If bitcoin resembles “digital gold” (i.e., a store of value), then Litecoin is akin to “digital silver” that offers an alternative mining algorithm, faster transaction settlement, and a testing ground for more ambitious innovation than Bitcoin as there is less value at risk.

Litecoin’s consensus mechanism uses a different proof of work algorithm than Bitcoin. While Bitcoin uses the SHA-256 hash algorithm of the Secure Hash Algorithm 2 (SHA-2) family, Litecoin relies on the scrypt hash algorithm for mining. The scrypt algorithm was specifically designed to require vast amounts of memory when solving computational challenges. It was designed this way so that custom hardware like application-specific integrated circuits (ASIC) and field-programmable gate array (FPGA) chips wouldn’t have an advantage over non-customer hardware with respect to mining. This hardware normalizing characteristic of scrypt versus SHA256 makes Litecoin more ASIC and FPGA resistant and potentially mitigates the risk of mining becoming too centralized and overly concentrated among a few large, well-capitalized players. For example, mining Bitcoin with graphics processing unit (GPU) hardware is 20 times more efficient than mining Bitcoin with general purpose hardware like a central processing unit (CPU), whereas mining Litecoin with the same GPU hardware is only 10 times more efficient than mining Litecoin with a CPU.

The Litecoin network allows miners to add blocks of transactions to the Litecoin blockchain approximately every 2.5 minutes (based on the mining difficulty embedded in the protocol). This is four times faster than the Bitcoin network, which allows miners to add blocks of transactions to the Bitcoin blockchain approximately every 10 minutes.

Litecoin continues to push the boundaries of innovation and technology adoption as compared to the more conservative Bitcoin development community. As a result, Litecoin has become known as the “Bitcoin Testnet” where proposals are implemented and tested first. For example, in May 2017, Litecoin was the largest virtual currency by market capitalization to adopt a new transaction format called Segregated Witness or SegWit that addresses blockchain transaction scalability. Bitcoin adopted SegWit several months later on August 24, 2017. In addition, after Litecoin implemented SegWit, the first Lightning Network payment was successfully made on top of Litecoin, sending a nano payment that settled in a fraction of a second.