Aside from purchasing from an exchange, mining is the other way to own LTC. The process requires significant computing power and advanced technical skills. Although it is still possible to mine Litecoins with a common computer configuration, if you want to get serious, you will need to invest in high-end hardware solutions, capable of solving mathematical equations quickly. However, it is worth noting that mining Litecoins remains easier than mining Bitcoins.
The Litecoin’s mining process is based on the Proof-of-Work (PoW) consensus mechanism, similarly to Bitcoin. However, there are some key differences in both methodologies. Let’s start with the hashing algorithm each cryptocurrency uses to solve a block. Bitcoin’s mining process runs on the SHA-256 hashing algorithm (Secure Hash Algorithm). The mining logic is based on the idea of increasing the difficulty over time - the more transactions are processed, the more difficult it gets. This progressive process continuously increases the demand for electricity needed to mine a new block. To ensure the efficiency of the Bitcoin mining process, one should invest in an expensive ASIC machine (Application-Specific Integrated Circuit). This means that miners who can’t afford a powerful machine are phased out as they won’t manage to survive the competition (the reason why mining pools were born – the bigger the scale of operations, the higher probability of earning mining rewards).
With Litecoin, though, things are a bit different. The Litecoin ecosystem is based on an algorithm called Scrypt. The reason for that, according to Litecoin’s creator, is that Scrypt allows users to mine LTC and BTC simultaneously, which means that Litecoin won’t have to compete with Bitcoin for miners. Although Scrypt isn’t as complex as the SHA-256 algorithm, it helps make the whole network lighter by reducing the resources needed for mining. That way, Litecoin miners can mine coins successfully even with GPU machines (Graphic-Processing Unit), which are way cheaper. Or in other words – the chance to mine Litecoins successfully by using an ordinary computer is way higher than in the case of other cryptocurrencies. Due to the fact that the Litecoin network grows at a steady rate, though, we are slowly marching to a point where mining will require ASIC hardware. So, although for now, GPUs will do the job, it is worth knowing that the more powerful machine you have, the better chance to earn a reward you get.
A block of Litecoin transactions is verified every 2.5 minutes, which is four times faster, considering the 10-minute interval for blocks on the Bitcoin blockchain. This also means a higher probability of earning a reward. At the time of this writing, the reward of mining a block is 12.5 LTC. However, it halves with every 840,000 mined coins, so the next step is 6.25 LTC per block. The next halving is projected for August 2023. The process will continue at regular intervals until the 84,000,000th LTC is mined.
You can start mining Litecoin on your own or join a mining pool. In the first case, you will cover all expenses but won’t have to split the reward with someone else. Also, it will be harder (or even impossible, if you don’t have a good machine) for you to mine a block. If you join a mining pool, you will leverage your processing power (thus increasing the chance to get a reward) and won’t have to pay for all the costs on your own. However, you will also have to split the rewards with the rest in the pool. There is also a third option – to take advantage of cloud mining services. Cloud mining companies use the latest machines and allow you to lease high-capacity mining equipment for a certain period of time to help you outperform the competition. Here is what you will have to do in each scenario to start mining Litecoins:
The first thing to do is to set-up a Litecoin wallet – you can either buy a hardware one or use a free solution (software or paper). If you prefer a software wallet, then the most popular choice is the Litecoin Core client. Bear in mind that it downloads the whole blockchain and runs full nodes, which means it requires more space.
After you have made sure that there is a place to store your LTC, the next step is to choose your hardware configuration. Bear in mind that the more powerful your machine is, the bigger the chance to earn a reward. However, don’t forget that with higher performance come higher electricity bills. After you’ve chosen your hardware, it’s time to install the mining software. ASIC machines usually come with pre-installed software, while with GPUs, you will have to do it on your own (do your research and bear in mind that, although there are lots of free solutions, you should make sure to download only from reputable sources). And voila – you are now ready to start mining.
If you decide to join a mining pool, you will also have to go through the same initial steps, like when mining on your own - setting up a wallet, choosing your hardware and software (some mining pools may require you to use a specific software). Next on the list is choosing the best mining pool for your needs. Make sure to compare the fees, the rewards, the minimum payouts, and other relevant characteristics of each solution. Then you are ready to go.
If you prefer to take advantage of cloud mining services, then the first thing to do is to set up a wallet to store your rewards. Next, make sure to choose a reputable service provider. Bear in mind that there are lots of scammers who may try to run away with your money. Find a cloud mining company with a rich history and a proven reputation. After you’ve found your preferred service provider, the next thing is to select a mining package. Depending on the amount you are willing to spend, you will be able to choose from contracts that differ in terms of cost, longevity, equipment, payouts, etc. After you’ve chosen your package, it’s time to find a mining pool. Make sure to compare all the options and choose the one that suits your needs.
To get into more practical details regarding the Litecoin mining process, make sure to check the tutorials on the Litecoin Wiki page.