Cryptocurrencies are becoming one of the hottest investing trends. Although many people think of Bitcoin and Dogecoin, there are thousands of other cryptocurrencies available. One of these cryptocurrencies is Litecoin, sometimes referred to as “digital silver” in relation to Bitcoin’s “digital gold.”
If you’re looking for a less expensive cryptocurrency, Litecoin might be one choice. 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, and provides a way for people to send payments worldwide in a matter of minutes. Litecoin is considered an altcoin.
The founder of Litecoin is computer scientist Charlie Lee, who decided to create Litecoin as an alternative to Bitcoin. His idea was to create something “lighter” that could be mined by ordinary consumers and could execute faster transaction times than Bitcoin. Litecoin is scheduled to release four times as many coins as the cap for Bitcoin.
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 that mining would become too centralized. It’s possible for regular consumers to use Scrypt to mine Litecoin by providing the processing power to complete transactions. When you complete a block, you’re rewarded with coins. As with Bitcoin, the reward for mining Litecoin decreases over time in a process known as halving.
It’s important to note that cryptocurrencies such as Litecoin can be used as a medium of exchange, but they differ from “fiat currency” issued by central banks and governments. Litecoin and other cryptocurrencies are decentralized and there is no issuing authority to back them. Instead, a cryptocurrency is digitally based and entirely dependent on who will accept your coins as payment.
Before you invest in Litecoin or any other coins, consider checking out our guide to cryptocurrency for beginners so you know get a better idea of how the crypto market works.
Should you invest in Litecoin?
When deciding how to invest money, there are several choices available, including determining an effective strategy for how to buy cryptocurrency. Litecoin is seen as an attractive alternative to Bitcoin, especially among those who worry Bitcoin is too expensive. Although it’s possible to buy fractions of a cryptocurrency, some investors arriving later into cryptocurrency aren’t comfortable with the idea that Bitcoin might be close to a top.
However, it’s important to note that Litecoin isn’t a good investment for everyone. Although cryptocurrency investing, including in Litecoin, can provide some potential growth in a portfolio, it might make sense to limit your exposure due to the volatility.
Additionally, just as you might choose different stocks for your portfolio, it might also make sense to diversify your cryptocurrency holdings. Because cryptocurrencies are a new asset class, there is uncertainty which coins (if any) will catch on with the public.
For example, my portfolio includes Litecoin (LTC), but I also have Bitcoin (BTC), Monero (XMR), Ethereum (ETH), and a smattering of other smaller altcoins, including Dogecoin (DOGE). However, many of these smaller altcoins and DOGE are experiments rather than true investments.
I only use money I can afford to lose when I buy cryptocurrencies. I try to limit my total exposure to alternative assets to no more than 8% of my investment portfolio (though with recent volatility and gains for cryptocurrency, it’s approaching 10%).
- Faster than Bitcoin
- Scalable, able to process more transactions per second than Bitcoin or Ethereum
- Low transaction fees
- Easy-to-use mining algorithm
- Not as well known as Bitcoin and isn’t as widely adopted
- Litecoin is widely used on the dark web
- Its Litepay failure has led to questions about credibility
How to invest in Litecoin
If you decide you want to invest in Litecoin, it’s fairly straightforward. There are a number of apps and other ways to buy and sell Litecoin.
Investing apps like Robinhood and Webull provide you with a way to buy and sell cryptocurrencies. However, it’s important to note that you don’t actually own the coins involved when you invest through these trading platforms. Instead, it’s an IOU system. That means you can’t directly transfer your Litecoin in or out of these brokerages, and it also doesn’t offer wallets.
Both Robinhood and Webull tout fee-free trading. However, although you might not pay a fee directly, it’s important to understand that there are limits to how you can trade. Robinhood uses limit orders for crypto trading, based on price volatility. Webull operates using a spread on either side of a crypto trade. So although you aren’t directly paying a fee, there’s room in there for the brokers to make money on your trades.
It’s also possible to learn how to buy Litecoin using a cryptocurrency exchange. These exchanges allow you to exchange one coin for another, as well as use a bank transfer, credit card, or debit card to purchase coins.
Some of the best cryptocurrency exchanges include Coinbase, Kraken, Gemini, BlockFi, and Binance. Because there are a number of cryptocurrency exchanges, it’s important to do research to find the smartest one for you. To get started, check out our Kraken vs. Coinbase vs. Gemini comparison.
Often, crypto exchanges charge flat fees for making a trade, depending on the coin you’re trading. Pay attention to the fees when you trade Litecoin so you know how much you’re paying for each trade.
It’s also possible to buy Litecoin using PayPal. If you have a PayPal Cash or Cash Plus account, you can use that to purchase Litecoin — as well as Bitcoin, Ethereum, and Bitcoin Cash. Use your account to purchase the desired coin and then choose to hold it for as long as you’d like, or sell it later.
A note about digital wallets
If you decide to get into cryptocurrency trading, then it’s important to have a digital wallet. This is a wallet that stores the digital information about your Litecoin or other currencies. Some exchanges, like Coinbase, offer a crypto wallet you can use. You receive a unique address and you can send and receive Litecoin to your wallet, as well as buy and sell coins.
It’s also possible to buy a wallet separately. These wallets have their own security keys, which aren’t kept on the internet. Instead, they look a lot like a flash drive and you plug them into your computer only when you need to complete a transaction.
Look for a wallet that makes sense in your situation. For example, I have a physical cold wallet where I keep most of my cryptocurrency, including the bulk 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 keep the cryptocurrencies that I’m more likely to trade on a regular basis.
When you decide you’re ready to cash out, you’ll need to send your desired coins to an exchange, where you can sell them for fiat currency such as the U.S. dollar. Once that’s done, you can then withdraw money to your connected bank account.
For example, in late 2020, I sent some of my Bitcoin from my cold wallet to the address of my wallet at Coinbase. When I was ready to sell some of my Bitcoin, I was able to easily exchange it for U.S. dollars and then transfer it to my bank account.
How do I start investing in Litecoin?
You can learn how to invest in Litecoin by using an investing app or by going on a crypto exchange and buying coins. It’s also possible to receive Litecoin as a miner or in exchange for goods or services. Consider reading our Robinhood review and BlockFi review to get some ideas for where to invest in Litecoin.
How do you make money with Litecoin?
If you believe that Litecoin prices will rise over time, you might be able to make money by purchasing coins now and waiting for them to appreciate in value and then selling them. Returns are never guaranteed in investing, though. It’s also possible to make money by accepting Litecoin in payment for something you provide and then selling your Litecoin for fiat currency.
Is Litecoin a safe investment?
As with any investment, it’s possible to lose money with Litecoin. In fact, because cryptocurrency is such a new asset class, Litecoin is considered riskier than more established assets like stocks, bonds, and real estate. If you choose to begin investing in Litecoin, it’s important to only risk money you can afford to lose.
Litecoin can be a less expensive alternative to Bitcoin, and can be one way to add diversity to your investment portfolio. However, it’s important to realize that the cryptocurrency market can be riskier than other types of investing. If you decide to start trading Litecoin, then consider limiting your exposure by only investing money you can afford to lose, and by making sure you have a portfolio that has diversity in line with your risk tolerance and financial goals.
Disclosure: The author of this article has positions in Bitcoin, Litecoin, Monero, Ethereum, and Dogecoin.