Investing in Litecoin: A Beginner's Guide to Digital Silver

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.

In this article

• What is Litecoin?
• Should you invest in Litecoin?
• How to invest in Litecoin
• A note about digital wallets
• FAQs
• Bottom line

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%).

Pros

• Faster than Bitcoin
• Scalable, able to process more transactions per second than Bitcoin or Ethereum
• Low transaction fees
• Easy-to-use mining algorithm

Cons

• 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

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.

For more information, read our Webull vs. Robinhood comparison. And also make sure you understand the difference between a limit order vs. market order.