Bitcoin and Litecoin, why are they referred to as gold and silver to each other? Both coins are nearly identical but do differ in a few areas. Find out what makes them distinct.
Why do analysts call ‘Bitcoin the gold to Litecoin’s silver?’ While there are countless cryptocurrencies with ‘coin’ as their suffix, there is an interesting and purposeful relationship between Bitcoin and Litecoin.
Bitcoin is considered ‘gold’ because of its perceived inherent value and dominance in cryptocurrencies. Conversely, the other is referred to as the ‘silver’ since it shares identical qualities, except being cheaper. At the time of writing, one BTC is worth $49 300, while LTC is $320.
Litecoin is a source code fork of Bitcoin and was introduced two years after the creation of its predecessor to better serve as an efficient medium of exchange. Bitcoin has long held the perception of being a store of value and is not as competent in transaction throughput as Litecoin.
While Bitcoin is miles apart in market cap and popularity compared to Litecoin, both coins are more of compliments than competitors.
History of Bitcoin and Litecoin
The creation of Bitcoin is already well-documented as the world’s first official cryptocurrency released on the 3rd of January 2009. BTC introduced an unorthodox concept of ‘decentralized money’ created through peer-to-peer cryptography not relying on any financial institution.
The pivotal whitepaper ‘Bitcoin: A Peer-to-Peer Electronic Cash System,’ which saw the light of day on 31 October 2008, essentially outlined the vision of cryptocurrencies. The creator of BTC authored this paper, the still mysterious and pseudonymous individual or group Satoshi Nakamoto.
In the late 2000s and early 2010s, only a handful of cryptocurrencies existed due to their obscurity. In 2011, more experimental coins began entering the space, one of which was Litecoin.
The brains behind the Litecoin project was the MIT alumni and former Google software engineer Charlie Lee. Initially, the Chinese-American computer scientist desired to create Litecoin as a better alternative to the experimental coins that eventually vanished because of security and equality issues.
Lee admired the source code powering Bitcoin and decided to copy it. Eventually, he also saw how Litecoin could enable cheaper and more efficient transactions.
However, the computer scientist made a few technical changes, such as using a different hashing algorithm, known as Scrypt, employing a much faster block creation time and a significantly larger supply. Litecoin officially started mining on 13 October 2011.
How do Bitcoin and Litecoin work?
Both Bitcoin and Litecoin are among the oldest existing cryptocurrencies. Despite their longevity, both their functions have largely remained the same. They serve the purpose of being peer-to-peer decentralized internet currencies enabling seamless money transfers between two computers through wallets and exchanges globally.
Importantly, being decentralized entails they do not rely on any third-party authority to perform transfers. Instead, both utilize blockchain, essentially a P2P publicly distributed electronic ledger for confirming transactions through cryptography.
Using this technology makes the process highly robust and immutable, meaning that data is permanent and unchangeable once recorded.
While blockchain can store other kinds of data, currently, they are extremely popular with coins. A process known as mining is involved in creating a new block where advanced computers in the network compete to solve highly complex math puzzles.
Whichever miner is first to successfully decipher these equations earns the privilege to add the next block and receive a reward depending on the reward system of that blockchain.
Technical differences between Bitcoin and Litecoin
| BITCOIN | LITECOIN | |
| Year established | 2009 | 2011 |
| Original author | Satoshi Nakamoto | Charlie Lee |
| Ticker symbol | BTC | LTC |
| Price | $49 300 (as of 16/05/21) | $320 (as of 16/05/21) |
| Consensus mechanism | Proof-of-work | Proof-of-work |
| Halving | Yes, every four years (next halving in 2024) | Yes, every four years (next halving in 2023) |
| Algorithm | SHA-256 | Scrypt |
| Block generation time | 10 minutes | 2.5 minutes |
| Block reward | 6.25 BTC | 12.5 LTC |
| Maximum supply | 21 million | 84 million |
From a technical perspective, Bitcoin and Litecoin differ in the three key areas: hashing algorithm, block generation time and reward, and maximum supply. These attributes reflect the fundamental distinctions between the two, where one leans towards being a suitable medium of exchange, while the other a storer of wealth.
For instance, Litecoin’s ability to confirm transactions faster (2.5 minutes) means fewer delays and lower fees. This is unlike Bitcoin that, while it takes 10 minutes, does have network congestion which sometimes results in hold-ups and higher than regular transaction costs.
Hashing algorithm
Bitcoin uses the NSA-designed SHA-256 hashing function, while Litecoin employs Scrypt. In the early days of Bitcoin, one could mine using a CPU (central processing unit), essentially with regular computers.
Because of the increased productivity and the need for a computer with exceptionally high hash rates, miners moved to GPUs (graphics processing units) or graphics cards.
When competition became even stiffer, more advanced machines known as ASICs (application-specific integrated circuits) came into the market capable of solving blocks at extraordinarily high hash rates than CPUs and GPUs.
Initially, Scrypt made mining more egalitarian as it deterred ASICs since they are very expensive, harder to maintain, and need some above-average knowledge. Again, with more people mining, designers built ASICs permissible to mine Litecoin.
Block generation time and reward
With Bitcoin, a new block forms roughly every 10 minutes. On Litecoin, this happens about every 2.5 minutes. The reward for miners on the former is presently 6.25 BTC, while for Litecoin, it is 12.5 LTC.
Interestingly, both coins employ halving, which intentionally decreases the mining rewards every few years. This action results in a reduced supply meant to control inflation.
Part of the gold and silver comparison is these commodities are rare and don’t deteriorate in value for long. Bitcoin and Litecoin also share the same attribute at every passing day.
The halving for Bitcoin occurs every four years, with the latest occurring in 2020. Conversely, Litecoin’s halving happens every three years, with the most recent taking place in 2019.
Maximum supply
Lastly, Bitcoin and Litecoin have different supply caps as per their individual blockchains. The magic numbers for BTC and LTC are 21 million and 84 million, respectively. Litecoin’s cap exemplifies how it works better as a medium of exchange by having an increased supply.
Although Litecoin’s supply is four times higher than Bitcoin’s, both coins are inherently valuable because of being deflationary. Over time, as the supply decreases, demand increases.
Final word
According to Lee himself, he described Litecoin initially as the ‘lite version of Bitcoin that could become the silver to Bitcoin’s gold’ so that people understood the distinction.
Both Bitcoin and Litecoin are the mainstays of the crypto space and are near-identical in many respects. The only differences are how Litecoin is far more scalable and better as a payment currency while Bitcoin is seen by investors similarly to gold that supposedly retains wealth during economic downturns.