Multiple cryptocurrencies have surfaced in the last few years, one of which is Litecoin (LTC). Litecoin is currently the third largest cryptocurrency on the market. Like most other cryptocurrencies, Litecoin works like an online payment system and its users can transfer funds to each other. Transactions are conducted in units of Litecoin and not hard currency such as US dollars. Although that is where the similarity to other payment wallets and systems ends, Litecoin still finds itself in the top six most used virtual currencies. Before getting into how to mine Litecoin, it is important to understand its background.
Unlike hard currency, cryptocurrencies like Litecoin are not issued by a monetary authority like a government or regulated by a reserve bank. Litecoin is created by ‘Mining’, which basically is the processing of a list of Litecoin transactions. The supply of Litecoin is fixed and there will only ever be 84 million Litecoin in circulation. The LTC network generates a ‘block’ every 2.5 minutes. A block is a ledger entry of recent Litecoin transactions around the Internet. The inherence value of the Litecoin cryptocurrency is derived from these transactions. The relevant block is verified by special mining software and after verification, the next block is entered into the chain.
What options are there to mine Litecoin?
The first and easiest option is Solo Mining. In this option, the miner will not be using his own graphics card and CPU for mining like in the early days; instead, he will need specialised hardware which is specifically designed to mine cryptocurrencies. Solo miners are also known as application-specific integrated circuit (ASIC for short) miners and will give the mine a much better return of mining rewards. To have any success at mining LTC, the miner will need to invest in some ASIC technology upfront. The downside is that this setup requires a separate power supply and additional fans to cool the equipment.
Another option to consider when mining Litecoin is to join in a mining pool. A mining pool is a collective where the miner pools resources with other miners to share computing power. A downside of this collective approach is that the Litecoin rewards are shared, but on the plus-side, payouts are more frequent than with solo mining. It is necessary to do research on the various pools before signing up, as each collective is run to different rules. Aspects to consider include the size of the pool, the joining fees, the minimum payouts and the history of the pool.
The third option is to join a cloud mining company. This is a good option that does not involve the expense and hassle of acquiring and maintaining the equipment. Cloud mining providers such as HashFlare or Genesis Mining allow miners to lease LTC mining equipment for a certain set period of time. It might sound expensive, but the costs of leasing this computing power are significantly less than setting up and maintaining your own equipment. On the upside, you will avoid overheating equipment and huge electricity bills. There are also downsides, in that the miner has little control over the operation.
- Solo mining is the easiest option.
- Mining pools pay out more frequently.
- Cloud-mining companies lease and maintain equipment.
Mining for Litecoin
The miner is rewarded with 50 Litecoins if he is the first to successfully verify a block. Over time, the amount of LTC awarded will reduce, as in 2015 when the incentive amount was halved. The halving will continue regularly until the 84 millionth LTC is successfully mined. One concern is that an unscrupulous miner could alter a block to enable the same LTC to be processed twice, but the anonymity of the process guarantees this cannot occur. Another concern is that the processing power required for LTC is on par with other, more established cryptocurrencies. This is another differentiation for LTC; it can be mined with off-the-shelf technology.
The value of LTC
The value of any currency, whether it is a cryptocurrency, gold bullion or traditional monetary currency, is determined by how valuable society thinks it is. If the reserve bank of any country starts to circulate an over-supply of banknotes, then the value of that currency will drop. This situation also holds true for goods or services, which will become less valuable if there more cheap supply than demand. The basic understanding inherent to the Litecoin process is that being a follower in the cryptocurrency industry, it is difficult to establish a reputation. By restricting the number of LTC, there is no fear of overproduction.
How do I store LTC?
The place to store your LTC is known as a wallet. There are various options which can be compared in terms of convenience and security. The Litecoin Core client is probably the option with the most balance. It takes up 15 GB, but downloads the entire LTC blockchain, which you can elect to store on an external drive if need be. The core client is a relatively secure option, but is also convenient in that you can receive and send LTC. If you require utmost security, it is recommended that you store your LTC in a so-called ‘cold wallet’ – a wallet that has never been connected to the internet.
Litecoin vs other payment systems
Litecoin has certain advantages over other cryptocurrencies. LTC has a shortened block generation time, so the process handles more transactions. It also costs 1/1000 LTC to process a transaction, regardless of size. In comparison, web-wallets such as PayPal charge a 3% processing fee. The more reliable a currency’s value is, the more chance of it becoming a currency of choice in crisis times. A real-life example is the Zimbabwean dollar, which, due to hyperinflation, was rendered worthless in the early 2000s. People had to depend on more stable currencies for day to day commerce, such as the US dollar. LTC has scarcity built-in, so hyperinflation is impossible.
Is LTC profitable?
You need to take a number of factors into consideration if you want to see if your LTC mining operation is successful. You need to look at the hash rate, pool fees, electricity cost, equipment cost and of course the price of LTC. Remember to do thorough research on the various mining options (solo vs pool vs cloud) before you start on one. There are several mining profitability calculators available online to help you. Cryptocurrencies need to reach a critical mass of users so that they can be sustainable as a payment method. As cryptocurrencies’ values stabilise, there is potential for Litecoin to become a standard digital currency.