Litecoin vs. Bitcoin Cash: What’s the Difference?

Digital cash is one of the most prominent use cases that blockchain technology has to offer. If you’ve researched cryptocurrencies beyond Bitcoin, then you probably came across both Litecoin (LTC) and Bitcoin Cash (BCH) — competing to offer the fastest, cheapest, and most scalable system for digital cash.

Since LTC and BCH are competing for the same use case, the distinctions are much more nuanced in their philosophical and technological approaches. Let’s dive in and explore how they stack up against each other.

Philosophical Differences

It’s important to understand the origins of Litecoin and Bitcoin Cash, which shaped the philosophies and communities backing them. The political atmosphere and competing projects in the industry were much different at the time each project launched.

Litecoin Philosophy: A Fair, Transparent Launch

Litecoin launched only two years after Bitcoin, in 2011, by Charlie Lee, a former Google Engineer and ex-Director of Engineering at Coinbase. At this time the blockchain industry was in its infancy, but alternative cryptocurrencies (altcoins) began to enter the market. Altcoins were traded on exchanges and began to pique interest from investors. One of the first criteria that investors considered when investing was if a project launched fairly.

A fair launch must meet a few key requirements:

1. No premine. Coins were not premined by the creators, giving them large block rewards and financial advantage over public miners, investors, and hobbyists.
2. Competent team. The team behind the project is transparent and competent.
3. Distinct advantages. The project is not a clone of Bitcoin, and instead, offers technical and philosophical advantages over its competitors.

Litecoin accomplished all three of these criteria and as a result, trust was gained and a community was formed.

There was no premine. Satoshi, the creator(s) that invented Bitcoin, has a wallet holding 1,000,000 Bitcoin, viewed as an economic threat to the Bitcoin ecosystem. On the other hand, Charlie Lee mined only 150 Litecoin by the time a public network of miners began hashing away at Litecoin’s blockchain.

Competent team. Charlie Lee is the face of Litecoin. He is well respected and has extensive experience as a software engineer.

A distinct approach to the same goal. One of the clear advantages that Litecoin offered at the time was a new mining algorithm. By 2011, Bitcoin miners had already been using FPGAs to mine, which quickly paved the way for modern day application specific integrated circuit (ASIC) rigs. ASIC rigs are incredibly more efficient than CPU or GPU rigs serving a disadvantage to new miners. Litecoin introduced a new mining algorithm called Scrypt, contrary to Bitcoin’s SHA-256 algorithm, with the intent of giving power back to everyday miners, enabling them to profitably mine with their CPU or GPU. Because Scrypt was a new algorithm, no FPGAs were available. At the time of this writing, there are ASIC Scrypt rigs, but in 2011, this helped reintroduce an even playing field for crypto newcomers.

Ultimately, Litecoin’s mission is evident in its name: to offer a lightweight, faster, and cheaper version of Bitcoin, while giving investors a second chance to get in on the ground floor of the cryptocurrency market. In 2011, Bitcoin worked well for small and fast payments, thus, it was the Scrypt mining algorithm which acted as the true incentive for a community to form.

Litecoin’s Relationship with Bitcoin

Litecoin is viewed as having a symbiotic relationship with Bitcoin, essentially acting as Bitcoin’s little brother. It is also regarded as a testnet for Bitcoin because many upgrades such as SegWit were implemented in Litecoin first, and after success, Bitcoin followed. Over time, Bitcoin has grown to become known as a store of value similar to gold, while Litecoin continues to be the chosen currency for smaller, faster transactions.

Charlie Lee has mentioned that the Litecoin team is in touch with Btcoin’s core development team and believes they can coexist. The cryptocurrency community evidently agrees since they have a loyal following, are consistently ranked in the top ten market cap of coins, and continue to grow. They believe in off-chain scaling and are well aligned with Bitcoin’s current roadmap.

Fast forward six years and Bitcoin Cash was introduced to the scene, but why? Let’s find out.

Bitcoin Cash Philosophy: Back to Bitcoin’s Roots

Bitcoin Cash is led by well-known thought leader Roger Ver, the CEO of Bitcoin.com. Over the span of a couple years, he became frustrated with Bitcoin’s lack of performance and blamed it on the updated Bitcoin roadmap which includes off-chain (private) transactions, deviating from Satoshi’s original vision of on-chain scaling only.

Why did Bitcoin move away from on-chain scaling only? Good question.

In 2010, early in Bitcoin’s existence, a fix was implemented to limit Bitcoin’s block size to 1 MB. The fix was implemented due to security issues, specifically to secure the network from hackers who can introduce blocks of infinite size to hijack the network. With a 1 MB block size, on-chain scalability is limited and as a result, the team had to get creative by implementing solutions such as the Lightning Network.

The goal of off-chain solutions is to take load off the blockchain by allowing transactions to occur instantly and privately, off-chain, and then in the future push the resulting transactions to the public blockchain. This is similar to how exchanges transact. Buyers and sellers trade instantly in the centralized ecosystem of an exchange, then when a trader withdrawals to their wallet, the resulting balances are broadcasted to the network.

Litecoin is in agreement with this as they also have a Lightning Network.

It is this core philosophy where Litecoin and Bitcoin Cash differ — Litecoin is content with off-chain solutions, while Bitcoin Cash’s mission is to have all transactions occur publicly, on-chain, with larger block sizes.

Roger Ver believes private, off-chain transactions goes against Satoshi’s original vision for digital cash. He wants to take complete advantage of the public, trustless system that Bitcoin offers — even at the expense of potential security issues. In his view, creating off-chain payment channels goes against everything Bitcoin and privatizes the industry just like modern day banking.

Bitcoin Cash’s Relationship with Bitcoin

Bitcoin Cash is competing head-on with Bitcoin. In response to the direction Bitcoin was heading, Bitcoin Cash was birthed. The mainnet launched on August 1, 2017, as a hard fork of Bitcoin at block height 478,559. This means that anyone holding BTC in a BCH compatible wallet at Bitcoin block # 478,559 received an equal number of BCH. Using Bitcoin’s brand and user base to gain a community made this event known as a controversial contentious hard fork.

In summary, Litecoin and Bitcoin Cash are competing for the same use case but were created under drastically different conditions with different core philosophies. Litecoin is commonly known as a project working side by side with Bitcoin, while Bitcoin Cash is viewed as a direct competitor seeking to win over miners and investors from Bitcoin.

Before making any decisions, it’s important to explore the technical differences between the two.

Technical Differences

Now that we understand why Litecoin and Bitcoin Cash were created, let’s explore the differences in how they operate. Technical specifications and network statistics are the main pieces of information used when cryptocurrency investors speculate on a currency’s future.

The main figures to consider when researching a coin are:

1. Block time
2. Block Size Limit
3. Mining Algorithm
4. Circulating and Total Supply
5. Transaction Volume
6. Wealth Distribution
7. Hashrate Distribution

Here is a chart to view these statistics side by side for each currency:

Next, let’s break down some of these points and understand how it affects each project.

Block time

For the most part, block times affect inflation rates. Each time a block is created, a block reward is given to miners. Block rewards change over time, and thus, so do inflation rates. To keep things simple from an investments perspective, we have the math for you. Litecoin’s inflation rate is currently 9.13% per year and will drop to 4.09% at the next halving (in ~6 months). Bitcoin Cash’s inflation rate is currently 3.86% a year until the next halving, which follows Bitcoin exactly.

The reason that projects don’t create a faster block time of say five seconds, is due to technical reasons regarding orphan blocks. Orphan blocks are blocks not accepted into the blockchain due to time lag but were still verified by working nodes. If there are too many orphan blocks, then it can be difficult to identify parent blocks for transactions, creating issues with user balances and the overall state of the ledger. This is a bit technical, but we will leave it at that for now.

Ultimately, both LTC and BCH have well over 50% of the possible total supply that can exist, so at this point, transaction fees, performance, and usability will play a larger factor in the project’s success than inflation rates.

Transaction Speed

Many investors confuse block time with transaction speed, but they are not directly related. Litecoin’s block time of 2.5 minutes does not mean you will receive your Litecoin in 2.5 minutes. Actually, at the time of writing, Litecoin’s average transaction speed is ~30 minutes. Bitcoin Cash tends to vary but currently takes a similar time to Litecoin. These numbers can change at any moment depending on a couple of variables.

Transaction speed is a function of block time, hashrate, and the number of transactions being broadcasted. To simplify things, you want more hashrate. The more hashrate that exists, the more transactions can be handled. The less hashrate that exists, the fewer transactions can be handled in a given amount of time, resulting in slower transaction speeds. If there is zero hashrate, then the network will be stale.

Block Size and Hashrate Distribution

Block size affects the number of transactions that can be included in a block. The larger the block size, the more transactions can be included. Some people favor large block sizes like Bitcoin Cash’s 8 MB, and some favor Litecoin’s 1 MB.

Here are the effects. It is believed that larger block sizes will ultimately result in centralized mining because large blockchains that are 100s or 1000s of gigabytes in size will only be downloadable and processed by high net worth individuals or institutions.

It’s not practical to expect an average person to download a 500 GB blockchain to sync up their wallet. As a result, instead of thousands of miners around the world, there will be a few large mining corporations keeping the network alive. Bitcoin Cash’s blockchain size is currently ~166 GB compared to Litecoin’s ~21 GB. While this speculation is interesting, let’s see the practical effects by viewing the current hashrate distributions amongst pools on both Litecoin and Bitcoin Cash.

Litecoin hashrate distribution (as of Jan 21, 2019):

Bitcoin Cash hashrate distribution (as of Jan 21, 2019):

As you can see, both Litecoin and Bitcoin Cash are not as democratic as one would assume. For Bitcoin Cash, the two largest mining pools account for ~45% of the network’s total hashrate. Litecoin, on the other hand, is a bit less with the top two pools accounting for ~33%. So, while it is good to encourage individual miners with smaller blockchain sizes, it is the mining pools that are more important to watch out for. Both LTC and BCH can use a bit more decentralization.

Wealth Distribution

In the cryptocurrency scene, especially amongst Proof-of-Work (PoW) coins like LTC and BCH, the early bird gets the worm. Early miners have big advantages over later ones. As a result, it’s important to take advantage of the public blockchain and see how wealth is distributed amongst wallets.

For Litecoin, the top 100 wallets hold 41.66% of all wealth, and for Bitcoin Cash the top 100 wallets hold 25.09% of total wealth. From this perspective, Litecoin is much more prone to manipulation by holders.

Next Step: Hedge Your Bets

Ultimately, both Litecoin and Bitcoin Cash are promising projects with high activity compared to 99% of the market, but they take totally different approaches to achieve the same goal.

The overall sentiment by the community shows Litecoin in a more positive light — one that is aligned with Bitcoin’s current roadmap of both off-chain and on-chain scaling. Meanwhile, Bitcoin Cash is much younger, had a controversial beginning, and believes in complete on-chain scaling, despite the implications of increasing block size limits. For Bitcoin Cash to see long term success like Litecoin, they will need to work on their public image to be less polarizing and convince more of the community to take part in their network.