Cryptocurrencies like Bitcoin, Ethereum, and Litecoin are making headlines because the value of these currencies has risen dramatically over the last year. These currencies rely on complicated mathematics and blockchain technology to create a system that allows users to pay, store, and get value from these currencies.
Specifically talking about Litecoin, let's dive in and look at what it is, how it's different than other currencies, and the most important question of all: how to invest in Litecoin. Before you get started with Litecoin, you need a digital wallet. We recommend using Coinbase, which we will discuss a bit more below.
If you're considering investing in Litecoin, realize that there are a lot of risks - but also huge potential rewards. We try to break it down as easily as possible, but this is a complicated subject.
What Is Litecoin
Litecoin is a peer-to-peer Internet currency that enables instant, near-zero cost payments to anyone in the world. Litecoin is an open source, global payment network that is fully decentralized. Mathematics secures the network and empowers individuals to control their own finances.
Litecoin was the third most popular digital currency, behind Bitcoin and Ethereum (okay, it's fallen a little bit due to the popularity of Ripple, but close enough). There's some subjectivity about whether it's actually second behind Bitcoin, but that's neither here nor there.
In 2014, Dash, a competing crypto-currency, split from the Litecoin blockchain. You can learn about investing in Dash here.
How Litecoin Is Different
Litecoin is different than other currencies is a couple key ways.
First, unlike Bitcoin and Ethereum, Litecoin uses a software algorthym (Scrypt) to mine units. This somewhat prevents individuals from making powerful custom computers (or rigs) specifically to mine the currency.
Second, Litecoin has one of the fastest transaction times of the digital currencies, clocking in at 2.5 minutes (versus the 10 minutes for Bitcoin).
Third, and most popular for investors, Litecoin is the cheapest of the three major cryptocurrencies. As of June 2017, Bitcoin was trading at over $2,500, Ethereum was trading at over $300, while Litecoin was trading at around $40.
How To Invest In Litecoin
If you're looking to invest in Litecoin, it's important to remember that Litecoin is a currency. This means it doesn't act like a stock or bond. Instead of buying shares of Litecoin, you are swapping your currency for Litecoin currency.
For example, $1 USD is equal to about $43 in Litecoin today. The goal is for the value of Litecoin to rise, in which case, you could exchange your Litecoins back to dollars (from someone willing to do the exchange).
So, where can you do this? Sadly, you can't invest in Litecoin at your stock broker. Instead, you need a digital wallet. The best digital wallet we've found for US Citizens is Coinbase. Coinbase allows you to buy and sell Bitcoin, Bitcoin Cash, Ethereum, and Litecoin all in their app.
Since Coinbase is also a digital wallet, you can use your wallet to buy, sell, send, and receive Litecoin as well (for example, using Litecoin to pay for goods or services online).
By using THIS LINK you'll get $10 in bitcoins after you buy $100 in Bitcoins. You can then convert your Bitcoins and bonus into Litecoins if you wish.
If you don't like the idea of a digital wallet, there are no ETFs that track Litecoin yet. However, GBTC is an ETF that tracks Bitcoin, and you can get $5 for free when you invest at Stockpile and buy Bitcoin.
Final Thoughts
Like any currency, there is a high degree of risk involved if you're considering investing in Litecoin. However, given the low price point and ease of access via tools like Coinbase, it can be tempting to try a small amount and see what happens.
You never know, Litecoin could skyrocket as high as Bitcoin is today, and you might be thanking yourself in several years.
Do you know if the US government has finalized a stance on cryptocurrencies?
Last I heard they make us pay capital gains on any improvement in the exchange rates. It seems there has been a lot of hype lately in the currencies. I wonder if they are getting a little frothy.
Tom @ HIP
They treat them as a currency exchange if you use a wallet, and if you are trading them through contracts, they treat it like Forex.
For a currency exchange, if you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200.00. If the gain is more than $200.00, report it as a capital gain. You can leverage it as either a short term or long term gain depending on your holding period.
View this: https://www.irs.gov/pub/irs-pdf/p525.pdf
I bought several bitcoin, ethereum, and litecoin on Coinbase. My account value has since risen nicely. Do I have to report any gains if I don’t touch the funds and just let them appreciate?
Also, wondering if Litecoin is going to appreciate much more? Thanks.
No, you only have to report any gains when you sell.
What is your experience with Coinbase when it comes to withdraw money? I have heard horror stories. I just made a small investment using your link. Signing up and buying was easy I just asked myself would it be just as easy once I am ready to sell?
I’ve sold and withdrawn about a dozen times (typical transaction is about $1,000) and never had any problems. It takes anywhere from 4-7 days to show up in your bank account.
It is said that that litecoin is not like a stock or bond. How is it different? My understanding is that you buy it now and just watch the value increase then sell to make your profit right? that sounds a lot likes investing in stocks. I just bought $150 worth. Am I supposed to do something else with it now or do I just wait a couple years and see what the coin is worth at that time and sell?
Litecoin is a currency, where a stock or a bond are instruments of value of a company. A stock is equity in a company, and a bond is debt owed to a company.
A bond is backed 100% by the assets of the company. If the bond isn’t paid, you technically can force the company to sell assets of the company to pay the bond (through courts and potentially bankruptcy).
A stock is equity issued by a company. You become an owner of the company. Your stock share is a percentage ownership, and you get your share of earnings, growth, etc.
Now, Litecoin – it’s only value is what someone will pay for it. It has no industrial use, earns no profit, holds no debt. It’s like a rock – it’s just that this rock has had 1000s of people say it’s worth money. Sound familiar? Because this has happened thousands of times throughout history.
What should you do with it? Well, what would you do with a rock that people say is worth money? It’s your call – it’s just a gamble. It could skyrocket and make you a nice amount of money, or it could be worthless. Remember, $150 in any asset isn’t enough to make you rich. Even if the value went up by 1000%, you’d now just have $1,150 in Litecoin to sell.
Thank you for the article. When I purchase some Litecoin in the coinbase application. What are my options is it safe for everybody to leave their coins in the app or can I remove them and print it out on paper or put it onto a SD card or a thumb drive. And also can you do both can I put it onto a thumb drive and print it out or you can only do one of the other and then my third question is how does the ATMs work somewhere over here by my house I have a Litecoin ATM you can purchase litecoins there
It’s not easy or convenient to remove anything from Coinbase, but if you want more security, you can. Read about it here: https://www.reddit.com/r/litecoin/comments/20r2lp/safest_cold_storage_wallet/
I have never seen a Litcoin ATM, but if you do, please share!