They say everything is relative. This concept inspires us to compare coins, blockchains, DeFi projects, and other things. Today, we want to have a look at two popular tokens and by comparing them, find out more about their strong and weak points and draw conclusions.
About Litecoin (LTC)
Litecoin (LTC) is an open-source, peer-to-peer (P2P) cryptocurrency network developed by Google engineer Charlie Lee. It’s the original altcoin – which is the umbrella term for any cryptocurrency that isn’t Bitcoin.
LTC was derived from the Bitcoin blockchain in 2011 after developers decided that the world needed to improve the main troubleshooting issues Bitcoin had at that time: speed, scalability, and centralization.
The biggest concern was centralization, as there were concerns about Bitcoin becoming too centrally controlled. Litecoin began developing with decentralization as its primary aim.
Litecoin uses a proof of work (PoW) consensus model to secure its network, but it uses a different cryptographic algorithm known as Scrypt.
Litecoin (LTC) Tokenomics
Key moment Token economics studies the structure of cryptocurrencies, their supply, distribution, and returns.
Litecoin has a fixed supply of 84 million. The Litecoin blockchain also has a periodic halving event, as Bitcoin has. Litecoin halvings happen every 840,000 blocks—which takes about four years — until the maximum supply of 84 million Litecoins is reached. Miners are rewarded with Litecoin for adding new blocks to the network. After every 840,000 blocks, the reward is halved. The last halving event took place in August 2019, when the mining reward was reduced from 25 Litecoins per block to 12.5 Litecoins per block. The next halving is expected this year, 2023. Here’s a countdown for a halving event.
Litecoin (LTC) Use Cases
Litecoin has practical usage, as well. You can pay with LTC in over 2,500 stores, including Travala, RE/MAX, and eGifter. You can also use your LTC to buy any cryptocurrency it is paired with on centralized and decentralized exchanges (DEXs).
About Ethereum (ETH)
Ether (ETH) is Ethereum's native cryptocurrency used to pay for transactions and computational services within the platform. It functions like other cryptocurrencies, so it can be bought and sold on multiple exchanges, used as a payment, and serves as a store of value.
Ether is heavily used as payment for transactions and computational services on the Ethereum network, as it is essential for its functioning. Once a user runs a decentralized application or executes a smart contract, they must pay using Ethers to the network to compensate for the computational resources required to execute the operation.
Ether is also a popular investment option. That's based on the popularity of the Ethereum network as the demand for Ether goes up, and so do the prices. Thanks to its strong growth and outperforming, Ether is an option for those looking to invest in cryptocurrencies.
ETH is a crucial part of the Ethereum network that plays a critical role in its functioning. Undoubtedly, Ethereum is a key player in the market.
Ethereum (ETH) Tokenomics
Ethereum 1.0 started with a pre-mine genesis block of 72 million ETH, which was spread among early contributors, investors, and the Ethereum Foundation back in 2015.
Since then, miners have been rewarded 2 ETH per block, amounting to a daily block reward of 13,500 ETH or roughly 4.9 million ETH a year. This translates to 4.5% annual network issuance, meaning that the total supply increases at this rate per year.
About 45 million ETH have already been mined, and there are more than 120 million ETH in circulation.
The switching from PoW to PoS will possibly drive Ethereum’s tokenomics by eliminating supply growth and giving the rewards and incentives to long-term holders of Ethereum who staked their Ethereum.
Key moment: EIP 1559, or Ethereum Improvement Proposal 1559, is an upgrade that changed how Ethereum calculates and processes network transaction fees (called "gas fees").
EIP 1559 split the fees into a fixed base fee and a small priority fee. This makes the transaction costs to be more steady so that they won’t shoot up during busy periods.
The base fee can be dynamic, but the total fee is capped at 12.5% of the previous block, keeping a lid on volatility while still allowing users to get prioritized by tipping miners.
Moreover, EIP 1559 also burns the same base fee, taking away that amount of ETH from circulation. So, EIP 1559 introduced a deflationary mechanism to the network.
Ethereum (ETH) Use Cases
Ethereum's use cases are growing fast, offering blockchain projects advanced efficiency, security, and decentralization across the globe.
Ethereum is definitely an option among those who are into DeFi. This includes smart contract-powered loans, decentralized exchanges, and minting stablecoins. ETH is in the banking system thanks to its decentralized nature. Ethereum is used as a means of payment, so such companies as Netflix, Spotify, Microsoft, and Deliveroo accept ETH.
Ethereum went to the healthcare sector, making it possible for all hospitals to share their patients' records without a fuss.
ETH vs. LTC
Now, when we more or less are not floating in two tokens and the way they function, let's focus on their main differences. First, Litecoin is supposed to be a transactional currency or store of value, like Bitcoin. Still, Ethereum functions as a decentralized "global computer," with smart contracts and the opportunity to run DApps. In terms of tokenomics, Litecoin has a capped supply of 84 million, and Ethereum does not.
Both currencies run on a proof-of-work (PoW) consensus mechanism to a certain extent. However, Ethereum merged and fully transitioned to a proof-of-stake (PoS) blockchain in 2022.
Litecoin and Ethereum have a different fee structure. LTC uses transaction fees similar to BTC, Ethereum uses gas fees. The gas fee entails the effort necessary for executing a smart transaction on the Ethereum blockchain. Litecoin’s lower price makes it easier for people to use without paying significant fees.
The Bottom Line
Litecoin is no longer within the top three currencies, as it was replaced by Tether (USDT) but still holds its position among the 20 largest cryptocurrencies.
Litecoin’s low-cost and fast transaction capacity, as well as its growing community, have all fueled its adoption as an accepted form of payment at thousands of merchants worldwide.
As for Ethereum, despite all of this change and fluctuations it has managed to retain its positions as one of the top cryptocurrencies. This fact speaks for itself.
Both LTC and ETH have some common parameters, and we can compare them by market cap and trading volume. These two projects play different roles in the ecosystem of cryptocurrencies. They both matter and bring profit to investors who can manage these coins with the right moves.
Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.