Bitcoinomics, Chapter 16: A Menu of Cryptograhic Currencies
[heading]Bitcoinomics, Chapter 16: A Menu of Cryptograhic Currencies[/heading]
Without getting into all the arcane questions about where money comes from and what it really means, I think, as a first cut, decentralizing that and giving people the choice of which currency to use is an important starting point.” – Peter Thiel
Another cryptocurrency that has garnered attention is Litecoin.
Like Bitcoin, Litecoin enables instant payments to anyone, anywhere in the world. Using p2p technology, just like Bitcoin, Litecoin operates without a central authority.
Litecoin also ensures that a third-party cannot spend another’s litecoins through public key cryptography that plays the role of a digital signature. Like Bitcoin, one can have multiple addresses all assigned to an associated pair of public and private keys. Only the user with the private key can sign a transaction to give some of their Litecoins to somebody else, but anyone can validate the signature using the user’s public key. Suppose Jane wants to send a Litecoin to Bob. The process is the same as Bitcoin:
•Frank sends his address (from which the public key can be derived) to Jane.
•Jane adds Bob’s public key and the amount of Litecoins to transfer to a message: a ‘transaction’ message.
•Jane signs the transaction with her private key.
•Jane broadcasts the transaction on the Litecoin network for all to see.
The first steps are the only steps requiring human actions, while the rest is done by the Litecoin client software.
Litecoin also solves the double spend issues prevalent in the fiat money system. For both Bitcoin and Litecoin, this process transpires like this:
•Transaction data is sent and forwarded to all or as many computers connected to the Bitcoin or Litecoin networks.
•The constantly growing chain of blocks that contains a record of all transactions is kept by all computers.
•Transaction blocks must be valid and must include proof of work in order to be accepted in the chain.
•Blocks are chained so that, if one is modified, all following blocks would need to be recomputed.
•When multiple valid continuations to the chain appear, only the longest such branch is accepted and then extended.
There are no accounts to set up and no e-mail addresses, user-names or passwords required to hold or spend Litecoins.
Each balance is associated with an address and its public-private key pair. The coins are controlled by the person or persons who have the private key, which allows them to sign transactions off.
A Litecoin address mathematically corresponds to a public key. Here is an example of one:
As with Bitcoin, a Litecoiner can have as many addresses, each with its own balance, which makes it very difficult to know which person owns what amount.
Litecoin is the brainchild of some programmers and developers who began discussing on IRC the way in which to make a secondary currency related to Bitcoin. Their goal was to achieve a coin that is the silver to Bitcoin’s gold. For that reason, Litecoin resembles Bitcoin in many ways.
Some differences include CPU-specific mining and a 2.5 minute block rate. You can download a Litecoin Client just like the Bitcoin Client (https://litecoin.org ).
Now, simply install the client on your Windows, Mac or Linux compter, and a wallet will automatically be created for you and you can start downloading the transaction history.
Litecoin uses Scrypt as a proof-of-work scheme. Scrypt uses the low-latency cache memory of modern processors to provide greater hash-speeds on CPUs in comparison to GPUs.
The Litecoin blockchain is different from its Bitcoin counterpart in that it attempts to have smaller blocks, and generate them four times as fast as the Bitcoin network enables.
Merchants enjoy faster confirmations. If you wish to squeeze every last piece of performance out of your processor, you can download and compile ArtForz’s branch of Jeff Garzik’s command-line cpuminer, which is optimized for the scrypt cryptographic algorithm.
As is offered via Bitcoin, Litecoin allows the user to lockdown only private keys in your wallet, so that you can still see the new transactions and your account balance, but will be required to enter your encryption key so as to spend.
Miners generate 50 coins per block. Due to Litecoin’s faster blocks, the number of coins generated is halved every 840,000 blocks.
There are to exist roughly four times the amount of Litecoins as Bitcoin, or 82 million Litecoins. Primarily, the faster block rates (2.5 minutes), and use of scrypt for primary hashing in mining, make Litecoin different than Bitcoin.
However, GPU’s, used in the mining process for Bitcoin, are the most efficient way to mine Litecoin. The scrypt proof-of-work used in Litecoin uses memory-intensive algorithms to reduce the efficiency of miners.
Some have argued that Litecoin is “silver to Bitcoin’s gold.” Another group protests that this is not the case, for Bitcoin is both gold and silver. These individuals generally believe that Litecoin is doomed to failure, as Litecoin contains design “flaws” including a lack of meaningful differentiation between it and Bitcoin.
Similarly to Bitcoin, Litecoin can be attacked by an entity that can match or exceed the hashrate of the network.
Such a “51% attack” becomes more difficult to launch and maintain as the hash rate of the network grows.
However, this argument posits that Litecoin is designed to be inefficient on all common computer components (both CPUs and GPUs) meaning that a malicious entity need only produce a small batch of specialized/custom hardware to overtake all the commodity mining systems combined.
a supply-side shortage. These aforementioned events, which led to a supply shortage, were joined by a large increase in speculative demand.