From Technologyreview.com | One of Litecoin’s most significant claimed improvements over Bitcoin is that it allows transactions to be confirmed as legitimate much more quickly, says Charles Lee, who designed the currency, which is now maintained by him and a small group of other enthusiasts. Bitcoin transactions are verified by the work of software run by other people using the currency, a process that takes on average 10 minutes and can be much longer, an hour in the case of many exchange sites. Lee says that hinders operators of online stores from using the currency. “With Bitcoin, sometimes merchants are forced to accept unconfirmed transactions because confirmations are way too slow,” he says. “Faster confirmations lead to a more useful currency.” Litecoin transactions are confirmed on average every 2.5 minutes, which Litecoin’s developers say is more practical for businesses.
Both Litecoin and the third most-popular cryptocurrency, PPCoin, also generate new coins in a way intended to be more practical than Bitcoin’s design. New bitcoins are created through a process known as mining, in which people run software that competes to solve a computational puzzle. Each time a puzzle is cracked, new coins are awarded and a new challenge is set. In a neat twist, the process of solving a puzzle also confirms the validity of recent transactions made with bitcoins.
However, because more powerful computers are more likely to solve these puzzles, an arms race between bitcoin miners has resulted. Today only those with very powerful, customized machines have a chance of profitably mining bitcoins and miners are still racing to build ever more powerful “mining rigs” (see “Custom Chips Could Be the Shovels in a Bitcoin Gold Rush”). Litecoin uses a mathematical puzzle that cannot be solved with the graphics chips or custom processors that are commonly used for bitcoin mining. Lee says that makes Litecoin less dependent on the activity of a small number of dedicated miners with expensive equipment, allowing a larger pool of miners to compete.