How to Invest in Litecoin

Introduction

With the more or less change in working mechanism, after Bitcoin, the era of digital currencies kicked off. Their decentralized nature makes them unique. With the passage of time, the need for more decentralized blockchains increased, and hence the invention of more cryptocurrencies had to be ignited. Litecoin is one of the earliest cryptocurrencies after Bitcoin. This guide will discuss how you can invest in Litecoin, its working mechanism, and much more.

What is Litecoin?

Litecoin is a peer-to-peer (P2P) virtual currency that has no central governance authority. It offers instant, nearly free-of-cost payments carried by individuals or institutions around the world.

Litecoin (LTC) is a cryptocurrency founded in 2011 by an ex-google engineer Charlie Lee and is based on an open-source global payment network like Bitcoin and is not controlled by any central authority. It is regarded as one of the first altcoins which are derived from Bitcoin’s original source code. But it is different from Bitcoin in ways of its speed; it provides a faster block generation rate. 

Litecoin has some basic properties of money, but a country’s central authority does not issue it, nor is it regularized. It is a decentralized mode of payment that works with an automated developed model. Litecoins are developed by processing a list of complex cryptocurrency procedures. The procedure is termed mining. 

History of Litecoin?

Before investing in Litecoin, it is necessary to get to the progress it has made over the course of time. Many crypto projects faced controversies initially, making them less stable and reliable from an investment point of view. The blunder on the launch or after the launch indicated the lack of expertise of founders.

From the beginning, Litcoin got the epic rise to fame as it was founded by one of the most reputable entities and a Bitcoinist, Charlie Lee. Lee followed Bitcoin since its inception and crawled its flaws for a long time. He detected the shortcomings and then decided to come up with a new coin with the intention of improvements. Lee’s worked to reduce transaction times, fees, and the elimination of concentrated mining pools. One of the main upgrades he put forward was reducing the block’s approval time from 10 minutes down to 2.5 minutes. Just like with Bitcoin, these blocks contain the next batch of transactions awaiting approval.

It took Litecoin only 2 years to breach the landmark of $1billion of market capitalization. Litecoin displays an amazing hike with an increase of 8200% in its value just within a year of its launch. At that time, its price stood at $360.93. When the article was written, its current all-time high was $412.96, which was achieved on May 10, 2021.

To null the conflict of interest, Lee decided to sell all of his Litecoin’s holding in December 2017. He thought that his tweets about the coins had a greater impact on its price movements, which is a negative gesture for people. People would think as if he was using the tweets for his own personal benefits.

How to Invest in Litecoin

There are many ways to earn from Litecoin, and every method has its pros and cons. Each method is associated with a certain risk. However, the rewards are thus associated with the intensity of risk you can take. Higher risk brings higher profits and vice versa. Here are a few of the methods you can choose to invest in Litecoin and expect some exceptional gain over time:

  1. Mining the Litecoin
  2. Buy and Hold (HODL Litecoin)
  3. Trading the Litecoin (Spot & Derivatives Trading)

Litecoin Mining

In the Proof of Work (PoW) cryptocurrencies, mining is the process by which a distributed ledge of all transactions ever made in a network is maintained. Technically speaking, miners acquire transaction data broadcast by network members since the previous block was discovered, arrange those transactions into structures known as Merkle trees, and strive to determine an acceptable hash. In a nutshell, miners are faced with difficult mathematical calculations that can only be solved with computers. By solving these puzzles, miners may validate blocks containing Litecoin transactions. As a reward for their participation, they earn LTC.

Experts have devised three ways of mining Litecoin which are explained as follow:

  1. Solo Mining 
  2. Pool Mining
  3. Cloud Mining

Solo Mining | How to Mine Litecoin at Home

If you like to start mining LTC at home, you should go for Solo Mining. Here goes the step by step guide to mine LTC at home:

  • Create a Litecoin Wallet 

Setting up a private wallet is a prerequisite to mining LTC at home. So, make sure you have set up a private wallet where you can securely store your LTC.

  • Choose your Hardware 

There are many hardware options to go for LTC mining initiation. You can either set up multiple GPUs or invest in ASIC miners. Compare the cost-benefit analysis before finalizing any hardware.

  • Installing Software

ASIC miner hardware comes up with pre-installed software, whereas Graphics Card mining needs you to download and install free mining software. Do fine research first before downloading software for mining.

  • Start Mining

Follow the instructions in your bought software package to start mining Litecoin. Make sure to keep any LTC you earn in a secure wallet and monitor the performance of your equipment and the price of Litecoin regularly to ensure that your mining stays profitable.

Pool Mining | How to Mine Litecoin with a Mining Pool

It is a group of cryptocurrency miners that pool their computational resources across a network to strengthen the probability of discovering a block or otherwise mining for cryptocurrency.

Here’s the process to follow to mine LTC using a Mining Pool:

  • Create a Litecoin Wallet

Choose any Litecoin wallet that suits your priorities and provides high security at a minimum cost.

  • Choose your Mining Hardware

Select the hardware of your choice. You can either go for ASIC miner or Graphic Card miner.

  • Install any Necessary Software

If you want to eliminate the software installation hassle, go for the ASIC miner, as they come up with the pre-installed software. Otherwise, you have an option of GPU miners that requires software to be installed.

  • Choose a Mining Pool

Examine the rewards, fees, minimum payouts, and other features provided by various Litecoin mining pools. You might need to try out a few other pools before settling on one for the long haul. Please remember that some pools will demand you to utilize the suggested software.

  • Start Mining

As soon as convenient, move your LTC rewards to a private wallet. Access the cost of mining regularly to ensure that your business stays cost-effective.

Cloud Mining | How to Mine Litecoin using a Cloud Mining Service

The method of mining cryptocurrency using a remote data center with shared processing power is known as cloud mining. This sort of cloud mining enables users to mine bitcoins or other cryptocurrencies without managing the hardware. The mining rigs are placed and maintained at a mining company-owned facility, and the customer just has to register and buy mining contracts or shares. Because cloud mining is a service, there is usually some cost involved, resulting in lower profits for the miner.

Here is how you can mine Litecoin using a Cloud Mining Service:

  • Choose a Cloud Mining Company

Mining in such a mode is a little risky as you depend on a cloud mining company. To avoid scams in the market, so you have to be vigilant in choosing the right mining company for you. Do your cost-benefit analysis read customer feedback and the company’s history before starting mining.

  • Select a Mining Package

Examine the mining contracts available from your preferred company. How much do they cost? How long do they last? What mining equipment will be used? What kind of compensation can you expect? Is it feasible to tailor a package to meet your specific needs?

  • Pick a Mining Pool 

After purchasing a plan, you’ll normally need to choose a mining pool. Before making your decision, examine various alternatives and consider their fees, size, minimum payouts, and other factors.

  • Start Mining

You may now start mining Litecoin in the cloud. Make sure to deposit any income you earn into a secure Litecoin wallet that gives you access to your private key.

Advantages and Disadvantages of LTC Mining 

Advantages

  • LTC mining gives you Liberty as to how you want to spend your assets. Under the conventional banking system, when you deposit funds, they are under the control of the banks and the government. Hence with crypto, you have complete control and power over money.
  • The price that it takes to process one transaction is much more affordable, adding another feather to the cap since our banks charge a substantial sum to process and make cross-border payments.
  • The push and pull method utilizes to keep your identity safe, leaving no space to tamper with your identity, which means that there is no space left for the hackers to exploit your information connected to RFID.
  • If you lay your hand on any transaction, its processing is faster as not to involve any other party.

Disadvantages

  • Mining Litecoin has risen in difficulty and reduced in profitability over the years.
  • Blockchain technology is responsible for all the behind-the-scenes work, which is not straightforward and requires appropriate handling.
  • High energy consumption is utilized for mining cryptocurrency together with hardware expenditures.
  • The crypto sector is occasionally swamped with scams and frauds, which in the future might trigger turmoil. Also, there are significant risks of losing your money due to the volatility and regular fluctuation of the cryptocurrency market, which brings bad luck to you in crypto investments.

Buy and Hold (HODL Litecoin)

HOLD is a misspelling of HOLD, the term that spreads among crypto forums as it is. Buying and holding an asset is a passive investment strategy in which an investor buys an asset and keeps it for a long period of time regardless of market movements. A buy-and-hold investor actively picks investments but is unconcerned with short-term price movements or technical indicators. Like Warren Buffett and Jack Bogle, many great investors recommend the buy-and-hold strategy for those seeking healthy long-term returns.

Buying and holding LTC is the way to buy the cryptocurrency and move them to a secure wallet or hard wallet for future selling intention. The selling time could or could not be predefined. It depends on the strategy an investor is following. However, every investor intends to profit and holds the currency in anticipation of an abnormal price hike.

Here are some of the top-notch modern day wallets you can choose from in order to invest via holding method:

Wallet Name Type of Wallet Purchase Cost Own Exchange Incorporated Ease of Use
CryptoWallet Mobile Free Yes Very Easy
Ledger Nano X Hardware GBP 109 No Advanced
Trezor Model T Hardware GBP 169 No Advanced
Exodus Desktop, Mobile Free Yes Easy
Guarda Web, Mobile, Desktop Free Yes Easy
Electrum Litecoin Desktop Free No Intermediate
Atomic Wallet Desktop Wallet, Mobile Free Yes (atomic swap) Easy

And here are few of the exchanges where you can buy, sell and hold the LTC wherever you want to:

Exchange Name No of Currencies Available LTC Availability Transaction Fees Minimum Deposit or Purchase
Coinbase 150+ Yes 0.00% to 0.60% $2
Crypto.Com 250+ Yes 0.04% to 0.4% $1
Gemini 75+ Yes $0.99 to $2.99 for small purchases, 1.49% of orders over $200 Varies with the asset
BitMart 1,000+ Yes 0.045% to 0.25% $30 when buying from Bitmart, undisclosed for spot trading.
Kraken 120+ Yes 0.00% to 0.26% $1, but may vary with different methods

Trading

Instead of purchasing and owning LTC, investors might become traders and attempt to benefit from price swings. Here are the two basic trading techniques.

  1. Spot Trading
  2. Derivative Trading

Spot Trading

Spot trading of LTC is a continuous process of buying and selling LTC at a fixed price for immediate settlement. A trader intends to benefit from Litecoin’s market fluctuations by trading them on a spot market. Individuals employ lower time frames and generate greater profit via a series of small trades in this trading approach.

As a spot trader, there is no need to hold coins for too long because it appears to be a profitable tactic to gain multiple small profits in a single day. Furthermore, you may utilize the paper-trading option accessible on multiple exchanges to understand the market better.

Derivative Trading

Derivative trading is when traders bet on the LTC’s future price action by buying or selling derivative contracts to achieve more profits than if they bought the underlying asset outright. 

Since the 1980s, derivative trading has risen in popularity, and investors may now trade derivatives on various financial markets, including stocks, currencies, and commodities.

Traders may also utilize derivatives for hedging purposes, such as mitigating risk on an existing position. Traders may use derivatives to go short and benefit from declining asset prices. As a result, they may employ derivatives to hedge any existing long holdings. Derivative trading includes Spread Betting, CFD Trading, Forward Trading, Options, and Futures.

Derivatives trading is an alternative to spot trading that allows traders long or short the market, so gains are attainable regardless of how trends turn. CFDs that provide leverage may make longing or shorting Litecoin more attractive by boosting returns. This also raises the risk, so be cautious about depending on risk management measures.

Invest in Litecoin through Grayscale Litecoin Trust

There are no such ETFs available for Litecoin however, Grayscale Litecoin Trust is solely and passively source that invest in Litecoin. It enables investors to gain exposure to LTC in the form of a security while avoiding the challenges of buying, storing, and safekeeping LTC directly. Here are the brief details about grayscale:

Inception Date: 03-02-2018

Benchmark Index: CoinDesk Litecoin Price Index (LTX)

Annual Fee: 2.5%

Status: Private Placement Currently Unavailable

Bloomberg: LTCN US

Shares Outstanding: 17,204,700

LTC Per Share: 0.09033481

Reference: https://grayscale.com/products/grayscale-litecoin-trust/

Advantages and Disadvantages of Trading LTC

Whatever mode of trading you are selecting, there are serious risks involved while trading with cryptocurrencies like Litecoin. On the other hand, the gains are hard to ignore. 

Here are the few advantages and disadvantages you may face while trading Litecoin:

Advantages

  • While trading Litecoin, the investor can enjoy high leverages and earn tons of profits from small investments.
  • There is a lot of learning material, signals, and educational tools to anticipate the direction of the trend.
  • If you don’t understand the trading, you can go for social trading or can opt for copy trading tactics being used by successful traders. 
  • Many brokerages offer demo trading accounts to practice your trading strategy.
  • You can make profits on a daily basis as there are various tested strategies devised for day trading.

Disadvantages:

  • Trading is a full-time skill. In the beginning, you may gain huge profits by chance (Beginner’s luck), but if you invest for the long term, you have to learn to trade cryptocurrencies.
  • It required a lot of research, education, and emotional perseverance to trade crypto derivatives.
  • Like Bitcoin, Litecoin is also a volatile market, and there is a lesser chance to gain in the short run.
  • You have research for a fine brokerage or exchange to trade cryptocurrencies.
  • Even though there are tested strategies, they will not bring you winning results all the time.

How Litecoin Works?

Litecoin, like many- other cryptocurrencies, uses the proof of work (PoW) algorithm to secure its networks. PoW is a consensus algorithm that prevents double-spends in a blockchain network. Proof of work (PoW) is like a large ledger (or notepad) that records all transactions. And your transaction will immediately be removed if found double-spent. 

Whenever you do a transaction in a blockchain network, it is broadcasted to all users, and then users start validating that transaction in a block (candidate block). Once the transaction becomes valid, that candidate block becomes a confirmed block, and data is entered into a blockchain network. Nobody can change or modify the transaction without sacrificing a lot of time and money. The user validating the transaction using his own resources (computational power, money) will get a reward once the block is valid.

For major cryptocurrencies today, the conditions are extremely challenging to satisfy. As the higher the hash rate on the network, the more challenging it is to find a valid hash. This is done to ensure that blocks aren’t found too quickly. The more difficult it becomes to find the block, the fewer chances of fraud.

Litecoin uses the less resource-intensive Scrypt PoW algorithm, while Bitcoin uses the SHA-256 PoW hashing algorithm.

Supply and Value Generation Mechanism of Litecoin

The supply of cryptocurrencies could either be fixed or flexible. However, in Litecoin’s case, the supply is fixed at 84 million Litecoins. The Litecoin blockchain network creates a new block every 2.5 minutes around the world. 

The block is validated by mining software and made available to any system member (referred to as a miner) who wishes to see it. When a miner validates it, the next block, which is a record of every Litecoin transaction ever executed, is added to the chain.

The mining of Litecoin is not free, and there is some incentive for mining. The very first miner who successfully verifies the block is rewarded 12.5 Litecoins. The number of Litecoins awarded reduces with time, just as the case with Bitcoin. The halving was initiated in August 2019. The halving process is expected to continue at regular intervals until the 84 millionths of Litecoin is mined.

Pros and Cons of Litecoin

Pros

  • The Litecoin is more scalable than its predecessors as the block time is reduced to an epic mark. LTC is now 4 times faster than Bitcoin in terms of transactions per second. It is also cost-effective as Lee, the founder, adjusted the transaction fee model within the LTC, which is 1/50th than that of Bitcoin.
  • Litecoin introduces a friendly fee structure. Regardless of the size of your transaction, the fee of 1/1000 of an LTC is charged to process it. This provides a huge upgrade to the current market leaders. For example, PayPal charges a 3% fee for every transaction conducted within their network.
  • The supply of the coin is limited. Hence it counters the impact of inflation. With the passage of time, the value of the coin will not be reduced. 
  • The LTC is less volatile than Bitcoin because of its improved technology and use cases. 
  • The LTC development team is reliable and has vast experience in this field. They are development-oriented and love to improve the platform with time. 
  • The platform was first to add the Segregated Witness update and adopted it a month before Bitcoin was able to do so.

Cons

  • Despite Lee, the founder explaining the selling intentions of Litecoin in 2017, people quoted it as a doubtful decision. Some believe that the coin’s credibility is lesser as it would have some flaws that are not publically exposed. There is an environment of lack of trust in the coin by a certain community.
  • A study published in 2018 unveiled that LTC is the second most widely used crypto used in the dark web. Even though there are no clear justifications for that, the repute, once damaged, is hard to regain.
  • With the invention of more coins, people’s interest in LTC is diminishing. Day traders, who seek more volatility every time, moved for other investment opportunities.
  • According to https://bitinfocharts.com/litecoin/, the top 100 Litecoin addresses own 41.02% of the total, which is almost half of the total circulation. It means that the top 100 can control the price action of LTC, which is a concern to small investors.

Conclusion

There are various methods to invest in Litecoin; mining, HODL, trading derivatives are a few of the investing options for Litecoin. Before investing through any of the methods, one much critically examine the cost and benefits involved and the risk one can bear while dealing with LTC. 

References:

https://www.securities.io/investing-in-litecoin-ltc-everything-you-need-to-know/

https://www.investopedia.com/articles/investing/040515/what-litecoin-and-how-does-it-work.asp

https://coinmarketcap.com/alexandria/article/what-is-spot-trading

https://primexbt.com/for-traders/is-litecoin-a-good-investment/.

https://www.investopedia.com/tech/how-do-you-mine-litecoin/

https://www.europeanbusinessreview.com/what-are-the-pros-and-cons-associated-with-mining-any-cryptocurrency/

https://www.investopedia.com/terms/b/buyandhold.asp

https://www.finder.com/litecoin-mining