Proof-of-work

Litecoin is continuously compared with Bitcoin, and while both have some technical differences between the two share some similarities. For instance, both of them use proof-of-work as a consensus mechanism. Proof-of-work is used to determine how the blockchain reaches consensus, which is when a majority of the participants in the network agree on validating information. As a result, it confirms it and adds it to the blockchain. This consensus mechanism uses an advanced form of mathematics called cryptography; the mechanism uses mathematical equations that are so difficult that only powerful computers can solve them.

In the Proof-of-work system, thousands of individuals compete to become the first to solve the cryptographic algorithm. Still, only the user that first solved the equation and “mined” the block is rewarded for the services they provide to the network. While this system is used to ensure the network’s security, it is theoretically possible to successfully tamper with a blockchain. Nonetheless, to do so, you would need to take control of more than 50% of the network, and only then verify a tampered block. In other words, it is nearly impossible to achieve such a feat.

Cryptocurrency mining

The process of solving complex computer equations is commonly known as mining or cryptocurrency mining. This is achieved by dedicating a certain amount of computing power to the task to create a cluster of transactions or blocks into a growing chain of blocks. Thus, forming the blockchain.

To form said blockchain, each block is linked with other blocks with similar information; it is this action that makes blockchain technology so secure and trustworthy. Once the information is recorded on a block, it becomes irreversible, which means that once a transaction is sent, it is sealed and cannot be reversed. Information cannot be altered without having to change every block that came after it making it impossible to tamper block without it being noticed by other participants on the network.

The way that cryptographic puzzles are created allows them only to be solved by trial or error. Computers can guess millions of different combinations per second, which requires such a large amount of electricity. So generally speaking, the individual or individuals that have the most powerful and expensive hardware devices will always have the edge on the rest of the network, and thus a higher chance of winning the reward.

Mining is basically a competition between miners, all of them trying to mine the next block. There have been cases where more than one miner successfully solved the mathematical equation at the same time. When this situation happens, the network decides which block to be added, thus creating an orphaned block. This block is a legitimate block that doesn’t have any transactions in it. In Litecoin, since the blocks are generated every 2.5 minutes, the chances of creating orphaned blocks increase exponentially.

Mining hardware

Mining was envisioned as a very democratic process where anyone with a computer could contribute to the network and get rewarded for their services, reality tuned out to be very different. The individual or individuals that have the most powerful and expensive hardware devices will always have the edge on the rest of the network, and thus a higher chance of winning the reward.

Over time more specialized pieces of hardware with the sole purpose of mining have been created, thus making far less accessible for the average joe. However, mining can still be approached in different ways.

The simplest and most general hardware available for mining is the general-purpose CPU present in every computer. A CPU is designed to be versatile but offers less efficiency than a GPU, which is designed to calculate millions of vectors in parallel rapidly. While specific CPU instruction enhancements related to cryptography such as AES or AVX can provide a decent boost, GPUs offer a significant performance increase due to their multiple pipelines capable of processing the predictably repetitive calculations associated with cryptocurrency mining. Finally, ASICs are relatively inflexible and can only process the specific function(s) for which they were designed, but at an even faster rate than the more general-purpose GPUs and CPUs.

Mining algorithms

Now, up until this point, Litecoin and Bitcoin share similarities in mining, nevertheless the critical difference relies on the type of algorithm that they implement for proof-of-work. For instance, Bitcoin uses an SHA-256 algorithm for mining; this algorithm requires a lot of processing power requiring a vast amount of electricity to validate a block because of the increased difficulty. The increased difficulty led to the rise of specialized “Application-specific integrated circuits” or ASICs, their sole purpose being to mine Bitcoin.

With the development of more specialized pieces of hardware for mining, it didn’t take too long for miners to realize that if they combined forces via parallel processing, they could exponentially increase their mining power. And thus, mining pools were created.

At the moment, more than 50% of Bitcoins hash rate is used by five mining pools alone; if they ever decided to launch a 51% attack on the blockchain, they would be able to do so. To combat these and other issues, Litecoin applies the Scrypt algorithm for mining purposes.

What is Scrypt?

Scrypt, named initially “s-crypt” but pronounced as script, was developed in 2009 by Colin Percival. Unlike Bitcoin’s SHA-256, Scrypt serves to inhibit hardware scalability by requiring a significant amount of memory when performing its calculations. While the algorithm does employ SHA-256 as a subroutine, it also depends on fast access to large amounts of memory rather than depending just on quick arithmetic operations. It is more difficult to run many instances of Scrypt in parallel by using the ALUs (Arithmetic Logic Unit) of a modern graphics card. Let’s dive deeper onto this:

Let’s imagine we have A and B mining.

For Bitcoin, it is plausible for ASICs to do A and B simultaneously by parallelizing them.

However, for Litecoin, you can’t do this, as it must be serialized. This means that A must be done first and then B. If you parallelize them, the memory that is required to process it becomes far too greater to be handled.

The main limiting factor for the Scrypt hash function is the memory rather than the power, that’s why it is called a “memory-hard problem”. This is what mainly makes parallelizing much more difficult. For instance, running four memory-hard processes in parallel requires four times as much memory. This implies that the manufacturing cost of specialized Scrypt hardware (ASIC) will be significantly more expensive than SHA-256 ASIC.

In the earlier days, users were able to mine the currency using their computer’s CPU or video graphics while making a profit out of it. Sadly, this is no longer the case. While the Litecoin mining industry isn’t too developed compared to other cryptocurrencies, users can now acquire specialized hardware designed for mining Scrypt-based cryptocurrencies.

Mining rewards

As previously stated, Litecoin and Bitcoin share some similarities in implementing the proof-of-work consensus mechanism; this also translates to some degree regarding the rewards. Miners that contribute to the Litecoin network are currently awarded 12.5 LTC per block, an amount that gets halved roughly every four years or 840,000 blocks. Therefore, the Litecoin network is scheduled to produce 84 million Litecoins.

How to mine Litecoin

While the Litecoin mining industry isn’t as developed as Bitcoin’s, there are still some options that make it reasonably accessible for the average joe. There are fundamentally three mining setups:

  1. Solo mining
  2. Mining pool
  3. Cloud mining service

Let’s analyze each of them.

Solo mining

If you want to go solo (pun intended) and mine on your own, it is essential to take into consideration some things. Using specialized hardware designed for mining Scrypt-based cryptocurrencies or ASICs will be far more efficient and powerful than using regular computers. With ASICs, you’ll have a better chance of earning rewards, than to use your standard CPU or graphics card.

For you to be able to be successful and make a profit out of mining, you’ll need to consider investing ASIC mining rigs. And while you don’t have to share your mining rewards with anyone else. Investment has to be handled on your own. This includes buying separate power supply and fans to prevent the mining rig from overheating or needing to pay for the electricity required to run the rig. It is also important to mention that you won’t necessarily always earn a reward; there will be periods where you won’t earn anything at all.

To start solo mining, you’ll need to follow all of the following steps:

  1. Create a Litecoin wallet: Before you start mining, you’ll have to set up a private wallet where you can securely store your LTC. You’ll need to research the different options and chose the one that suits you the most; luckily for you, we have a guide where discuss the different Litecoin wallets.
  2. Choose your hardware: This is a crucial decision to take; you’ll have to carefully analyze the different options and choose the one that is suits you best. You must take into factor cost, efficiency, power consumption, and other variables. Will you set up a rig with multiple CPUs or investing in an ASIC miner? These are the questions you must answer.
  3. Installing software: If you chose an ASIC miner, your mining rig would most likely come with pre-installed mining software. On the other hand, if you have decided to mine with a graphics card, you’ll need to download and install free mining software. Always make sure to research your options, and only download from trusted websites.
  4. Ready, set, mine!: Carefully follow the instructions included on your hardware of choice and start mining! Remember to store your rewards in a secure wallet, also regularly monitor the performance of your mining rig and the price of Litecoin to ensure that you make a profit out of it.

Mining pool

Joining a mining pool means you join forces with other fellow miners, combining computing power to mine Litecoin. This means that you’ll have a higher chance of earning a reward as opposed to going solo. This also means that the LTC rewards are going to be shared amongst the members of the mining pool. While that does mean that you’ll receive a lower amount, it also means that you’ll receive payout much more frequently.

Before you join a mining pool, you must take into consideration that each mining pool is run differently and other variables:

  1. The pool’s reputation is something you must certainly consider. For how long has the pool been operating? Does it have a reputable operation? This does not necessarily mean that newer options are not reliable; you just need to study your options carefully.
  2. The larger the pool, the higher chances you have of earning Litecoin. The mining pool’s size is something you must always consider. Because, although that means more rewards, it also means you have to share the profits amongst more members, thus reducing your personal Litecoin rewards and gain.
  3. Mining pools often charge fees for joining the pool; you’ll need to carefully revise which is the price and how often it must be paid.
  4. Finally, some mining pools have minimum payouts. What this means is that there is a minimum threshold that applies to your balance before you are allowed to transfer your Litecoin mining rewards to your private wallet.

To start pool mining, you’ll need to follow all of the following steps:

  1. Create a Litecoin wallet: Before you start mining, you’ll have to set up a private wallet where you can securely store your LTC. You’ll need to research the different options and chose the one that suits you the most; luckily for you, we have a guide where discuss the different Litecoin wallets.
  2. Choose your hardware: This is a crucial decision to take; you’ll have to carefully analyze the different options and choose the one that is suits you best. Take into factor cost, efficiency, power consumption, and other variables. Will you set up a rig with multiple CPUs or investing in an ASIC miner? These are the questions you must answer.
  3. Installing software: If you chose an ASIC miner, your mining rig would most likely come with pre-installed mining software. On the other hand, if you have decided to mine with a graphics card, you’ll need to download and install free mining software. Always make sure to research your options, and only download from trusted websites.
  4. Choose your preferred mining pool: As previously stated, you must take into consideration a series of variables and characteristics for choosing your preferred mining pool. Some mining pools might require the use of specific software to mine.
  5. Ready, set, mine!: Carefully follow the instructions included on your hardware of choice and start mining! Remember to store your rewards in a secure wallet, also regularly monitor the performance of your mining rig and the price of Litecoin to ensure that you make a profit out of it.

Cloud mining service

Getting access to the latest mining rigs seems very expensive, especially acquiring and then maintaining the rigs. But to avoid all of the hassles but still getting to use the newest hardware for mining, cloud mining is the choice. Providers such as EOBOT, HashFlare, or Genesis Mining allow you to lease Litecoin mining rigs for a set period.

Renting the mining rigs is far cheaper than buying them. Although, this also means that you will be avoiding the hassles that come with giving maintenance to these devices and the electricity cost that comes with them. Nonetheless, these services come with some downsides, like depending on them to deliver, surrender a level of control to the service that you chose, or getting scammed. That is why you always have to research the service that you are hiring.

The cloud mining pool’s reputation is something you must certainly consider. For how long has the cloud pool been operating? Does it have a reputable operation? This does not necessarily mean that newer options are not reliable; you just need to study your options carefully.

To start mining on a cloud service, you’ll need to follow all of the following steps:

  1. Create a Litecoin wallet: Before you start mining, you’ll have to set up a private wallet where you can securely store your LTC. You’ll need to research the different options and chose the one that suits you the most; luckily for you, we have a guide where discuss the different Litecoin wallets.
  2. Choose your preferred cloud mining company: Do your research to find out what services are available and what benefits they offer. Remember that cloud mining scams are a genuine risk, so it’s essential to make sure you’re dealing with a reputable provider.
  3. Select a mining package: Take a look at the mining contracts on offer from your chosen company. How much do they cost? For how long will it run? What mining equipment will be used? What sort of payout can you expect? Is it possible to customize a package that better suits your requirements?
  4. Choose your preferred mining pool: After selecting a mining package, sometimes you’ll be asked to choose a mining pool. As previously stated, you must take into consideration a series of variables and characteristics for selecting your preferred mining pool.
  5. Ready, set, mine!: Now that you are mining, just make sure that you are securing your assets in a secure wallet.