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Litecoin hits a record high and is up nearly 1,400 percent this year

  • Litecoin hit a record high of $64.2 on Monday and has rallied 1,400 percent since the start of the year
  • Differences between bitcoin include speed of transactions, size of supply, and use case
  • Litecoin creator Charlie Lee says that he sees the cryptocurrency being used for purchases whereas bitcoin is more a store of value

Litecoin, the fifth-largest cryptocurrency by value and rival to bitcoin, has rallied nearly 1,400 percent since the start of the year after hitting a record high price.

On Monday, litecoin hit an all-time high of $64.2, marking a 1383 percent rise since January first where it traded at $4.33, data from industry website Coinmarketcap.com showed. The price pulled back slightly on Tuesday and was just above $62 in early trade.

CNBC runs through the differences between bitcoin and litecoin, and what's driving the price.

What is litecoin?

Litecoin is a cryptocurrency founded by Charlie Lee. It has a market capitalization of around $3.28 billion according to Coinmarketcap.com. This makes it the fifth-biggest digital currency behind ripple, bitcoin cash, ethereum, and bitcoin, which is the largest with a market cap of $72.4 billion.

Like bitcoin, it runs on a blockchain, which is a public ledger of transactions that can't be tampered with.

How does litecoin differ to bitcoin?

  • There is a limited supply of 84 million litecoins, compared to 21 million bitcoin. Currently 52,679,982 litecoin and 16,530,563 bitcoin are in circulation.
  • Litecoin transactions currently take just over 2 minutes to go through compared to about 100 minutes for bitcoin.

Litecoin creator Charlie Lee recently explained that he sees the cryptocurrency as being a key player in payments, whereas bitcoin is more a store of value.

"Bitcoin will always be the gold standard because bitcoin will have the strongest network, the most secure, the most money mining it," Lee said in an interview with blogger Crypto Hedge, which was posted on YouTube on Monday.

"Litecoin will be second to that and bitcoin being the most secure will obviously cost more … Litecoin transaction will cost less. So Litecoin will provide a niche where it will be more used for payment whereas bitcoin will be more used for storing."

Lee is a former Google employee who began the Litecoin project in 2011.

Lee likened litecoin to silver whereas bitcoin is more like gold.

    "My analogy with gold and silver is kind of that idea where gold and silver were used as money but at certain times, gold would be more used for keeping it there whereas silver would be more used in coins for purchases. So yes you can use a gold coin to purchase, but it's not as convenient."

    What's behind the rally?

    Litecoin is benefiting from the broader interest in cryptocurrencies. Ethereum, bitcoin and ripple have all seen big price rises this year.

    On Tuesday morning, 36.9 percent of litecoin buying happened in Chinese yuan, followed by 22.4 percent in Korean won, according to Cryptocompare. Depending on the time of day, buying in Korean won is larger than yuan.

    In South Korea, authorities have been looking at ways to regulate digital currencies, which is buoying the market.

    "Regulation will bring an aura of legitimacy to the country's burgeoning speculative cryptocurrency market and will encourage more participation from individual and institutional investors," Thomas Glucksmann, head of marketing at cryptocurrency exchange Gatecoin, told CNBC via email.

    Nearly 18 percent of litecoin buying is happening in bitcoin, which is also showing that current cryptocurrency investors are looking to diversify.

    What's next for litecoin? 

    Earlier this year, the litecoin community activated an upgrade to the system called Segregated Witness or SegWit. This essentially increased the capacity of the blockchain and boosted transaction speed.

    It's the same process that happened with bitcoin a few weeks ago. Now the cryptocurrency world is looking forward to something called the Lightning Network. This is a new technology that aims to make transactions with cryptocurrency instant as well integrate the different digital coins.

    So for example, if you wanted to instantly swap some litecoin for bitcoin, Lightning Network will make that possible.

    There are a plethora of so-called "alt-coins" on the market, but Lee said he doesn't expect all of those to survive. Instead, bitcoin and litecoin will be the main ones but the Lightning Network will allow easy access to other coins should they be needed by users.

    "My vision is that with Lightning network … you wouldn't need to hold all these coins, you could just hold all your money in bitcoin or litecoin, and if there is an application that requires ether or some other token, you can easily … convert it on the fly to the token that you need," Lee said.

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