But what are the differences between litecoin and ethereum? Here are a few of the major differences to consider between two of the largest cryptocurrency influences in the world.
Ethereum Is Not Purely Transactional
Litecoin is strictly a cryptocurrency, which means that people use it mainly to conduct transactions. The currency can be mined, as can bitcoin; however, its sole purpose is to serve as a digital currency.
Ethereum also functions as a cryptocurrency, but it provides a network capable of creating smart contracts and crowdsourcing funds for new projects. The infrastructure decentralizes the management structure and includes a smart contract, which is basically a computer program that runs the entire organization.
Proof of Work
Litecoin and ethereum use a proof-of-work algorithm during the mining process, but the algorithm that each uses is different. Litecoin mining uses a scrypt algorithm, which favors high-speed random access memory instead of processing power and can be used on computers that are less powerful and use less electricity.
The proof-of-work algorithm that ethereum uses is called “ethash,” which was designed specifically for the ethereum network. The main reason for creating a totally new algorithm is that the company believed the algorithms used by other cryptocurrencies created a risk of “mining centralization.” This occurs when a small group of mining operations or groups acquire disproportionally large amounts of power that can impact or even manipulate the network.
Centralizing mining efforts are highly profitable, mostly from using ASICs, which are specialized chips that are designed to outperform standardized computer hardware. The use of an “ASIC-resistant” proof-of-work algorithm allowed ethereum to reduce the economic incentives for creating these types of centralized environments.
The cost for a litecoin transaction is consistent, and today that cost is about $.04 per transaction in USD. The virtual currency Ethereum takes a different approach, using what they call a “gas” to determine the cost of a transaction. The ethereum transaction cost is determined based on the computational complexity of the transaction, bandwidth use and storage needs.