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What is Bitcoin?
Bitcoin is a digital asset and a payment system created by an unidentified programmer, or group of programmers, under the name of Satoshi Nakamoto. Bitcoin was introduced on 31 October 2008 to a cryptography mailing list, and released as open-source software in 2009. There have been several high profile claims to the identity of Satoshi Nakamoto; however, none of them have provided proof beyond doubt that back up their claims.
The system is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain, which uses bitcoin as its unit of account. Since the system works without a central repository or single administrator, the U.S. Treasury categorizes bitcoin as a decentralized virtual currency. Bitcoin is often called the first cryptocurrency, although prior systems existed and it is more correctly described as the first decentralized digital currency.
Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into a public ledger. This activity is called mining and miners are rewarded with transaction fees and newly created bitcoins. Besides being obtained by mining, bitcoins can be exchanged for other currencies, products, and services. When sending bitcoins, users can pay an optional transaction fee to the miners. In February 2015, the number of merchants accepting bitcoin for products and services passed 100,000. Instead of 2–3% typically imposed by credit card processors, merchants accepting bitcoins often pay fees in the range from 0% to less than 2%.
A wallet stores the information necessary to transact bitcoins. While wallets are often described as a place to hold or store bitcoins, due to the nature of the system, bitcoins are inseparable from the blockchain transaction ledger. A better way to describe a wallet is something that “stores the digital credentials for your bitcoin holdings” and allows you to access (and spend) them. Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated. At its most basic, a wallet is a collection of these keys.
There are several types of wallets. Software wallets connect to the network and allow spending bitcoins in addition to holding the credentials that prove ownership. Software wallets can be split further in two categories:
Full clients and lightweight clients
— Full clients verify transactions directly on a local copy of the blockchain (over 65 GB as of April 2016). Because of its size / complexity, the entire blockchain is not suitable for all computing devices.
— Lightweight clients on the other hand consult a full client to send and receive transactions without requiring a local copy of the entire blockchain. This makes lightweight clients much faster to setup and allows them to be used on low-power, low-bandwidth devices such as smartphones. When using a lightweight wallet however, the user must trust the server to a certain degree. When using a lightweight client, the server can not steal bitcoins, but it can report faulty values back to the user. With both types of software wallets, the users are responsible for keeping their private keys in a secure place.
Besides software wallets, Internet services called online wallets offer similar functionality but may be easier to use. In this case, credentials to access funds are stored with the online wallet provider rather than on the user’s hardware.
Physical wallets also exist and are more secure, as they store the credentials necessary to spend bitcoins offline. Examples combine a novelty coin with these credentials printed on metal, Others are simply paper printouts. Another type of wallet called a hardware wallet keeps credentials offline while facilitating transactions.
What is Litecoin?
Litecoin (LTC) is a peer-to-peer cryptocurrency and open source software project released under the MIT/X11 license. Inspired by and technically nearly identical to Bitcoin (BTC), Litecoin creation and transfer is based on an open source protocol and is not managed by any central authority. After Bitcoin and Ethereum, Litecoin is the third-largest true cryptocurrency by market capitalization.
The Litecoin Network aims to process a block every 2.5 minutes, rather than Bitcoin’s 10 minutes, which its developers claim allows for faster transaction confirmation. A drawback is a higher probability of orphaned blocks. Advantages can include greater resistance to a double spending attack over the same period as bitcoin. However, total work done is a consideration. For example, if the Litecoin Network has comparatively ten times less computing work done per block than the bitcoin network, the bitcoin confirmation is around ten times harder to reverse, even though the Litecoin Network is likely to add confirmation blocks at a rate four times faster.
Due to Litecoin’s use of the scrypt algorithm, FPGA and ASIC devices made for mining Litecoin are more complicated to create and more expensive to produce than they are for bitcoin, which uses SHA-256. This is widely due to the Scrypt hashing scheme being more memory intensive; increasing memory requirements for ASICs and FPGAs. However, as of December 2015, ASIC miners are widely available and the primary method of mining Litecoin.
The most common Wallet available today is “Litecoin Core” for Linux, Windows and Mac OS. Litecoin Core is an offline wallet based on the Bitcoin Core wallet. On January 19, 2014, the Litecoin Android wallet was released. This new release replaces the old Android client which contained major security issues.
Electrum client — a lightweight wallet for Litecoin — was released for beta testing on April 10, 2014. As with other Litecoin Dev projects, the client is based on the bitcoin source and the Litecoin developers fix issues upstream in order to make it easier to keep the Litecoin version updated. As with the Litecoin Android wallet, this new version of Electrum for Litecoin replaces the old and unsupported version created in the first year of Litecoin’s release.