Cryptocurrency is becoming one of the hottest investment trends. Most people think of Bitcoin and Dogecoin, but there are thousands of other cryptocurrencies available. One of these cryptocurrencies is Litecoin, sometimes referred to as “digital silver” in reference to the “digital gold” of Bitcoin.
If you are looking for a cheaper cryptocurrency, Litecoin may be an option. Here’s what you need to know about how to invest in Litecoin.
What is Litecoin?
Litecoin is a digital asset. Specifically, it is a digital currency that uses blockchain technology as a fork of Bitcoin. The Litecoin network is open source and global, providing a way for people to send money around the world in minutes. Litecoin is considered an altcoin.
Litecoin’s founder is computer scientist Charlie Lee, who decided to create Litecoin as an alternative to Bitcoin. His idea was to create something “lighter” that ordinary consumers could mine and perform faster transactions than Bitcoin. Litecoin plans to release four times as many coins as Bitcoin’s limit.
Lee built Litecoin to use the Scrypt algorithm for “proof of work” on the Litecoin blockchain. Litecoin is the largest coin that uses Scrypt. Scrypt is designed to help reduce the possibility of mining becoming too centralized. Consumers can mine Litecoin using Scrypt by providing the processing power to complete transactions. When you complete a block, you will receive coins as a reward. Similar to Bitcoin, Litecoin mining rewards decrease over time in a process known as halving.
Although cryptocurrencies such as Litecoin can be used as a medium of exchange, it is important to note that they are different from “fiat currencies” issued by central banks or governments. Litecoin and other cryptocurrencies are decentralized and there is no issuing authority backing them. Instead, cryptocurrencies are digitally based and completely dependent on the person receiving the coins as payment.
Before investing in Litecoin or any other coin, consider checking out our cryptocurrency guide for beginners to help you better understand how the cryptocurrency market works.
Should I invest in Litecoin?
When deciding how to invest your funds, you have several options, including determining an effective strategy on how to purchase cryptocurrencies. Litecoin is seen as an attractive alternative to Bitcoin, especially among those concerned that Bitcoin is too expensive. While it’s possible to buy fractions of a cryptocurrency, some investors who get into crypto later aren’t happy with the idea that Bitcoin may be near its all-time high.
However, it is important to note that Litecoin is not a good investment for everyone. Cryptocurrency investments, including Litecoin, can offer growth potential to your portfolio, but it may make sense to limit your exposure due to volatility.
Additionally, just like choosing a variety of stocks for your portfolio, it may also make sense to diversify your cryptocurrency holdings. Since cryptocurrencies are a new asset class, it is uncertain which coins (if any) will become popular with the general public.
For example, my portfolio includes Litecoin (LTC), but also other smaller altcoins including Bitcoin (BTC), Monero (XMR), Ethereum (ETH), and Dogecoin (DOGE). I have some. However, many of these smaller altcoins and DOGEs are experiments rather than real investments.
When purchasing cryptocurrencies, only use money you can afford to lose. I try to limit my total exposure to alternative assets to no more than 8% of my investment portfolio (although recent volatility and the rise in cryptocurrencies has pushed it closer to 10%).
Strong Points
Faster than Bitcoin Scalable, processing more transactions per second than Bitcoin or Ethereum Low transaction fees Easy-to-use mining algorithm
Cons
Litecoin is less well-known and widely adopted than Bitcoin Litecoin is widely used on the dark web Litepay failure raises questions about its credibility
How to invest in Litecoin
If you decide you want to invest in Litecoin, it’s very easy. There are many apps and other ways to buy and sell Litecoin.
investment app
Investment apps like Robinhood and Webull offer ways to buy and sell cryptocurrencies. However, it is important to note that when investing through these trading platforms, you do not actually own the associated coins. Instead, it is an IOU system. This means that you cannot transfer Litecoin directly to and from these brokerages, and they do not provide wallets.
Robinhood and Webull both advertise commission-free trading. However, it’s important to understand that while you may not pay fees directly, there are limits to how you can trade. Robinhood uses limit orders for cryptocurrency trading based on price movements. Webull operates using spreads on both sides of cryptocurrency trading. Therefore, even though you are not paying a direct commission, there is scope for the broker to make a profit on your trades.
See our Webull vs. Robinhood comparison for more details. Also, be sure to understand the difference between limit orders and market orders.
cryptocurrency exchange
You can also learn how to buy Litecoin using cryptocurrency exchanges. These exchanges allow you to exchange one coin for another or purchase coins using bank transfer, credit card, or debit card.
Some of the best cryptocurrency exchanges include Coinbase, Kraken, Gemini, and Binance. There are many crypto exchanges out there, so it’s important to do your research to find the smartest one for you. First, check out our comparison of Kraken vs. Coinbase vs. Gemini.
Cryptocurrency exchanges often charge a flat fee to make a trade, depending on the coin you are trading. Pay attention to fees when trading Litecoin so you know how much you will pay for each trade.
paypal
It is also possible to purchase Litecoin using PayPal. If you have a PayPal Cash or Cash Plus account, you can use it to buy Litecoin, as well as Bitcoin, Ethereum, and Bitcoin Cash. Use your account to buy the coins you want and choose to hold them for as long as you like or sell them later.
Notes on digital wallets
If you decide to participate in cryptocurrency trading, it is important to have a digital wallet. This is a wallet that stores digital information about Litecoin or other currencies. Some exchanges, such as Coinbase, offer crypto wallets that you can use. You will receive a unique address and can use your wallet to send and receive Litecoin, as well as buy and sell coins.
It is also possible to purchase the wallet separately. These wallets have their own security keys and are not stored on the internet. Instead, it is much like a flash drive and only connects to your computer when you need to complete a transaction.
Find the right wallet for your situation. For example, I have a physical cold wallet where I store the majority of my cryptocurrencies, including the majority of my Litecoin investment. That wallet is in my fireproof and waterproof document safe. However, I also have a digital wallet at Coinbase, where I store cryptocurrencies that I’m likely to trade on a regular basis.
Once you decide you are ready to cash out, you will need to send your desired coins to an exchange. There, you can exchange it for fiat currencies such as US dollars. Once that is done, you can withdraw the money to your connected bank account.
For example, at the end of 2020, I sent some Bitcoin from my cold wallet to a Coinbase wallet address. When I was ready to sell some of my Bitcoins, I could easily exchange them for USD and transfer them to my bank account.
FAQ
How do I start investing in Litecoin?
To learn how to invest in Litecoin, use an investing app or visit a cryptocurrency exchange to purchase coins. It is also possible to receive Litecoin as a miner or in exchange for goods and services. Consider reading our Robinhood review and Coinbase review to get an idea of where to invest in Litecoin.
How do you make money with Litecoin?
If you believe that the price of Litecoin will increase over time, you may be able to profit by buying the coin now, waiting for it to increase in value, and then selling it. However, investments do not guarantee returns. It is also possible to receive Litecoin as payment for what you provide and sell Litecoin for fiat currency to make money.
Is Litecoin a safe investment?
Like any investment, losses can occur with Litecoin. In fact, because cryptocurrencies are such a new asset class, Litecoin is considered riskier than more established assets such as stocks, bonds, and real estate. When you start investing in Litecoin, it is important to only risk money that you can afford to lose.
conclusion
Litecoin provides a cheaper alternative to Bitcoin and is a way to add diversity to your investment portfolio. However, it is important to be aware that the cryptocurrency market can be riskier than other types of investments. If you decide to start trading Litecoin, limit your exposure by investing only funds you can afford to lose and ensuring a diversified portfolio that aligns with your risk tolerance and financial goals. Please consider that.
Disclosure: The author of this article has positions in Bitcoin, Litecoin, Monero, Ethereum, and Dogecoin.
