethereum and Litecoin. Ethereum is a decentralized platform created for developing decentralized applications and smart contracts, fueled by gas fees. Bitcoin is a store of value and a form of payment for goods. Litecoin is used as a purely digital currency.

After moving to the Proof of Stake algorithm, Ethereum can become a game-changer. But it will be difficult to overtake Bitcoin in terms of market cap. Besides, Bitcoin is turning into a store of value, called digital gold, because of a finite number of coins. It has the biggest user base. Litecoin’s advantages are its relatively low price and faster transaction speed.

To summarize, we can say that both Litecoin and Ethereum have a future, with each of them taking their place in the ecosystem; but neither of them will be able to overtake Bitcoin. 

Should You Invest in Any of These Coins?

The cryptocurrency market changes very fast, making it difficult for investors to choose the best investment options. With all the hype around this industry, many people are wondering if they should invest in Bitcoin, Litecoin, or Ethereum. New currencies are brought to the market every month, so there is no guarantee that they will remain popular. Still, all the currencies compared in this article have a strong user base, experienced developing teams, and are available on most exchanges.

BTC has high prospects, as more investors are interested in it every day. For instance, Fidelity Investments’ research shows that about 36% of institutional investors added Bitcoin to their investment portfolios in late 2020. If Bitcoin solves its scalability problem, transactions will be fast and cheap, making the currency more attractive than any other altcoin.

However, due to its limited supply, Bitcoin will not be able to serve the whole world. It can only support about 500 million users. So Litecoin, which has similar characteristics and functions and is much cheaper, might be used instead.

All three of these currencies have already proved to provide high profitability for their investors and to have good chances of growth in the next few years.

Closing Thoughts

Although the legal and regulatory environment for digital money in many countries is still not settled, the cryptocurrency industry continues to evolve. It offers features that fiat currencies can never come up with, including decentralization, transparency, speed, and anonymity. If you still have not joined the hype, it is better to hurry up. Having different coins in your portfolio will be a positive asset for every cryptocurrency enthusiast. However, it is important to carefully consider the advantages and disadvantages of each option in order to make a wise investment choice.

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