What is Litecoin and Is It a Decent Investment For 2021?

Are you interested in taking a step into the cryptocurrency world but find Bitcoin too high to buy into? Litecoin might be the solution for you.

Litecoin sets out to solve some of the problems that plague the Bitcoin network, like slow transaction times and lower cost to own one Litecoin. But that doesn’t mean you should expect the same gains as Bitcoin.

Here is everything you need to know about what is Litecoin and whether you should invest in it or not.

What Is Litecoin?

Litecoin was launched in 2011 after Charlie Lee wanted to create something similar to Bitcoin. Like Bitcoin, Litecoin sets out to be a cryptocurrency that can be used in place of fiat money. The idea is to be able to spend the cryptocurrency at all your favorite places, just like you would with your countries paper money.

Litecoin is similar to Bitcoin in that there will only ever be a certain number of tokens minted. Whereas Bitcoin has a supply limit of 21 million, Litecoin has theirs set at 84 million. This is four times the number of Bitcoins that will ever exist.

If you want to learn about Litecoin and where it started, be sure to check out the link.

What Is the Price of Litecoin?

Currently, the price of Litecoin fluctuates between $250 to $300 USD at any given time. But with Litecoin having quadruple the number of coins compared to Bitcoin, shouldn’t the price be closer to $10,000? Not necessarily, as that has more to do with the market capitalization of the coin.

Market cap refers to the current price of a single coin multiplied by the current circulating supply. Litecoin has around 67 million coins minted and in circulation currently. With the current circulation supply multiplied by the average cost of the coin, the current market cap of Litecoin sits at around $19 billion USD.

Compared to Bitcoin, which has a market cap of $1 trillion USD, it now makes sense why Litecoin has a lower price. If Litecoin were to have the same market cap as Bitcoin, then the price would sit around $15,000.

Even with a market cap of $19 billion, Litecoin still falls into the top 10 cryptocurrencies by market cap, sitting at number 9.

What Is Litecoin Mining?

Litecoin and Bitcoin both work through a process known as Proof of Work (PoW) to verify transactions. These transactions occur on the blockchain of their respective networks.

To process these transactions, the network needs a lot of processing power. The processing power will typically come from graphics processing units (GPUs) or ASICs miners. ASICs miners are specific miners for a specific network that don’t serve any other function.

The reason people will mine coins like Litecoin or Ethereum is because of the rewards for helping process these transactions. If your mining pool is the first one to process the transaction, then you get a “block reward”. Currently, for every block “mined” on the Litecoin network, you receive 12.5 Litecoins.

If you’re a single miner who can’t compete with big operations, then you can mine to a pool. Mining pools will pay their users through two methods.

The first is through the block reward itself. The other comes from transaction fees that occur on the network.

Who Should Consider Investing In Litecoin

Investing in any cryptocurrency is not for the faint of heart. There are times when the crypto market can fall 20% in an hour and then rise 15% in the next.

To understand if you should invest in Litecoin or any crypto, you should understand your risk versus reward tolerance first. High risk comes with high reward, but it also comes with high losses if you’re not careful.

If you believe that Litecoin could see the same adoption that Bitcoin has, then you might want to consider investing in the platform. More retailers are starting to accept crypto payments, so it might pay off to hold until there is mass adoption.

If you’re familiar with how taxes work for cryptocurrency, then you will okay handling the complicated nature of investing in crypto. Currently, cryptocurrency gets treated as an asset by the US government, making it complicated when it comes to taxes.

Who Shouldn’t Consider Investing In Litecoin

If you’re someone that thinks the market will crash every time it dips 5% in a week, then you’re going to have a rough time with investing in Litecoin. People will often panic sell when this happens, creating a loss of money and no potential to make that money back when the market rises again.

Cryptocurrency trading never stops, so you might need to make trades in the middle of the night to capitalize on new listings or new platforms. If you’re used to the New York Stock Exchange and the easy hours they set, then you might have a tough time adjusting.

What Is Happening With Litecoin When It Comes to Purchasing Items?

Payment systems like PayPal have started to allow users to pay with certain cryptocurrencies like Litecoin and Ethereum. This mass adoption shows signs that major retailers might start offering it soon.

Keep in mind that when you purchase something with cryptocurrency, you’re going to be paying the taxes on it. The United States treats these purchases as you realizing your capital gains. In these instances, you’ll be paying sales tax and the capital gains tax of the amount that you used to purchase the item.

If you spent $30 USD worth of Litecoin on a shirt while you were profitable, then that means you need to pay capital gains on the $30 worth of profit.

Litecoin: The “Silver” To Bitcoin’s “Gold”

So, what is Litecoin? According to the founder, Litecoin is the silver of the world while Bitcoin is the gold. Both work hand in hand to help bring decentralization to the world.

If you want to learn more about cryptocurrencies and the role they play in the world, then be sure to check out the rest of the blog. Know someone interested in Litecoin? Share this article with them so they understand what they’re getting into when it comes to investing in cryptocurrencies.

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