When Bitcoin was introduced back in 2009, it was revolutionary to anyone who encountered it. The versatility, the privacy, and everything else that Bitcoin was able to offer was unmatched by any traditional method of banking. Two years after Bitcoin was introduced, and before it was really proven, Litecoin hit the market. In most every way, Litecoin functions in the exact same fashion as Bitcoin. In fact, when it was introduced it was described as being the silver to Bitcoin’s gold.

Though created by different people from different parts of the world, and governed by slightly different rules, if you can understand how Bitcoin functions you will have no problem understanding how Litecoin works.

Litecoin Value, Market Cap and Volume

The value of Litecoin remained quite low for some time. Then, in 2014 the value spiked for a short period of time. When things corrected lower, Litecoin maintained a value that was noticeably higher than prior to the spike. Things have gone like this since 2014, but the price of one Litecoin has consistently remained around or just below $5 until April 2017.

Prices have spiked to as high as $80 and beyond, but this is far from the norm. Thanks to the much more affordable price than its Bitcoin relative, Litecoin is attractive to people who feel as though Litecoin’s appreciation is nothing more than an inevitability.

How Litecoin Works

To answer the question of how Litecoin works, we could really write a book—and people have. We are going to keep things a bit more simplistic. From a 30,000-foot view, Litecoin works exactly like traditional banking. Money is transferred between people and businesses for goods and services, or can simply be stored in an account online. What makes Litecoin different from traditional banking, however, is that this currency does not have any interference from governments or massive financial companies.

One of the most revolutionary aspects of Litecoin—and most other cryptocurrencies—is the fact that it is decentralized. In other words, there are no entities controlling its creation or flow. Litecoin is able to function thanks to individuals like yourself contributing computing power to the Litecoin network and helping facilitate transactions.

As these people contribute more power and validate more transactions the code governing Litecoin rewards them with, you guessed it, Litecoin. This is a process called mining. Though it is far from ordinary mining, it is the process of uncovering Litecoin and is the reward process that helps keep Litecoin running.

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Litecoin vs Traditional Money

For the everyday user, the biggest difference from Litecoin and traditional money is that there is a finite number of them that will ever exist. Unlike the paper money we use on a daily basis, which is printed behind closed doors in quantities that we will never know, you can sleep easy at night knowing that there will never be any more than 84 million Litecoins. Because of this scarce number, value can be derived. After all, scarcity and value are closely correlated.

Now that you know there will only ever be 84 million Litecoins, you might be wondering how you can go about verifying that. The answer to this lies in the blockchain. Like Bitcoin, Litecoin functions by way of a blockchain, within which every transaction that has ever been completed is recorded and stored.

All Transactions Stored on the Blockchain

Though Litecoin is set up in such a way that you may not know who is giving money to who, every transaction is stored in this blockchain, or public ledger, and is a way of verifying that someone is not just sitting back on their computer creating Litecoins for themselves.

When you think about it, the fact that every transaction is public information, coupled with the finite number of Litecoins that will ever exist, it is pretty easy to see why Litecoin might be viewed as more trustworthy than traditional currencies. There are so many other differences, but these two are the main differences.

As far as how Litecoin works in the world today, the answer to this would be that it functions just like money. You can send it to people, use it to pay for goods/services, or simply save it. As time wears on the idea is that Litecoin will become increasingly popular and enter the mainstream exactly like Bitcoin did. For now, however, it is hiding in Bitcoin’s shadow to some degree.

Acquiring and Storing Litecoin

Now that you know a bit more about how Litecoin functions as well as what, exactly, it is, you might want to know how you can acquire and use this revolutionary cryptocurrency. When it comes down to it, getting your hands on Litecoin is an incredibly simple task. Much like you can buy stocks, or any other good online, you can buy Litecoin.

By going to a Litecoin exchange, you can take your USD (or any other fiat currency) and trade it for Litecoin. Like a stock exchange, Litecoin exchanges are a meeting place for people who want to buy/sell Litecoin. Depending upon the exact method by which you transfer, there may be fees, but this is no different than how it would be when you wire money from one bank account to another.

Litecoin Wallets

With all of that being said, before you ever execute a Litecoin purchase on the open market, it is important that you first open up a Litecoin wallet. As its name suggests, a wallet is nothing more than a place to store your Litecoin. Unlike a wallet you might carry around with you, a Litecoin wallet exists solely online—think, PayPal account, or bank account.

Once you purchase Litecoin, the person or company from which you made the purchase will send Litecoin to your encrypted wallet address. This “wallet address” is the tool that exists in order to keep transactions private. For example, when you make a purchase, that purchase will be logged into the blockchain, but the fact that your wallet address is encrypted means that there is no way for anyone to know who you are.

All of that is recorded is the amount of Litecoin that was transferred. Once you have acquired Litecoin, you can continue to store it in your wallet, use it to buy goods, or anything else. Once you have Litecoin, it will sit in your wallet much like money sits in your online bank account.

Transaction Fees

The old rule that absolutely nothing is free rings true with Litecoin. In almost all cases, there are going to be fees levied against transactions you make. Whether you are attempting to purchase Litecoin, or sell it and transfer to your bank account, there will be fees. The reason for this is due to the fact that exchanges and wallets need to make money too. As nice as it would be for them to exist solely to provide a free service, this is not feasible.

As is the case with most every industry, the fees you are going to be forced to pay vary. In most cases regarding Litecoin, the higher the fee you are going to pay typically correlates with the amount of protection that wallet/exchange is offering. This is not always the case, but rings true more often than it does not.

There are ways by which you can transact Litecoin with minimal or no fees at all, but these methods typically offer less safeguards than transfers made through trusted, reputable wallets and exchanges. What’s more, the people who are transferring funds on their own are a bit more technologically advanced and are well-versed in how Litecoin works. Unless you have achieved a greater understanding of this technology, it is highly recommended that you stick with wallets and exchanges.

Privacy of Litecoin

We touched on it a few times, but have yet to go into great deal as to the level of privacy offered by Litecoin. As far as the currency itself is concerned, the fact that all transactions are public knowledge might be a bit unnerving to you. While this is understandable, the fact of the matter is that your name is never entered into the blockchain; no one’s is. The place where people send Litecoin to, or where you are sending Litecoin from is encrypted such that your name, personal information, and anything else cannot be logged.

With all of this being said, the aforementioned Litecoin wallets and exchanges do have holes that may compromise your privacy. The reason for this is due to the fact that a Litecoin wallet, like a PayPal or bank account, will require you to provide some personal information prior to setting up an account. This is so that the company in question can verify that you are who you say you are.

Because this personal information is being stored on a server, it is susceptible to being hacked. Litecoin wallets have been hacked before, and Litecoins have been stolen, but this is becoming increasingly infrequent as the companies running these wallets and exchanges beef up their security.

Storing Your Litecoin Securely

If you would truly like to keep your Litecoin away from hackers, you have one of two options. For one, you can store your Litecoin in a vault. A vault in the world of Litecoin functions a lot like it does in real life. For a weekly, monthly, or annual fee, most exchanges/wallets will allow you to store some or all of your Litecoin in a secure location, offline. Because Litecoin is a currency that only exists on the internet, once it is disconnected from the web it is literally impossible to hack.

The other option is an external device where you can store your Litecoin on your own. While this seems nice, it puts a lot of responsibility in your hands. In other words, if you lose the external device upon which your Litecoin is being stored, you have lost all of the Litecoin that existed on that device. This may seem final, but it’s the same as losing the cash in your wallet. Once it is gone, it is gone.


For most people who are new to cryptocurrencies like Litecoin, one of the biggest concerns is with regard to turning Litecoin back into US Dollars if and when there is a desire to do so. For many, the fear is that once you have purchased Litecoin you are stuck with it forever. This is not the case at all. Thanks to exchanges, turning Litecoin into USD (or any other fiat currency), or vice versa, is quite easy.

In addition to this, there are sites beginning to populate the web that allow you to purchase goods and services with Litecoin. This makes the cryptocurrency holder’s life easier because it eliminates the need to exchange Litecoin with a fiat currency when the need to make a purchase arises.

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