4 Things to Know Before You Buy Litecoin

Litecoin (LTC) promotes itself as silver to Bitcoin's (BTC) gold. The digital currency was launched in 2011 as a faster, more affordable alternative to the crypto giant.

If you're considering buying Litecoin, here are some things you should know.

1. Litecoin is lighter and faster than Bitcoin

Litecoin is a digital currency that followed in the footsteps of Bitcoin. Bitcoin was the world's first decentralized digital currency, and it lets people make payments without a bank or government acting as a middleman. However, this granddaddy of crypto is not perfect: Bitcoin transactions can be slow and energy intensive.

Litecoin aims to solve these issues. It uses the same blockchain technology, but it processes transactions four times faster, which may make it more attractive to retailers. Plus, there will eventually be four times as many Litecoins available as there are Bitcoins. There will only ever be 21 million Bitcoins, compared with 84 million Litecoins. Some argue this makes it better for small transactions.

2. Litecoin's founder sold his coins to avoid a conflict of interest

After former Google software engineer Charlie Lee founded Litecoin, he became an influencer in the crypto space. This suited his mission to promote the adoption of digital currencies, particularly Litecoin. However, it also led to accusations of a conflict of interest.

When Lee promoted Litecoin on social media, people said he was only trying to pump the coin's price. He reached a point where he had to decide between promoting Litecoin and owning it. So, in 2017, he sold all his coins and donated the proceeds to the Litecoin Foundation.

It's worth noting that Lee was also criticized for selling. However, after the rollercoaster of the Musk effect this year, cryptocurrency investors should be grateful for thoughtful, responsible influencers.

3. Govcoins may be on the horizon

Anyone considering buying cryptocurrencies that operate in the digital payment space needs to be aware of the development of so-called "govcoins." Over 60 countries are considering launching their own government-run digital currencies. The Bahamas, Cambodia, and China have already taken big strides forward.

Authorities are concerned that the rise of cryptocurrencies could make it more difficult for them to control their economies, so they are looking for ways to turn the tables. These coins would benefit from some of the advantages of blockchain -- fast, cheap, and secure transactions. But they'd be centralized, so they'd still be backed by governments and central banks.

One of the challenges both Bitcoin and Litecoin have faced in getting businesses to use them as currencies is that their value can fluctuate wildly. This makes it difficult for companies to manage their payroll and supply chain. Govcoins and stablecoins (cryptocurrencies that are pegged to something like the dollar or price of gold) solve that problem.

The growth of both govcoins and stablecoins could have a huge impact on digital currencies like Litecoin. Govcoins could push more merchants and shoppers to adopt digital payments. But they could also elbow decentralized coins out of the market, especially if governments introduce stricter crypto regulation at the same time.

4. Litecoin is widely available

Litecoin has been around for 10 years and it's considered one of the more established cryptocurrencies. As such, you can get it from most major cryptocurrency exchanges.

It hasn't seen the dramatic price jumps of Bitcoin or Ethereum (ETH) though. If you'd bought $1,000 worth of Litecoin three years ago, you'd have about $1,540 today -- an increase of 54%. That's a solid return, especially when you consider that some currencies have fallen away completely. However, Bitcoin jumped over 500% in the same time period.

If you're considering buying Litecoin, be prepared for volatility. All cryptocurrencies have the potential for huge gains as well as huge losses, so it isn't a great idea to invest money you can't afford to lose.

As we touched on above, there are a lot of players in the digital payment space, so you'll need to consider both cryptocurrencies and other non-crypto competitors. The Litecoin team has done a lot to promote and grow the cryptocurrency industry, but that's not a guarantee of success. Indeed, there's a chance Litecoin could be overtaken by newer coins -- or even govcoins.

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Emma Newbery owns Bitcoin, Ethereum, and Litecoin.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Bitcoin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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