What are Litecoins and why should we care?

Posted: 2013/08/27 in 100% Geek
Tags: , , , , ,

We’ve talked about Bitcoins before, that cryptocurrency everyone is (not) talking about. Well, Litecoins are to Bitcoins what the original Battlestar Galactica was to Star Wars. Or perhaps that isn’t a suitable metaphor. Litecoins are to Bitcoins what silver is to gold. That’s a much more appropriate way to phrase it.

Litecoin logo courtesy of wikipedia

Litecoins are very, very similar to Bitcoins. In fact, only the hashcode algorithms and the adjustment rates are different.

However, changing the algorithms leads to several differences in the way they are mined.

Bitcoin is an open-source P2P cryptocurrency using the SHA-256 hash function algorithm. Litecoin is an open-source P2P cryptocurrency using the scrypt password-based key derivation function algorithm. This means that the algorithm is less prone to being easily decoded by large-scale custom hardware attacks, leading to lesser hashrate performances.  That approach was made to change how the coin is used, and to permit or encourage miner to process both bitcoins and litecoins parallelly.

Litecoin accepted logo courtesy of wikipedia

Besides having a shorter block generation time (shorter confirmation) and being of lesser value than bitcoin (like a dime to a dollar) this cryptocurrency is otherwise very, very similar to bitcoin, so anyone who’s building a mining rig should consider looking litecoin in addition to bitcoin.

Let’s step back and see what’s the current issue with Bitcoin: the ASICs revolution. The miner’s profit being proportionate to his processing power share of the whole bitcoin network. The same is true for scrypt coins, but the biggest difference is the nature of the processed data – SHA256 requires processing power – about only processing power, which makes it very parallelizable. Scrypt on the other hand require loads of memory to achieve calculations. This makes it much more difficult to generate an FPGA circuit for mega-hashing power, so there’s no ASICs for it (at least, yet)

asicminer USB block eruptors – all 4 colors – picture courtesy of http://thegenesisblock.com

Cryptocoins are programmed to adapt themselves, and have a certain rate for block generations. The transactions are piggy-backed on blocks being generated, and there is incentive to mining -and thus supporting the transactions – by granting rewards on block generation and transaction fees. Now, for bitcoin, the systems wants to have an average of one block every 10 minutes – 2016 blocks per 2 weeks. So, every 2016 blocks, the system adapts to try and keep the block generation rate at one per 10 minutes. If there’s not enough blocks being generated, the difficulty level will drop and a block will instantly become easier to find, leading to better mining rewards. If on the other hand there’s too many blocks generated – as is the case with the mega-hashing-powered ASICs unleashed to the bitcoin world – the difficulty will increase. Sometimes a lot.

That has been the case for bitcoin on Aug 24th, passing from 50.8M to 65.75M – an increase of 29% for a single 2-weeks period! – with expectations of next adjustment raising again, at around 72M in about two weeks according to bitcoindifficulty.com. Its 7 times the difficulty level of six months prior, or one seventh as profitable to mine for the same hardware.

Bitcion difficulty chart courtesy of http://bitcoindifficulty.com/

Let’s talk numbers: let’s figure a Radeon 5450 for comparison – about 15 MH/s on SHA256, 21.5 kH/s on scrypt. Note the scale isn’t the same. (more hardware bitmining properties available here & litecoin properties here )

Using CoinWarz’s bitcoin calculator shows that it currently mine about 0.00011473 bitcoins daily (drop from about 0.00014847 before the latest difficulty change)  so it would take months to reach the 0.01 bitcoin required by most pools to be able to cash it out.

Now, comparing with CoinWarz’s Litecoin calculator shows it would mine 0.02241078 litecoins daily – at the current LTC/BTC rate of 0.02039 it would translate to 0.00045785 BTC minus fees… already higher than what the same GPU would mine directly in BTC – and this is a direct link to the fact there’s way too much hashing power on the bitcoin network because of ASICs, increasing the difficulty to a level beyond CPU or GPU capabilities.

Note, that is with network difficulties and exchange rates at the time of publishing – YMMV.  Is the future of amateur altcoin mining within ASICs and SHA256, or old-style GPU & scrypt?

To answer the title question. Why should we care? For the added challenge, for diversification, and because Bitcoins are becoming out-of-the-equation for hobbyists.

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  1. […] What are Litecoins and why should we care?(wereallgeeks.wordpress.com) We’ve talked about Bitcoins before, that cryptocurrency everyone is (not) talking about. Well, Litecoins are to Bitcoins what the original Battlestar Galactica was to Star Wars. Or perhaps that isn’t a suitable metaphor. Litecoins are to Bitcoins what silver is to gold. That’s a much more appropriate way to phrase it. […]