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.
A funding period can be set for a new organization, and once that goal is met, people can create proposals for the next steps. Everyone then votes on the proposals. The number of votes allotted to each person is tied to the number of coins contributed. The larger the number of coins given during funding, the larger number of votes awarded.
The Reward Structure
Ethereum and litecoin reward miners based on the proof-of-work concept. Ethereum awards five ether for each verified block, and litecoin awards 25 LTCs. The value of each coin is different based on the network, so don’t let the quantity mislead you. Verify the exchange rate for the coins to get a sense of actual reward value for each of the cryptocurrencies.
Litecoin also has a cap on the number of litecoins released, and once that cap is reached, no new coins flow into the system. Ethereum has a slightly different model and releases the same number of coins into the system each year.
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.
A Few Last Words
At first glance, litecoin and ethereum might look similar, but dig a little deeper and you’ll find they are very different. Finding out which is best depends on your answer to one question — “What do I want to do with the cryptocurrency?”
If you strictly want to conduct transactions, litecoin provides low and consistent transaction fees. But if you want the ability to create contracts, crowdsource, or streamline management functions, then testing ethereum is your best option.
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