Forget bitcoin, its fourth-biggest rival is up nearly 5,800 percent this year

  • Litecoin hit a record high price of $255.42 on Tuesday and is up nearly 5,800 percent year-to-date
  • The fourth-largest cryptocurrency differ to bitcoin in areas such as a faster transaction time
  • Rising interest in cryptocurrencies and diversification away from bitcoin are behind litecoin's rise

Litecoin, the fourth-largest cryptocurrency in the world by value, has hit a record high and rallied nearly 5,800 percent this year, beating rival bitcoin's rise.

The price of litecoin reached an all-time high of $255.42 on Tuesday, according to industry website Coinmarketcap.com, which takes the volume weighted average of all prices reported on different exchanges to work out the price.

On January 1, litecoin was trading at $4.36. The rally to date marks a 5,758.2 percent increase.

What is litecoin?

Litecoin is a cryptocurrency founded by Charlie Lee. It's the fourth-largest digital currency by market capitalization or value behind bitcoin cash, Ethereum and bitcoin. Its market cap stands at around $14.4 billion, compared to $282.8 billion for bitcoin.

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

What's the difference between litecoin and bitcoin?

There is a limited supply of 84 million litecoins, compared to 21 million bitcoin. Currently, 54,268,358 litecoin and 16,736,137 bitcoin are in circulation.

Litecoin transactions take just over two minutes to go through, compared to an average of around nearly 300 minutes for bitcoin.

Litecoin creator Lee on a number of occasions has said that litecoin can be a key player in payments because of the transaction speed, whereas bitcoin is more a store of value.

What's driving the rally?

A number of reasons are behind the rise. One has been the rise of interest in cryptocurrencies and the increasing number of users trading.

Lee tweeted an image of data from Coinmarketcap.com on Tuesday showing that litecoin was the most heavily-traded cryptocurrency on GDAX, one of the most popular exchanges.

Litecoin has also benefited due to bitcoin's slow transaction speed.

"Litecoin traditonally gets a boost when bitcoin slows," Charles Hayter, CEO of CryptoCompare, told CNBC by email.

Another reason for litecoin's rise could be down to investors trying to diversify into other cryptocurrencies. On Tuesday, around 40 percent of litecoin was bought using bitcoin, according to data from industry website CryptoCompare.

"As the wealth of those holding bitcoin continues to rise, especially among traders based in Asia, naturally they will be seeking to diversify their portfolio into other crypto-assets," Thomas Glucksmann, head of marketing at cryptocurrency exchange Gatecoin, told CNBC by email.

"Litecoin is one of the major alternative cryptocurrencies, or altcoins, that competes with bitcoin on transaction efficiency so naturally, it is a strong choice for diversification. Litecoin has always been one of the most underrated cryptocurrencies given its advantages over bitcoin."

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