There are hundreds of cryptocurrencies out there, which makes it difficult to decide where to invest your money. While Bitcoin is the most renowned being the pioneer, it is not the only option. For people who are looking to hold onto cryptocurrency for the long-term, it can be difficult to pick a favorite coin out of the top 20 options. Two of the most popular cryptocurrencies that you will come across are Ethereum and Litecoin. They are talked about quite often, but what’s the difference between the two? Which one of the two comes out on top? Which one would you buy if you had to choose between Etehreum and Litecoin?
Let’s take a look at both cryptocurrencies in detail in order to decide which one would make a better investment:
What is Ethereum?
This is a public blockchain allowing developers to use it for creating decentralized applications (dApps). Just like the Bitcoin blockchain, Ethereum also has its own native currency or coin, which is called Ether (ETH). A number of people incorrectly use the term Ethereum for describing the currency as well as the network. Similar to Bitcoin, the PoW (Proof of Work) protocol is used for securing the Ethereum network. This requires advanced computers for solving complicated math problems. These computers are referred to as miners, which are used for verifying transactions of blocks in the Ethereum blockchain. Complex math problems have to be solved for this purpose and the reward is given in the form of Ether.
While this system does offer security, it requires a lot of electricity because mining is very demanding. Ether can be used as a tradeable currency like Bitcoin or it can be used to pay for things. But, unlike Bitcoin, it can also be used for powering certain features in the dApps.
The Ethereum network is also different from Bitcoin in another aspect; the former can be used for creating smart contracts, which is like programmable money. Put simply, these contracts are programs that are built with computer code. With these contracts, users can transfer values between one another without the need for a middleman. When the conditions of the contract are fulfilled, the asset will be transferred automatically by smart contracts. It should also be noted that it is impossible to change the smart contracts once the parties using them have made an agreement. They can be used for removing the middleman from a variety of transactions like when you are selling a house.
The concept of Ethereum can be traced back to 2013. Vitalik Buterin, a young coder and cryptocurrency expert, believed that Bitcoin needed to function more than just a secure digital money system. His argument was that if a programming language was added to Bitcoin, it could be used for building applications. However, most of the Bitcoin community didn’t agree with him and so he decided to develop his own blockchain.
The Ethereum project was announced in early 2014. Charles Hoskinson, Anthony Di Lorio, and Mihai Alisie joined Buterin and this team began working on the blockchain via a company called Ethereum Switzerland GmbH. A non-profit organization known as the Ethereum Foundation was also set up. The project was officially launched in 2015. 11.9 million ETH had already been ‘pre-mind’ by the foundation to be sold to potential investors. This was one of the first examples of an Initial Coin Offering (ICO). Anyone who was interested in investing in ETH would send Bitcoin to the foundation and would be given a fixed amount of Ether in return.
At this point, the value of each coin was less than $1. If any of the original investors had held onto the coin up till today, they would undoubtedly be very pleased with it. Ethereum is a software platform that’s changing constantly. Early versions were unstable and buggy. The first stable version was introduced in March 2016 and was known as Homestead. The current version known as Metropolis was introduced after Homestead in October 2017. The final version that’s expected to be introduced in January 2020 will be known as Serenity, in which the Proof-of-Work (PoW) system that’s currently used for checking transactions will be replaced with Proof of Stake (PoS).
Instead of using large amounts of electricity and computing power, the Proof-of-Stake (PoS) system will involve transactions being checked by people who hold large amounts of Ether. If these people break any of the network’s rules, the user staking their currency will lose. This is to ensure the rules are followed.
Enterprise Ethereum Alliance
The excitement surrounding Ethereum began to grow in 2017 due to the announcement of the Enterprise Ethereum Alliance (EEA). This involves a number of companies, many of which are household names. These companies were added to the alliance because they wanted to see how their industries could benefit from the Ethereum platform. Therefore, it was quite understandable that the demand for the Ether token increased when companies like Toyota, Microsoft, Samsung, Intel, JP Morgan, and Deloitte expressed their interests in it. In 2017, ETH had started at a price of $8 in January, but in late December, its price had increased to a whopping $800.
From there, the value of the coin increased to $1,400 in January 2018.
What is Litecoin?
Litecoin is quite different from Ethereum and has a lot more in common with the pioneer crypto i.e. Bitcoin than Ethereum. In fact, this crypto is a digital currency in the truest sense of the word. As opposed to the Ethereum software platform, it doesn’t have a second layer for developing applications on Litecoin. Thus, the sole purpose of Litecoin is for it to be used as a currency. Similar to Ethereum and Bitcoin, it is fully open-source and peer-to-peer. This means that downloading the software code, joining the network and mining Litecoin is possible for just about anyone.
A former employee of Google, Charlie Lee, introduced Litecoin in October 2011. The reason why it is similar to Bitcoin is that it is essentially a fork of Bitcoin. A fork happens when there is disagreement about an update between the miners of a Proof-of-Work (PoW). If they don’t reach an agreement, the update is then termed as a fork. This means the miners that chose not to update will continue to mine the original crypto while those that did update will mine the fork. This means that there is now a split in the blockchain.
This is how Litecoin came to be. A Bitcoin update was issued by Charlie Lee, but it was not downloaded by enough of the miners, which transformed it into a fork of Bitcoin. Lee had also been involved in an altcoin earlier called Fairbrix. It was designed to be a fairer version of another altcoin known as Tenebrix. However, there had been complaints that millions of coins had been mined by the anonymous Tenebrix founders before they released the software.
Lee designed Fairbrix to allow only CPUs (regular computers) for mining on the network. The idea behind it was that would lead to even more decentralization than Bitcoin. After all, anyone who owned a CPU would be able to become a miner. Some of the features of Fairbrix made their way into Lee’s next project i.e. Litecoin. However, the programming code had some issues due to which the Fairbrix coin was destroyed even before it was launched.
Nonetheless, Lee was sure he could come up with a fairer, cheaper and faster version of Bitcoin. As a different proof-of-work system was used for Litecoin, it meant that mining it was easier and CPUs could be used longer than for Bitcoin. But, it didn’t take long for it to become clear that the currency could also be mined by more advanced systems. Today, mostly specialized computer systems called ASICs are used for mining Litecoin, similar to Bitcoin.
A software upgrade called Segregated Witness was implemented by Litecoin in May of 2017. The upgrade had originally been meant for Bitcoin, but there was infighting in the BTC community. Therefore, no agreement could be made and it was made to Litecoin, even though it was a bit early for it. The idea behind SegWit, as it is commonly known, was to divide the data about transactions. Only the essential data would be stored on the blockchain. This meant that now more transactions would be able to fit into every block and also increased the number of transactions that could be completed by the network every second.
The concept was that Litecoin would become more suitable for smaller payments, as opposed to Bitcoin, due to faster transactions, as it had become expensive to transact with Bitcoin. Later, SegWit would be activated on the Bitcoin Blockchain as well. The first-ever atomic swap and Lightning Network transactions were also made in Litecoin. The latter is a software upgrade that will enable small transactions to take place off the blockchain. Even though these transactions are less secure, they will make blockchains more suitable for making small payments like purchasing a cup of coffee.
As for atomic swaps, they are a new way of swapping one cryptocurrency for another and it doesn’t depend on a centralized exchange. The purpose of atomic swaps is to reduce the use of a cryptocurrency exchange because they are vulnerable to hacks, causing many people to lose their cryptocurrency. These two upgrades will increase Litecoin’s as well as Bitcoin’s functionality. Today, Lee considers Litecoin and Bitcoin as working together instead of against each other. As the whole market cap of Litecoin is a lot smaller than Bitcoin, trying out new software upgrades with Litecoin is a lot less risky. In this way, Litecoin sort of serves as a kind of test network for Bitcoin.
Comparing Technologies; Ethereum Vs Litecoin
Ethereum and Litecoin are completely different blockchain projects. The latter is a payment system that’s a lot like Bitcoin, only cheaper and faster. In contrast, Ethereum is a decentralized computer system that boasts its own programming language. This gives developers the opportunity of creating decentralized applications with the use of smart networks.
The transaction time of both Ethereum and Litecoin is faster than Bitcoin. Ethereum has a blockchain that’s a lot faster as new blocks are formed on it after every 10 to 20 seconds. As far as the Litecoin network is concerned, new blocks are formed in 2.5 minutes.
Price Action; Ethereum Vs Litecoin
Both Ethereum and Litecoin have dealt with their share of ups and downs. As compared to Litecoin, Ethereum has managed to reach significantly higher heights. In December 2017, the market cap of Litecoin was about USD 20 billion whereas Ethereum’s market cap had reached USD 138 billion in January 2018. This showed that it was seven times larger than the all-time high of Litecoin. However, the difference between the prices is also because of the difference in the total amount of money invested in each coin. Moreover, the number of units of both currencies also varies.
Currently, Ethereum does have a market cap that’s five times the size of Litecoin, but the price is five times less than that of ETH. This is due to the fact that there are a lot more Ether coins available in the market and Litecoin also has a cap of 84 million units whereas Ethereum doesn’t have one, as yet.
Conclusion; Which one to Buy?
There cannot be a definitive answer because Litecoin and Ethereum are only vaguely related. To be a good store of value, crypto needs to have a cap on total units and decentralization. Ethereum is lacking in both for now, even though a cap is expected in the future. There is always a risk with investment, but if you want to invest solely in a cryptocurrency, Litecoin is the better option. If smart contracts appeal to you, Ethereum is the answer. You can also choose to split your investment between each, whether it is for the long-term or the short-term.