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Bitcoin vs. Litecoin

Cryptocurrencies Explained


What is a cryptocurrency and how does it work? A cryptocurrency is a digital currency that uses cryptography to secure and transfer the currency. Cryptocurrencies rely on a peer to peer network so they are decentralized with no central authority. Bitcoin and Litecoin are by far the two largest cryptocurrencies but there are lots of other cryptocurrencies. Bitcoin is largely regarded as one of the first cryptocurrencies and certainly the first to become successful. Bitcoin was created by Satoshi Nakamoto. Not much is known about Satoshi since the name is believed to be a pseudonym. Litecoin is the second largest cryptocurrency and was created in late 2011 close to two and a half years after Bitcoin. Although Litecoin is a viable and ever growing cryptocurrency that was designed to be better than Bitcoin and in many ways is, Bitcoin continues to be superior as it is a more well-known and used currency.

How does a cryptocurrency transaction work? Most cryptocurrencies function very similarly and handle transactions almost exactly the same. To start, each user of the currency has a wallet this wallet has a private key that is used to sign transactions. When a user first sets up a wallet, a private key and address are automatically generated. A user can have as many addresses as they would like and most sites recommend using a new address for each transaction in order to improve security. All of these addresses can be viewed and used easily inside the wallet client. Wallets used to be only a programs on a user’s computer but in recent times apps and web clients have been developed for most major currencies to allow a wallet to be used without a program installed.  Now when a user wants to transfer a Bitcoin or Litecoin to another person first the user must receive that persons address. In most cryptocurrencies, sending coins is as simple as entering the address of the person you wish to send to and entering the amount you wish to send. This can be done from the wallet interface. The sender’s private key is then used to sign the transaction this is to insure firstly that the coins came from the sender wallet and secondly to insure that the transaction has not been altered once it was sent. Once the transaction is sent within about ten minutes it will appear in the block chain. The block chain is effectively a database of all transactions.  Every desktop wallet client automatically syncs this block chain data. Depending on the currency the block chain can be viewed online. For example the Bitcoin block chain can be explored at blockchain.info.  On this site a user can enter address and see a list of all transactions that involve that address. This is why if a user wants their transactions to be more anonymous it is best to use a new address for each transaction.


Where does all of this money come from? Cryptocurrencies are created by what is called mining. Mining is the process of confirming a waiting transaction and adding is to a block chain. This process ensures that the transactions are placed in chronological order in the chain. It also protects the correctness of the chain by allowing different computers to agree on the state of the chain. The transactions are packed into blocks. These blocks are processed roughly every ten minutes and the user who processes the block receives a reward in Bitcoin. This reward started as 50 Bitcoins and is halved every four years. Bitcoin is four years old it halved recently and so 25 Bitcoins are created roughly every 10 minutes as these blocks are computed. These blocks are created using specific cryptographic rules to prevent the block from being modified after it is created. These rules prevent a block from being changed because if it were to be changed all blocks after it would also be invalidated. But what is stopping one user from creating all the blocks and intern manipulating the chain? Well simply creating a block is very difficult. In order to mine a block a user must use their computers processing power to .....[read full text]

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Bitcoin how ever has an advantage over Litecoin in one specific place. This is Bitcoin's wide usage and availability. Bitcoin is accepted by 1000s of vendors of everything from alpaca socks to pizza. But, Bitcoin is not just a niche market comprised of small businesses that only accept Bitcoin. Many names you know of accept Bitcoin as payment. These include Wordpress, Namecheap, Reddit, and many Etsy Vendors. Also Baidu the largest search engine in china and the 5th most visited site worldwide has announced that they will accept Bitcoin as payment for some of their services. Litecoin does not have this amount of acceptance and support. At the current time Litecoin is mostly used to trade for USD or Bitcoins. There are a few places here in there that accept Litecoin but nowhere near the level of acceptance that Bitcoin has. Other reasons that Bitcoin could be considered better than Litecoin can be found in the list of differences between the two. For example Litecoin is not easily mined with ASIC miners but that might not be a bad thing it can be argued that using specialized hardware to mine the coins is better for the economy of the cryptocurrency and that in order to make money from the currency you must invest money into the currency. Also the fact that Litecoin produces more coins in its lifetime is not all that important a coin can be broken down into 100,000,000 pieces. For example 1 Bitcoin is currently worth about $150. If a user wanted to purchase something that is worth a $1.50 they would simply transfer 0.01 Bitcoins. As the amount of Bitcoins wanted goes up or the cost of Bitcoins raises 21 million coins is more than enough to go around because of how small a coin can be broken up into arguably more than a US dollar which is rarely used at increments smaller than a penny. Although there is not any reason why Litecoin could not take over and become more successful than Bitcoin if it became widely used. But the problem is most people who mine and use Litecoin are not trying to make it a widely used and accepted currency is seems as though they are only using it as an investment and not as a currency.


In conclusion, cryptocurrencies are pseudo anonymous digital currency that relies on a peer to peer network and lots of processing power in order to generate, send, and receive the currency. Bitcoin is currently used in a variety of places as an acceptable form of payment but in the future could be accepted everywhere. Even eBay and PayPal have mentioned Bitcoin and are not ruling it out as a future payment option. These cryptocurrencies have potential to change the way we use money and revolutionize the way we buy goods online. Litecoin is a viable and ever growing cryptocurrency that was designed to improve upon Bitcoin and in many ways has, Bitcoin continues to be superior as it is a more well-known and used currency.


Bibliography


Satoshi, N. (2008). Bitcoin: A peer-to-peer electronic cash system.

Retrieved from 

Satoshi Nakamoto the creator of bitcoin and the bitcoin protocol explains is somewhat complicated terms what bitcoin is and how it works on an introductory level. He explains how transactions and proof of work are done with bitcoin as well as privacy.


Simonite, T. (2013, May 02). Bitcoin isn't the only cryptocurrency in town. Finweek, 14-15.      

Retrieved from:

Tom Simonite is a writer for MIT Technology Reviewand a graduate from the University of Cambridge. His article explains in easy to understand words what bitcoin is but more importantly an advantage of litecoin over bitcoin, which is its more complex hashing algorithm that makes it less susceptible to asic mining.


Brito, J., & Castillo, A. (2013).Bitcoin a primer for policymakers.,Mercatus Center, .....

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Mining digital gold. (2013, April 13). The Economist, Retrieved from                   bitcoin-may-make-dent-financial-world-mining-digital

This is an article written for the Economist that explains bitcoin from the angle of the economy. It explains how even it the bitcoin market crashed it would still have a huge impact on the future and how we view curre.....

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