What is Litecoin mining?
Litecoin mining is done by specialized computers and hardware. It serves two main purposes: 1) It secures the network and verifies transactions. 2) New litecoins are paid out as a reward to miners.
Litecoin Mining Hardware
The Litecoin mining industry is less developed than Bitcoin’s. ASICs—powerful computers designed to solve Bitcoin’s proof of work function—are available for litecoin but difficult to purchase. Because Litecoin uses a different proof of work function Bitcoin miners cannot mine litecoins.
It’s possible, for example, to buy a Bitcoin Antminer S7 ASIC on Amazon for $714. No such miners are available for Litecoin.
The best Litecoin mining hardware available for purchase are graphic cards, but they are not profitable. If you are serious about mining litecoins, one option is to simply mine bitcoins with hardware like the Antminer S7 and convert the earned bitcoins to litecoin.
How Litecoin Mining Works
So, how does Litecoin mining secure the network? Like Bitcoin mining, Litecoin uses proof-of-work which makes mining a costly process in terms of both time and energy.
In order to send litecoins, transactions must be included in a block. Litecoin miners then verify these transactions through proof-of-work. The miners check incoming transactions against previous transactions on the blockchain. If no double-spends are detected, the miners create a block with new transactions and add it to Litecoin’s existing blockchain.
Each new block is then sent to nodes on the network. The nodes use the miners’ work to continue to verify and transmit transactions across the network.
As mentioned earlier, Litecoin mining requires vast amounts of time and electricity, which isn’t cheap. The block reward is paid to miners for each block mined, which provides an incentive for miners to contribute their hashing power to the network.
What is the Blockchain?
The Litecoin blockchain is a public ledger of all Litecoin transactions. Unlike traditional payment systems like PayPal, Litecoin is decentralized and distributed. Its public blockchain can be independently verified by anyone.
No old transactions can be erased, and, likewise, no counterfeit or fraud transactions can be created without network consensus. Any attempt to change network rules would create a fork in the blockchain.
What is Litecoin Mining Difficulty?
One of the main advantages with cryptocurrencies is that the currency supply can be programmed and distributed at selected intervals. This differs from gold, silver and other commodities, which often see mining companies mine at faster rates if price increases.
The Litecoin mining difficulty is perhaps one of Litecoin’s most important features. It is an algorithm that is updated based on total network hashing power to ensure that Litecoin blocks are generated on average every 2.5 minutes.
Imagine this scenario: gold prices rise from $1,200 per ounce to $2,000 per ounce. The increased price would cause gold miners to increase production, and may even push entrepreneurs to create new gold mining businesses. The $800 increase could create so much new supply that the price ends up dropping again.
Cryptocurrencies like Litecoin are different. No price rise can cause an increase in the rate at which litecoins are mined. A sudden increase in Litecoin’s price would likely cause more miners to point hash power at the network. Unlike gold, however, Litecoin’s difficulty ensures that the new hash power would simply be balanced with a rise in the difficulty of the proof-of-work algorithm. The difficulty is adjusted every 2016 blocks, which is about 3.5 days.
Litecoin Mining Profitability
You can use one of the many litecoin mining calculators to determine the potential profitability of hardware. Litecoin mining profitability will depend on the price of litecoin, hash power of your hardware, electricity costs, and hardware efficiency.
Litecoin Block Reward
Litecoin’s creator, Charlie Lee, essentially copied Bitcoin but change a few parameters. Lee wanted faster confirmations, so he set Litecoin’s block target time to 2.5 minutes instead of Bitcoin’s ten.
Lee also designed the block reward so that it halves every 840,000 blocks. Originally, 50 litecoins were issued in each new block. The block reward eventually becomes so small that there can only be 84,000,000 litecoins in existence. There are many websites that track and estimate block reward halvings.