Litecoin is a digital currency designed to function as an open-source, decentralized global payment network.
It is a spinoff of Bitcoin, with the key differences being that Litecoin has faster transaction times and lower fees.
As it is a spinoff of Bitcoin which is seen by many scholars to be halal, we believe Litecoin would also be halal in light of their technical similarities.
Read on for a much deeper dive into Litecoin itself and the Islamic views on it.
What is Litecoin?
What does Litecoin do?
Litecoin is a decentralized digital currency that aims to enable instant near-zero cost transactions worldwide.
It was created in 2011 when then Google engineer Charlie Lee copied Bitcoin’s source code and made a few key changes to make Litecoin faster and more accessible than Bitcoin.
According to Lee, Litecoin was designed to be the “light version of Bitcoin”.
How does Litecoin work technically?
Similarly to Bitcoin, Litecoin uses a blockchain (public ledger) to keep track of all transactions made on its network.
It uses a proof of work consensus mechanism to approve transactions and add them to the blockchain.
This is where miners compete to solve problems to win the right to certify blocks of transactions and obtain a block reward of tokens in the process as well as the transaction fees.
Litecoin has three key differences to Bitcoin:
- Its maximum circulating supply of tokens is 84m compared to Bitcoin’s 21m.
- It has a faster payment confirmation schedule as new blocks are generated every 2.5 minutes compared to Bitcoin’s 10 minutes.
- It has a different cryptographic algorithm than Bitcoin which is computationally less demanding.
What are the use cases of Litecoin?
Its main use case is to be a medium of exchange and facilitate fast and cheap payments across the internet.
Litecoin is often used to send cryptocurrencies across exchanges and wallets as its network fees are cheaper than the likes of Bitcoin and Ethereum.
For example, to send £1k between Coinbase and Binance, you could buy £1k worth of Litecoin on Coinbase and send it to Binance for a near-zero fee.
As one of the more established cryptocurrencies, Litecoin has garnered mainstream adoption and can be used to transact with various mainstream companies.
Are people using Litecoin right now?
Yes at the time of writing, there have been ~ 123k transactions on the Litecoin network over the last 24 hours with an average transaction value of 24.42 LTC ($2,028). This is less than half of Bitcoin’s ~277k daily recorded transactions over the same period.
What are the strengths and weaknesses of Litecoin?
- Fast processing times
- Low transaction fees
- Widely available on crypto exchanges
- Open-source and decentralised
- Secure due to its encryption and proof of work consensus mechanism
- Hasn’t had any major reliability issues since its launch
- Hasn't capitalized on its first-mover advantage and has lost its top 10 market position
- There are faster and cheaper alternatives out there
- Has a poor reputation in the community after the founder sold all his coins during the 2017 market peak. His rationale was that it would allow him to focus more objectively on Litecoin’s development and prevent accusations of bias
- Litecoin has high price volatility and thus is a high-risk investment
Is Litecoin a good investment?
Litecoin (LTC) is one of the most established cryptocurrencies and currently is the 22nd largest cryptocurrency by market cap.
LTC can be bought from most exchanges including Coinbase and Binance. It reached a peak of $412.96 in May 2021 and is currently trading around $45 at the time of writing, having lost a whopping ~90% of its peak value.
This is in contrast to Bitcoin which is trading at ~65% below all-time highs.
Whilst both positions are obviously not ideal, it does show that Bitcoin holds up better than Litecoin.
However, there is a promising new development that could be a good catalyst for Litecoin’s price. There is a new upgrade named MimbleWimble being integrated that allows it to compete with the privacy cryptos such as Monero or Zcash.
Alternatives to Litecoin
Litecoin is often represented in the media as an alternative to the likes of Bitcoin and Ethereum.
However, they are fundamentally trying to achieve different things. Bitcoin wants to be the pre-eminent store of value (i.e. "digital gold") whilst Ethereum wants to be the Internet's smart computer with its smart contract functionalities.
Litecoin on the other hand is trying to become the Internet's favoured payment currency. The following cryptos are genuine alternatives to Litecoin.
Bitcoin Cash (BCH)
Another fork of bitcoin, Bitcoin Cash took a different approach to scaling payments. BCH uses a larger block size to accommodate more transactions. This also results in lower transaction fees as there is less competition to get your transaction into a block.
Nano is a cryptocurrency whose transaction speed and fees put Litecoin to shame. Nano transactions can close under a second and no transaction fees are charged. Nano achieves zero transaction fees by relying on users to maintain the network for the sake of ensuring a working network instead of for direct monetary gain.
Dogecoin is akin to being a grandchild of Litecoin, with it being a fork of LuckyCoin which in turn is a fork of Litecoin. Doge has been made famous by Internet meme culture and backed by none other than Elon Musk.
Initially started as a joke to poke fun at other cryptos, Doge has begun to see some mainstream adoption so could theoretically go on to become a genuine contender to Litecoin. However, Doge is not as scarce as Litecoin due to its theoretical infinite supply.
Is Litecoin Halal?
When it comes to cryptocurrency in general, our view is that investing in crypto is halal as long as the project itself is halal. We see cryptocurrency as a type of digital asset (with the potential for some to become fully-fledged currencies).
We don’t find there to be anything problematic from an Islamic perspective about blockchain technology, and cryptocurrency which is a use of blockchain and seeking to profit from it. For more on our approach to crypto, check out this article.
You want to avoid projects where:
- the technology underpinning the project is intrinsically linked to a haram transaction (e.g. interest-based lending)
- the ecosystem that they are creating is so inextricably tied up with illicit/immoral activities that it would be inappropriate to support such an ecosystem (e.g. a project geared solely towards gambling)
The case for yes and why
Litecoin is a decentralised payment network similar to Bitcoin with few differences regarding the sharia analysis. Bitcoin is a straightforward cryptocurrency and has been deemed permissible by many scholars. There is also no overt association between Litecoin and impermissible activities. Therefore by extension, Litecoin is halal due to a similar analysis to Bitcoin.
The case for no and why
If you follow the opinion that crypto isn’t permissible then Litecoin by extension would also not be permissible.
In summary, Litecoin is a solid decentralised global payment network that is used widely due to its quick processing times and low transaction fees. We are satisfied that it is indeed a halal asset and thus permissible for Muslim investors to buy.
Find out more about crypto generally on our crypto page.