Unless you’ve been entirely offline for the last few years, you know there’s been a lot of talk about cryptocurrency, with much of the discussion and hoopla centered around Bitcoin. Litecoin is one of several alternative cryptocurrencies available for crypto enthusiasts worldwide.
But what is Litecoin? How does it work and how can you invest in it? This guide will give you the answers so you can take advantage of this ever-evolving area of investment in real-time.
What is Litecoin?
In the simplest terms, Litecoin is a peer-to-peer cryptocurrency that is stored in a digital wallet and can be obtained by mining or purchasing through a brokerage. It is similar to Bitcoin
and is based upon the same source code.
As the creator of Litecoin, Charlie Lee, puts it, Litecoin is the silver to Bitcoin’s gold. Both Litecoin and Bitcoin are similar in many ways, but Litecoin was created to be a lighter version, hence its name. As Bitcoin has skyrocketed in value, and investors seek to use it as a buy-and-hold investment, Litecoin uses are many. It’s a currency that you use for your daily purchases, whether it is paying for online purchases or converting to US dollars, or another type of fiat currency (government-issued currency), in PayPal.
Created in 2011 by Lee, a former Google employee, Litecoin uses blockchain technology to create a decentralized digital currency that aims to be cheaper to mine and use, plus it’s more efficient in the marketplace.
As of May 2021, Litecoin ranks number 10 in market cap, well below other popular cryptocurrencies like Ethereum
and the current talk of the town, Dogecoin
Using blockchain technology
, Litecoin is transferred between individuals privately and quickly. The blockchain allows each transaction to be recorded in a public ledger while still operating free of interference from any government or regulating body.
How Litecoin works
For the first-time crypto investor, understanding the ins and outs of it can be a bit mind-boggling since, unlike the printing of cold hard cash, no tangible asset is produced. We’ll break down the process of how digital currencies, like Litecoin and Bitcoin, are produced.
Understanding the blockchain
As its name suggests, the blockchain is a series of blocks that are linked together, similar to a chain. Each new block contains its own set of data as well as data from the previous block. By having the blocks connected in this way, it’s more difficult for the system to be hacked and fake transactions to be placed.
Litecoin operates on a proof-of-work ecosystem, using the Scrypt algorithm, which means that all miners have access to the Litecoin blockchain. The blockchain is like a bank ledger, showing every Litecoin transaction made since the previous block was created.
Transactions are formed into Merkle trees as computers race to find an acceptable hash for the new blocks. The hash is created by running an algorithm on a large amount of data, and its purpose is to ensure that the data is secure. Once a hash is found, the mining computer that created it has thereby created a new lot of Litecoins and receives them for their contribution.
Understanding Litecoin mining
Just as jewels and precious metals are mined to be cut and crafted into an end product that’s sold in the marketplace, cryptocurrency is mined by computers working at fast speeds to solve complex mathematical problems in order to “win” a reward. In the case of Litecoin, the winning miner gets Litecoins.
There is a fixed supply of Litecoin that can be created. After 84 million Litecoins are in circulation, there will be no more added. This is to help preserve purchasing power over time, and even now there are certain points at which the Litecoins are halved. With every 840,000 coins that are created, the amount of Litecoins earned by miners is halved. Before the last halving event, miners would get 25 Litecoin per block, now they receive 12.5. After the next one, it will go down to 6.25. This also means that fewer new coins are produced each day, each time a halving occurs.
Mining each Litecoin is fast; it takes about 2.5 minutes for the complex math problems to be solved and create a new hash. The winning miner earns 12.5 Litecoins for their efforts. In years past, many miners would have their in-home setups using old computers to mine for coins. These days most investors who are interested in the mining aspect of crypto choose to join mining pools.
These mining pools allow you to combine resources while splitting expenses and take home a share of the Litecoins that the pool earns. You probably won’t be earning Litecoins every day, nor every week, especially if you are a solo miner. As more miners join in, neither the supply nor the time frame change. Transaction times remain at 2.5 minutes per block no matter if there are 100,000 or 500,000 miners.
Fortunately, you don’t need to invest in extra computers to join the Litecoin network. It takes hardly any time to open a crypto wallet and start trading on a crypto exchange. The exchange rate varies, but their liquidity makes it easy to buy and sell Litecoin.
How to invest in Litecoin
The easiest way to get some Litecoin in your digital wallet, without having to go through the hassle of setting up a mining rig and joining a pool is to join a crypto exchange and trade your greenbacks for digital assets.
Platforms like Binance, Coinbase, and Coinmama make it easy to create an account and buy Litecoin and other altcoins in just minutes. While setup does require you to create a profile and share user data with the platform, coins are encrypted and stored in your affiliated Litecoin wallet. For additional safety, consider buying a hardware wallet to store your private keys. These are a special device that stores the data securely and keeps it safe from viruses that can infect software wallets.
Should you invest in Litecoin?
The question of whether or not you should invest in Litecoin comes down to a few questions: how knowledgeable are you about the investment, and can you afford to lose what you’ve invested?
You probably wouldn’t, and shouldn’t, sign a mortgage for a rental property without a solid understanding of how real estate investing works. You also need to know the market in which you’re going to invest. The same principle holds for investing in stocks, art, and crypto. Channel your sixth-grade self and get busy doing your homework before handing over your hard-earned cash for some Litecoin or a mining rig.
Assuming you are comfortable in your ability to buy Litecoin intelligently, remember that there’s a lot of volatility in the altcoins market. We’ve seen Bitcoin skyrocket, and Litecoin has had respectable earnings percentages. But it doesn’t take much for the dollar exchange rate to take a significant nosedive.
Keeping your crypto holdings to about 5% of your overall portfolio is smart. If you’re in it for the long-haul, there’s no need to worry about general fluctuations in the LItecoin price. Since it’s expected for Litecoin mining to continue until 2142, there’s plenty of time to ride the market waves.
Alternatives to Litecoin
The most talked-about crypto has made millionaires out of many since it was created by an anonymous person or group, who goes by the name Satoshi Nakamoto, in 2009. Like Litecoin, miners worldwide create the blockchain, albeit at a slower transaction speed, to mine Bitcoins 24/7.
It takes 10 minutes to mine a single Bitcoin, and as of May 2021, more than 18 million (of a total of 21 million BTC) have been mined. Less than 3 million are left to be mined in the coming century. It’s expected that the last Bitcoin will be mined in 2140.
Due to its volatility, it’s best to use it as a buy-and-hold investment and add to your portfolio during price drops.
Not as popular as Bitcoin, Ethereum was created to complement Bitcoin rather than compete with it. It’s decentralized software that runs on the blockchain platform. Over the years, the technology platform has evolved significantly in the cryptocurrency space. Part of its popularity lies in the fact that Ether tokens are less expensive than Bitcoin, plus more secure and faster.
Additionally, it’s being adopted by many financial companies, like Bank of America, to use as a way to enter the cryptocurrency market. Some Fortune 500 companies like Intel, Microsoft, and JP Morgan have jumped on board with their support for the currency. Ethereum is also the currency used to buy Non-Fundandable Tokens (NFT), one of the latest crazes in the crypto world.
- Litecoin has a low barrier to entry. If you want to dip your toe into the crypto pool, Litecoin is ideal since it’s price is still low enough that obtaining a single Litecoin won’t require a significant portion of your annual income. It’s also a great way to diversify your investments as a whole.
- Litecoin is faster. It’s faster to mine. It’s faster to approve. Compared to BTC, Litecoin gives you 4x the speed with new transactions being completed in just 2.5 minutes.
- Litecoin is open-source. Changes to the system can be made, and implemented, quickly. Innovations in tech, like the Lightning Network and Segregated Witness (SegWit), can be tested on and added to the network as a way to respond to the crypto market.
- Litecoin has a low credibility factor. Although the folks at the Litecoin Foundation LINK are bright and Litecoin was developed by a former Google employee, Charlie Lee cashing out all of his coins doesn’t lend credibility to the brand. And scrapping the Litepay service didn’t help that image either.
- It’s popular on the Dark Web. Nearly one-third of vendors on the Dark Web accept Litecoin, which can taint the coins going forward since each one has a digital paper trail. Some legit vendors, those not doing business underground, refuse to accept coins with a shady past, leaving the coins nearly worthless to the holder.
- Litecoin is often confused with Bitcoin. Having been built with the same framework, and branded as a lighter version of its precursor, Litecoin has some identity issues. Added to that, Bitcoin adopts much of the new tech that LTE uses, so to the newer investor, they seem nearly identical.
The bottom line
When it comes down to it, Litecoin may be good crypto to get started because its purchase price is still relatively low, it has low fees when you use it, and it’s easy to start investing in. The best way to know if it’s right for you is to talk with someone who’s been a part of the crypto scene for a while.
They can educate you on the nuances of Litecoin, and how it stacks up to other digital currencies. Additionally, never underestimate the power of self-education. Learn all that you can about it so that you can make educated investing decisions. No investor is ever spot-on with 100% of their investment decisions, but you can at least make well-informed ones when you know them.