Formerly an engineer at Google, Lee has been at the vanguard of the crypto sector ever since he launched Litecoin in 2011. Aside from Litecoin, he’s also served as the Director of Engineering at Coinbase. In our interview, he touched on everything from his inspiration for starting Litecoin, to Litecoin’s relationship to Bitcoin, to the current technical and societal barriers to widespread Litecoin and crypto adoption.
What inspired you to start building Litecoin in the first place?
Initially, it was mostly just for fun. I wanted to play around with the Bitcoin code base. And then I also wanted to create an altcoin that was better than all the other altcoins that were out there at that time. One of the main goals was to launch it in a very fair manner. So, no pre-mines: make it so that people can mine from the start. So, I didn’t have any advantage over anyone else. And then I also wanted to create something that complemented Bitcoin. So that’s where the “silver to Bitcoin’s gold” came from.
I’ve seen that idea of it being “the silver to Bitcoin’s gold” cited everywhere, and I feel like oftentimes in media, people mean different things by it. Could you elaborate on how you see that relationship between Litecoin and Bitcoin?
I always saw that, in order for Bitcoin to stay decentralized and secure, it couldn’t be the best of both worlds in terms of being able to handle moving large amounts of money and also small amounts of money because both transactions would require the same amount of fees. So you have to make tradeoffs, right? If Bitcoin is focused on moving large amounts of money, then the fees will be high and the security will be high. Litecoin can act as a complement: it can be used for smaller amounts of money and have lower fees.
As you reflect on the history of Litecoin — given that it’s been around for about seven years at this point — does any particular moment or set of moments stand out when you were really worried that it would fail?
It’s actually really hard to kill a decentralized cryptocurrency: if there are one or two people supporting it, then it will survive. I think for a few years around 2013/2014, Litecoin was pretty stale, and I was focused on Bitcoin — this was when I was working at Coinbase, so I wasn’t really paying too much attention to Litecoin or trying to make sure that it was doing well. But Litecoin managed to do pretty well, and it came back strong.
One of the other things that’s fascinating about the relationship between Bitcoin and Litecoin is that, on the one hand, we have Bitcoin, which has a totally anonymous creator — and then, on the other hand, we have Litecoin, where you have been the very public face for a long time. What do you see as the advantages and the challenges to being the public face of a major altcoin like Litecoin?
I think that, for good reason, Satoshi remained anonymous and kind of left the project. In hindsight, I should have done the same thing. I mean, being a public face for a decentralized cryptocurrency is kind of an oxymoron.
But there are definitely advantages. For example, two years ago, I saw that Bitcoin was having all this trouble with activating SegWit. I saw SegWit as an amazing feature, but there was all this FUD around it. I realized I could help out by pushing Litecoin towards getting SegWit activated. Being its creator, I was able to make that happen. In contrast, with Bitcoin, it’s really hard to actually adopt something new when there are parties that are against it: it’s hard to figure out when a consensus is reached. With Litecoin, it’s easier because I’m around.
Disadvantages? Obviously, Litecoin is more centralized than Bitcoin. If anyone wants to target Litecoin, they could attack me. That’s something that definitely could be improved. So I think that moving forward, I’ll eventually have to step away from Litecoin — I’m talking years down the road, when Litecoin is used and more as a real-world currency. At that point, it wouldn’t make sense for the creator to still be around, dictating things.
So it’s the difference between a benevolent dictator and a democracy: democracy is definitely a lot more inefficient, but it’s more decentralized.
Sure, and I know from what you’ve said about it in the past that part of selling all of your Litecoin was preparing to ultimately step away from that position of centralized leadership. In the past, when you’ve discussed your decision to sell your stake, you spoke in pretty nebulous terms about other ways in which you would be incentivized to continue working towards Litecoin’s success, despite the fact that you didn’t really own any coins anymore. Could you elaborate on what you see as those other incentives that keep you motivated to help Litecoin succeed, now that you don’t have a direct financial stake in it?
These days, I’m not motivated by financial gains. I’m focused on spending all my time on Litecoin because it’s my baby: I created it, I want to see it succeed, and, if it does well, I get pride, fame, whatever. I’m spending all my time on it, and time is more valuable than money to me. So I’m definitely, really, fully invested in Litecoin’s success.
There’s no need for me to have a financial stake in it. A financial stake doesn’t really add that much, to be honest. I’m actually working harder right now than I worked previously on Litecoin: back when I had my LTC, I was spending most my time on Coinbase.
Which coins or projects do you personally view as competitors to Litecoin — for instance, how do you view Litecoin’s relationship to Bitcoin Cash?
Charlie Lee: I see cryptocurrency bringing value to the world through the properties of sound money. Decentralization is inefficient, but it creates a form of money that we’ve never seen before: it’s decentralized, it’s censorship-resistant, and it’s immutable. Nobody can inflate it away; nobody can counterfeit it. It’s a form of money that is very powerful; it’s something we’ve never seen, and that’s why it’s valuable.
Coming from that angle, there aren’t that many projects in my mind that are working towards that “sound money” aspect of things. Bitcoin is obviously the soundest form of money around, and Litecoin, I would say, is the second soundest. Another project that I’m interested in as Monero: I think a bit of privacy and fungibility is something that’s missing from Bitcoin and Litecoin, and it’s very much needed.
I do agree that Bitcoin Cash is definitely a competitor, but they’re coming from an angle, I would say, of being PayPal 2.0. They do everything on-chain, so transaction throughput will be high, but they’re sacrificing decentralization. It becomes harder and harder to run a node. And then fewer and fewer users will be running nodes — it’ll be left to big corporations and big miners. Before you know it, it’s centralized around those big players. That’s definitely something I’m not interested in.
In the end, I think that sound money will win in crypto. You won’t be able to win against someone like PayPal in terms of transaction throughput because you’re competing with a centralized system. And then if you don’t have any valuable properties like sound money, what’s the point?
The decentralized nature of blockchains makes it all the more important that blockchain communities are active and growing. What efforts are you making to cultivate the Litecoin community?
It’s a complicated topic. It’s unclear to me how important community is for a project to succeed. There’s no community around the U.S. dollar or other fiat currencies, right?
Cryptocurrency more generally has a good community, and I do a lot with it — mainly through Twitter. I have a huge following on Twitter, and I kind of try to push my vision: what I see as valuable, and how I think Litecoin and Bitcoin should evolve. But on the other hand, if one of these really does become a worldwide decentralized currency, then the community will be the whole globe. It won’t just be a few thousand or tens of thousand people on Twitter or Reddit.
One of the reasons why I ask you if you think community-building is important for Litecoin specifically is that it seems like a lot of the Litecoin adoption we’ve seen thus far is piggybacking on things like Bitpay, where merchants are deciding to accept cryptocurrency and Bitcoin more generally, rather than seeking out Litecoin. So I feel like, for that reason, it might be important for Litecoin to build its own community such that it could eventually become a worldwide phenomenon. Or do you not see it that way?
Yeah; I mean, the end goal is for Litecoin and Bitcoin to be used for payments, right? I mean, to be used as real-world money — movement of value. Right now, like ninety-plus percent of people are in it as a speculative investment, or they just put money into Bitcoin thinking that in the future will be useful, or that the value will go up and they’ll get more money. So I’m building and pushing for that payment-focused future.
It’s a chicken-egg problem in terms of merchant adoption and people using it. If there is no one accepting Litecoin, then people won’t be using it; if people aren’t using it, then there’s no reason for merchants to accept it. So I’m definitely pushing towards that. We have a movement called #PayWithLitecoin, a grassroots movement where people are encouraging everyone to get out there and pay with Litecoin, to convince their local merchants to accept it — to actually use it. So: they use it, merchants will see people using it and asking for it, and they will accept it. They’re trying to kickstart a virtuous cycle.
Two of the biggest challenges for Bitcoin right now are issues of scalability and volatility in its price. I know you’ve said some interesting things in the past about how Litecoin might be able to help with Bitcoin scalability, but I’m wondering whether you see a Litecoin encountering those same problems in the future. If so, how you think it will deal with them? If not, why not?
On one hand, Litecoin has four times the effective block space compared to Bitcoin. So it can better — like, linearly better — handle the scalability problem. But in the end, we still need second-layer solutions like Lightning Network to help Litecoin and Bitcoin scale.
With Lightning Network, Bitcoin and Litecoin become interchangeable via atomic swap: you can send Bitcoin and receive Litecoin, and vice versa. That makes it very easy for Litecoin to help Bitcoin out in terms of handling the transaction value. We’ll see if Bitcoin will need an on-chain solution, like a block rate or block size increase, because for second-layer solutions, you still have to settle on-chain, and Bitcoin may still not have enough block space for that. So we’ll find out, I guess — we’ll cross that bridge when we get there.
Ultimately, I think the goal is to move smaller payments — like buying coffee, or microtransactions — onto off-chain solutions or second-layer solutions like Lightning Network so that the base layer can still be as decentralized and as secure as possible.
And how about price volatility? Do you worry that volatility will be an obstacle to using Litecoin for everyday transactions?
It is, yeah. A lot of people aren’t spending it because the price is down and they don’t want to sell at this low point. It also makes thing harder for merchants: merchants don’t price things in nominal Litecoin terms, so things are always priced in U.S. dollars and then converted to Litecoin. So it definitely complicates things.
I think the volatility of Bitcoin and Litecoin will solve itself over time: they will become less and less volatile, and we’re already seeing that, if you look at the statistics. They’re definitely less volatile now (to a small degree) than they were previously. The reason why they’re so volatile is because one day, people may think Bitcoin will become the world reserve currency, and then the next day, Mt. Gox gets hacked for hundreds of millions of dollars and people say, “This is crap, this is useless. No one can secure their own coins, so Bitcoin won’t go anywhere.” So that’s why it’s so volatile. But over time, as the infrastructure gets built out, as more hardware wallet solutions get built out, as it becomes easier to hold your coins, as it becomes easier to acquire coins and spend coins everywhere, and as Lightning Network gets built out, I think the price will go up and then will settle on the “true value” of cryptocurrency. We don’t know where that is, but it will become less volatile.
You talked a minute ago about the block time for Litecoin, and how it’s significantly (4x) faster than Bitcoin’s. Do you ever consider making the block time even faster? What are the pros and cons to making the block time half a minute, rather than two and a half minutes?
The faster the block time, the more inefficient mining will become. You’ll have more orphans: when two miners mine the same block, one of them will get orphaned and then that will be wasted work. So the downside of that, obviously, is that the miner whose block got orphaned lost out on the value of the work they did.
The other downside is that faster block time makes it such that whoever wants to attack the network can do it for less cost than the network is actually paid. If 50 percent of blocks get orphaned, and the network is 100 gigahash, then the attacker only needs 50 gigahash to attack the network because 50 percent of blocks were orphaned, whereas the attacker would not have any blocks orphaned, so they can build a longer chain with less work. That’s definitely an issue. But in the end, I think 10 minutes is a bit of overkill — it’s a long time.
There’s also an issue where, if half the internet goes down for a netsplit, for like five minutes, when it comes back up, the blockchain would have split in two and would have to reconcile. So that could cause double-spending and stuff like that. Having a longer confirmation time helps mitigate that problem. But I think that two and a half minutes works fine.
You will never be able to have instant on-chain confirmation. It’s a trade-off: if you were to do that, you would have tons of orphans. So I don’t foresee Litecoin changing its block time — I don’t see the value in that, I think. Second-layer solutions like Lightning Network there will provide instant payments, and that’s really what we need.
What do you see as the most interesting applications of Litecoin’s scripting language?
Applications for the scripting language are limited. It’s not like Ethereum, where you can do pretty much anything. I think one of the best uses of it today is Lightning Network: using payment channels, hash timelock contracts, settling that, having the payment go through multiple nodes, and have all that be confirmed and backed by the base layer using scripts. I think that’s really powerful and a really good case of how scripts are being used.
Given how long Litecoin has been around, how has your perspective of it changed over time?
So, to give a little perspective: when I first found out about Bitcoin, the whole market cap of Bitcoin was 200 million dollars. And then when I launched Litecoin, the market cap of Bitcoin was, I think, 50 million dollars. To compare, Litecoin today has a 3 billion dollar market cap. It’s already like 10x what Bitcoin was when I first created Litecoin. That was totally unexpected.
When I created Litecoin, it was just for fun. So initially, it was a fun little side project, and it kind of became its own thing. When it hit a billion dollar market cap, I stepped back and realized, “Wow, this is crazy.” Something with a billion dollar market cap, isn’t a “fun little side project” anymore. I had to be extra careful, because it’s people’s money, so if I screw up — if the network has a fork, for example — it could be really bad.
To that end, one of the principles I always followed was to just keep close to Bitcoin. Bitcoin has the strongest developers in this space, and there’s no reason to change things, especially if I don’t understand them well, just for the sake of changing them. We’re seeing a lot of coins change some stuff around and then get hacked or have something blew up in their face, simply because they didn’t realize that the thing they changed was there for a reason.
This is why Litecoin follows Bitcoin really closely — and that’s good and bad. The bad part is that Litecoin doesn’t differentiate itself that much from Bitcoin. But I see it as more of a benefit: we can keep the most secure and the best code out there while also being able to innovate in certain aspects. For example, we were able to activate SegWit first and we proved that the game-theory aspect of SegWit works well in practice. And we can do that for other things in the future. For example, I’m a big proponent of adding more fungibility to Litecoin, and also to Bitcoin. I think it’s one of the features of sound money that is missing from Bitcoin and Litecoin.
When you receive coins, you shouldn’t be able to know like where the coins came from. And if you’re trying to spend two outputs, you don’t really care. Right now, when you’re using Bitcoin, if you bought 10 BTC on an exchange, receive them in your wallet, and go spend it, if you send that output to your friend, then your friend would see that, hey, you actually had 10 BTC — you actually had a lot of money there. So before you send them money, you have to actually think: “Should I send them this output, or that output?” When you have to do that, it makes Bitcoin really, really hard to use.
So, adding fungibility — something like confidential transactions, or something else — would definitely be good. But there may also be pushback from the community. It’s going to be controversial because maybe an exchange might delist a coin if it adds confidential transactions. We’ve seen exchanges in Korea forced by the government to delist privacy coins because the government didn’t like privacy coins. So Litecoin could potentially be a good test bed for things like that.
In terms of Litecoin or cryptocurrency more generally, what keeps you up at night right now?
I think the recent scare definitely gives me a wake-up call: the bug that could potentially cause inflation in coins. Things like that — bugs that cause the network to split, or cause a fork, or cause inflation — stuff like that is really very scary. Litecoin is small compared to Bitcoin: Bitcoin’s like a hundred billion dollar currency, right? Something like that could like destroy 90 percent of its value overnight. So stuff like that definitely keeps me up at night. In Litecoin’s case, we’re running a network that is worth three billion dollars. That’s still a lot of money.
Thanks to Charlie Lee for taking the time to talk with us and provide his views on the world of crypto.
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