Bitcoin (BTC), Litecoin (LTC), and Ethereum (ETH) are some of the most popular cryptocurrencies today. While all three are based on blockchain technology, they differ in their technology, use cases, and market performance.
Bitcoin, the original cryptocurrency—released as open-source software in 2009—paved the way for decentralized digital money. Ethereum introduced the concept of smart contracts and decentralized applications (dApps), expanding the possibilities and scope of blockchain technology. Litecoin, often called the “silver to Bitcoin’s gold,” was designed to facilitate faster transaction speeds and lower fees, making it a suitable choice for everyday payments and microtransactions.
By understanding these differences, you will make better decisions about which cryptocurrency fits your goals. Whether you’re looking for a store of value, a platform for building dApps, or a fast, affordable way to send money, there’s a cryptocurrency that’s right for you.
Key takeaways
- Bitcoin is a digital store of value, Litecoin provides faster and cheaper transactions, and Ethereum supports smart contracts and decentralized applications.
- Bitcoin and Litecoin use proof-of-work (PoW), whereas Ethereum has shifted to proof-of-stake (PoS) for improved scalability and energy efficiency.
- Bitcoin has slower transactions with higher fees, Litecoin offers quicker and more affordable transactions, and Ethereum’s gas fees can fluctuate with network demand.
- Bitcoin’s supply is capped at 21 million coins, Litecoin’s at 84 million, and Ethereum’s is unlimited but can become deflationary.
What are the key differences between Bitcoin, Litecoin, and Ethereum?
Here are nine differences between Bitcoin, Ethereum, and Litecoin.
1. Consensus mechanisms
Bitcoin and Litecoin use proof-of-work (PoW) consensus mechanisms. These mechanisms work by miners solving complex mathematical problems to validate transactions and add new blocks to the blockchain. On the other hand, the Ethereum consensus mechanism is the proof-of-stake (PoS) system. Validators stake their Ether to participate in block creation and validation. This change aims to improve scalability and reduce energy consumption, which is common with the proof-of-work mechanism.
2. Block time and transaction speed
Bitcoin takes about 10 minutes to create a new block, while Litecoin is much faster, generating blocks every 2.5 minutes. On the other hand, Ethereum has a significantly shorter block time of around 12-14 seconds. This faster block creation allows for quicker transaction confirmations. Ethereum can process about 15-20 transactions per second—depending on the network congestion and condition—while Litecoin handles around 54 transactions per second.
3. Supply and inflation
Bitcoin has a fixed supply cap of 21 million coins. This scarcity is embedded into its design to create a deflationary currency. New bitcoins are created through mining, with the reward halving every four years, with the last halving expected to be around 2140. Litecoin’s supply is capped at 84 million coins. It follows a similar halving schedule to Bitcoin but with faster block times. Conversely, Ethereum doesn’t have a fixed supply cap. Its issuance rate has changed with the move to PoS. The supply growth is now tied to network participation and can even become deflationary under certain conditions.
4. Hashing algorithm
Bitcoin uses the SHA-256 algorithm, which requires significant computational power and energy, making the mining process resource-intensive. In contrast, Litecoin utilizes the Scrypt algorithm, designed to be more energy-efficient and accessible to smaller miners. This allows Litecoin to be mined more easily on less specialized hardware. Ethereum, on the other hand, initially used the Ethash algorithm in its Proof of Work (PoW) model but transitioned to Proof of Stake (PoS) with Ethereum 2.0. This shift from mining to a staking-based validation model has drastically reduced the network’s energy consumption.
5. Transaction fees
Bitcoin transaction fees can be relatively high, especially during network congestion like the 2017 cryptocurrency boom. This is largely due to its limited block size. This makes transactions slower and more expensive when demand increases. Litecoin fees, however, are relatively lower, making it more practical for frequent or smaller transactions, such as micropayments. Ethereum’s transaction fees, known as gas fees, can fluctuate significantly depending on the activity on the network. Although Ethereum 2.0 aims to lower these costs, fees can still spike during periods of high demand, especially when there is significant activity from decentralized applications (dApps) or decentralized finance (DeFi) projects.
6. Network security
Bitcoin is considered one of the most secure blockchain networks, protected by a vast decentralized group of miners across the globe. Its large-scale mining operations and high hash rate—a measure of computational power in a blockchain—contribute to its robust security. Litecoin, while involving fewer miners, remains secure due to its decentralized PoW model. On the other hand, Ethereum, with its move to Proof of stake, now relies on validators staking ETH to secure the network. This PoS model is not only more energy-efficient than PoW but also allows for greater scalability while maintaining a high level of security through staking mechanisms and slashing penalties for malicious behavior.
8. Smart contract capability
Bitcoin lacks built-in smart contract functionality, focusing primarily on secure and simple transactions. Litecoin, much like Bitcoin, does not natively support smart contracts either, focusing on being a faster and more affordable payment alternative. Ethereum, however, was specifically designed to support smart contracts and decentralized applications (dApps).
9. Development community
Bitcoin has a strong and dedicated development community that focuses on maintaining its role as a reliable store of value while enhancing its security and privacy features. This community is committed to ensuring Bitcoin’s long-term stability and global adoption. Litecoin, while having a smaller development community, remains active and focused on increasing transaction speed and efficiency to keep it relevant as a practical payment solution. Ethereum has one of the largest and most cutting-edge development communities in the blockchain space, continuously driving innovation in decentralized applications, DeFi, and the entire ecosystem.
What are the use cases of Bitcoin, Litecoin, and Ethereum?
Bitcoin, Litecoin, and Ethereum serve different purposes in the cryptocurrency ecosystem. Each has unique features that make it suitable for various applications in the digital economy, as outlined below:
Bitcoin’s use cases
Bitcoin primarily functions as a digital store of value. Due to its scarcity and potential to preserve wealth over time, it’s often compared to digital gold. Moreover, Bitcoin excels in cross-border transactions, allowing for quick and low-cost international money transfers. This makes it useful for remittances and global commerce. Many view Bitcoin as a hedge against inflation and economic uncertainty. Bitcoin can be used for everyday purchases. Some businesses accept it directly, while others use payment processors to convert Bitcoin to fiat currency.
Litecoin’s use cases
Litecoin is designed for fast, low-cost transactions. Its shorter block time makes it suitable for everyday purchases, micropayments, tipping, and person-to-person transfers.
Litecoin also serves as a testbed for Bitcoin upgrades. New features are often implemented on Litecoin before being adopted by Bitcoin.
Ethereum’s use cases
Ethereum’s primary use case is as a platform for decentralized applications (dApps)—these range from simple games to complex financial systems.
Ethereum is the platform for decentralized finance (DeFi) applications, including lending platforms, decentralized exchanges, and yield farming protocols.
Non-fungible tokens (NFTs) are another major use case. Ethereum hosts most NFT marketplaces and projects.
Initial Coin Offerings (ICOs) often use Ethereum’s ERC-20 token standard. This has made Ethereum a popular platform for launching new cryptocurrencies.
Ethereum is also used for supply chain management, digital identity solutions, and governance systems in decentralized autonomous organizations (DAOs).
Market performance and adoption
Bitcoin, Ethereum, and Litecoin have seen different levels of market success and real-world use. Their prices, trading activity, and adoption rates vary.
Market capitalization and trading volume
Bitcoin has the largest market capitalization at $1.27 trillion, followed by Ethereum at $400 billion. Litecoin’s market cap is much smaller at $4.7 billion.
BTC often has the highest trading volume among cryptocurrencies. ETH follows closely behind. LTC sees less trading activity than the top two.
Bitcoin’s price has reached over $60,000 in the past. Ethereum hit all-time highs above $4,000. Litecoin’s peak was near $400.
Adoption and popularity
Bitcoin is widely seen as digital gold and a store of value. Many big companies and governments now use BTC.
Ethereum hosts many other crypto projects. Its smart contracts power decentralized apps and DeFi platforms.
Litecoin is often used for fast, low-cost payments. Some merchants accept LTC along with BTC.
Moreover, online searches and social media mentions of Bitcoin and Ethereum far exceed Litecoin’s, which shows their greater public interest.
How to choose between Litecoin, Bitcoin, and Ethereum
When selecting between Litecoin, Bitcoin and Ethereum, consider the following:
1. Your Investment goals
When choosing between Litecoin, Bitcoin, and Ethereum, investors should consider their risk tolerance and long-term objectives. Bitcoin is often seen as a store of value, similar to digital gold. It has the largest market cap and widespread adoption.
Ethereum, as the second-most valuable cryptocurrency, offers potential for growth through its innovative contract capabilities which power many decentralized applications and NFTs.
While less valuable, Litecoin provides faster transactions and lower fees. It may appeal to those seeking a more affordable entry point or quick transfer times.
2. Your use case and needs
Bitcoin excels as a long-term investment and hedge against inflation. Its limited supply and strong network effect make it attractive for those seeking to preserve wealth.
Ethereum shines in decentralized finance and application development. Users looking to engage with DApps or NFTs will find it essential.
Litecoin processes transactions faster than Bitcoin, making it suitable for everyday purchases. Its lower fees also benefit frequent traders or those sending smaller amounts.
How to buy Bitcoin, and Ethereum on Paxful
Litecoin isn’t supported on Paxful. However, you may use our marketplace to buy Bitcoin or Ethereum with over 300 payment methods. Buying Bitcoin and Ethereum follows a similar procedure, here’s how:
- Create and verify your Paxful account using your phone number or email address
- Once logged in, head to the homepage and select either Bitcoin or Ethereum from the drop-down menu of the marketplace widget.
- Set your preferred payment method and click Find Offers to see the list of sellers that meet your criteria.
- From the list, we recommend picking the seller with high reviews and a reasonable price per crypto.
- Click Buy on the seller’s offer to review their requirements. This is important as sellers have special instructions depending on the payment method.
- If the terms are fair, initiate a trade by entering the amount of crypto you want to purchase and clicking on the Buy now button.
- Talk to the seller using the chat box and ask for the next steps. Once you get the signal, you will send the payment to the seller’s account.
- Mark the transaction as Paid to temporarily lock the seller’s crypto in escrow while the seller verifies the transaction. Your crypto will be released from escrow and into your Paxful account afterward.
- For added security, consider transferring the purchased crypto to a hardware or software wallet that stores your private keys.
Important Note: Paxful does not provide investment, tax, or legal advice, and you are solely responsible for determining whether any financial transaction strategy or related transaction is appropriate for you based on your personal investment objectives, economic circumstances, and risk tolerance. Paxful may provide information including but not limited to blog posts, articles, podcasts, tutorials, and videos. The information contained therein does not constitute investment advice, financial advice, trading advice, or any other advice, and you should not treat any of the content as such. Paxful does not recommend that any digital asset should be bought, earned, sold, lent out, or held by you, and will not be held responsible for the decisions you make to buy, sell, trade, lend, or hold digital assets based on the information provided by us.
