No sooner have the first Bitcoin billionaires been minted than a new currency is on the rise. Litecoin has skyrocketed 5,800%, to $252 or so a coin, over the last year. So, what the heck is Litecoin, exactly?
- Litecoin, technologically speaking, is basically Bitcoin for the most part: In the basics, Litecoin is more or less exactly like Bitcoin. In fact, it’s technically a “fork”, or revised version, of the original Bitcoin program. It uses the same process to create the coins, and it uses the same process to decentralize the banking, called the blockchain, where essentially everyone checks everyone else’s books. The big differences are that it generates “blocks” faster, every 2.5 minutes instead of every 10; that there are more of them with a goal of 84 million Litecoin, and it uses a different form of encryption. All of this was only of interest to nerds until the market ballooned.
- Litecoin’s main appeal is that its transactions are faster: The way Bitcoin is structured, it’s slow and because it’s slow, it’s expensive. Because everybody has to check everyone else’s work, and because Bitcoin budgets one megabyte of data every ten minutes, Bitcoin transactions crawl. Litecoin was designed specifically to avoid this problem, and as a result, its transactions are relatively zippy.
- Thanks to that speed, and the fact that you can buy Litecoin with Bitcoin, investors have shown a taste for it: As CNBC notes, Litecoin transactions tend to be on the rise thanks to investors diversifying out of Bitcoin, or using Litecoin as an actual transaction medium. It helps that Litecoin, while hardly cheap, is still pretty inexpensive compared to the thousands a Bitcoin currently trades at.
- But the rules of cryptocurrency still apply: Just like Bitcoin, there are real problems and liabilities involved in cryptocurrencies. If you invest a small amount of money on the side, it may be fun to fiddle with this stuff, but don’t put your retirement fund in Litecoin unless you’re willing to lose it all.
In other words, treat this like the Wild West that it is. Cryptocurrency started as an experiment and remains one yet. Whether it becomes brilliant innovations or blows up in the world’s collective face, well, the jury’s still out, so plan accordingly.