Charlie Lee is lauded in cryptocurrency circles as the creator of Litecoin, an alternative to Bitcoin he conceived in 2011 as a Google software engineer. Today, Litecoin is the sixth-largest crypto with a market cap of $5 billion. It bears many similarities to Bitcoin, but also has important differences: Transactions are confirmed 75% faster, it has greater liquidity with four times more coins in circulation, and it is more resistant to manipulation by miners holding 51% control of the network.
In 2017, Lee sold his entire stake in Litecoin and now serves as managing director of the Litecoin Foundation, which seeks to advance Litecoin and develop blockchain technologies for the social good. At the recently held second annual Penn Blockchain Conference, Lee sat down with Knowledge@Wharton to talk about the philosophy behind Litecoin’s creation, whether cryptos will replace hard currency and what’s next for him.
An edited transcript of the conversation follows.
Knowledge@Wharton: I want to establish an origin story for Litecoin. Could you tell us what made you create this cryptocurrency in the first place?
Charlie Lee: Sure. In October of 2011, I was playing around with the Bitcoin code base, and I guess the short of it was that I was just trying to create … a fork of Bitcoin. It was mainly a fun side project.
Before Litecoin, there were about a dozen other altcoins (alternative cryptocurrency) and most of them don’t exist today anymore. Most of them were created by founders who wanted to strike it rich. So they would do something called a pre-mine — they would mine a lot of coins for themselves before they launched it, right in the beginning. Then hopefully if it becomes successful, it would make them a lot of money.
A lot of people didn’t like how unfair these coins were compared to Bitcoin, which was launched very fairly. One push was to create a fairer version of a coin called Tenebrix. [There were improvements but still] Tenebrix was launched with 7 million coins for the founder. Then I helped create this coin called Fairbrix, which is basically Tenebrix without the pre-mine.
Fairbrix was attacked in the beginning. There were some bugs in the code because the Tenebrix code was not very well written, so it kind of failed. After that I decided to do it right, to actually fork from Bitcoin and to create Litecoin. So I did that and made it fair.
“It is one of the stories that people don’t hear about Litecoin, which is how fair it was.”
It is one of the stories that people don’t hear about Litecoin, which is how fair it was. I made sure to launch it as fairly as possible. The week before [the launch, I released] the source code and binary so people can actually run Litecoin before the actual launch to test the mining, to see if it works on their computer, to make sure everything is OK.
Then at the time of the launch, which was a time that was voted in by the community, I released two constants that people can just put into their config file, restart their client and would just start mining coins. When I launched it, thousands of people were mining from the start. It was pretty much as fair as I could possibly make it.
Knowledge@Wharton: Your whole point was to create a more egalitarian cryptocurrency. Do you feel that you have succeeded?
Lee: Yes. I think one of the reasons why Litecoin actually survived and became popular is because of the fair launch. Everyone, including myself, had equal access to mining the coins and also buying it from the exchange. I didn’t pre-mine. I didn’t have a lot of Litecoins. I didn’t just create Litecoins and give a lot to myself.
Even a coin like Ethereum has a huge pre-mine. They sold however millions of dollars worth in the beginning and gave a lot of Ethereum or ETH to themselves. Given how fair Litecoin was, it is one of the reasons why it survived where other coins didn’t, I think.
Knowledge@Wharton: One of the things that would give a lift to cryptocurrencies is mass adoption, and it has been said that merchant adoption specifically is the Holy Grail of altcoins. Do you agree with that, and how do we get there?
Lee: I don’t necessarily agree with that. I think the goal for Litecoin and also, for me, for Bitcoin is to create sound money. When I first found out about Bitcoin, I saw it as a better form of money than … human civilization has ever seen. If Bitcoin is a better form of gold, for example, it doesn’t have to be used daily. People [store but] don’t spend gold, right? And you can actually build on top of that.
With Bitcoin and Litecoin there are Layer 2 solutions. Lightning Network [that sits on top of the blockchain to enable faster executions] is probably a better form of a payment network than just on-chain Bitcoin or Litecoin. I see that happening where people will build on top of it. While I wouldn’t say [mass adoption] is the Holy Grail, I think eventually you will be able to spend your Bitcoins or Litecoins [more widely] and it is going to happen eventually, but it is not something that is needed today.
“When I first found out about Bitcoin, I saw it as a better form of money than … human civilization has ever seen.”
Knowledge@Wharton: Do you think there will ever be a time when we will do away with central authorities of monetary systems in the world?
Lee: I don’t know if that will ever happen. I think for sure cryptocurrency will be one of the currencies that people will use; it will achieve mass adoption one day and people would treat it as real money. The volatility will come down and things will be priced in cryptocurrencies. I truly believe in that. Whether or not the current system of currencies will still be around, I don’t know.
Knowledge@Wharton: Do you see that maybe one iteration of that future is that central banks would issue some kind of cryptocurrency?
Lee: I don’t see the benefit of that, to be honest. Because for me the benefit of cryptocurrency is decentralization — the censorship-resistant part, where no one can prevent you from spending your own money. If the central banks or the governments actually create a cryptocurrency, they still have full control, so what is the point? It is effectively no different than a digital version of a U.S. dollar.
Knowledge@Wharton: Do you see a world where cryptocurrencies in blockchain applications will be ubiquitous, just like mobile phones are now widely used to pay for things instead of just making phone calls? Do you see blockchain and cryptos changing the daily lives of people, and in what way?
Lee: Yes. I think in the future you will be using cryptocurrencies in your daily lives, and you may not even realize it. If Bitcoin really does become as ubiquitous as money, it will have to be easy to use. It will be very different from what we are doing today. Who knows what devices we will be using, but you could be spending Bitcoin, buying stuff, and you wouldn’t even know it. You may not even call it Bitcoin. It might just be money.
Knowledge@Wharton: There are many cryptocurrencies out there, and by some counts more than 2,000. Do you think we will get to the point where maybe a few will emerge as dominant, or maybe just one? How many do you think the world can handle?
Lee: Definitely not thousands. I think there is going to be more than one — Bitcoin, Litecoin, maybe a few others. Maybe a handful that would actually represent real value. The beauty of it is eventually they’ll be very interchangeable, so you can send Litecoin and the recipient can send Bitcoin, and it will be converted automatically, instantly. And you wouldn’t even have to worry about it, you wouldn’t even have to know. I think that is going to happen.
The important thing is that the user experience will improve, and a lot of complicated things will have to be abstracted away from the end user. Just like what happens with what you use today. You don’t really care what happens when you make a phone call or when you swipe a Visa card. However many institutions that get contacted to approve this transaction, how the money moves — you don’t really care. All you care about is that you [can] buy this product. The same thing will happen with Bitcoin and cryptocurrencies: Things will get simpler, and that is when things will take off.
“If the central banks or the governments actually create a cryptocurrency, they still have full control, so what is the point?”
Knowledge@Wharton: In a Utopian universe for cryptos, technology is everything. But since we don’t live in that world, social behaviors are also very important. What do you think will drive mass human adoption to make people trust them? Because trust is really critical for cryptos to take off.
Lee: Trust is definitely very important. A lot of the things that are hindering adoption today is the lack of trust in terms of securing your Bitcoins. A lot of people aren’t tech savvy enough to protect and store their own coins, and they rely on third parties like exchanges. And then the exchanges get hacked. Pretty much every month there is a story of an exchange getting hacked and losing millions of dollars of customers’ funds. And that really hurts. It hurts the trust in this industry and also the people who actually lost money.
So it is very important for us to build out simple yet secure ways of helping people store their own funds. Whether that is mobile wallets that are secure or hardware wallets, like the Ledgers or Trezors, and improvements to those which would make them simple to use yet still secure.
It has always been a trade-off, right? Simplicity versus security. Putting money on an exchange like Coinbase is extremely simple, but you are relying on someone else to secure the coins for you. And then there’s putting things [away yourself], like I [did. I] previously had coins on paper wallets, where you print out a piece of paper with your private key and then you put that piece of paper in the bank safe, or you split it up somehow.
You store it, secure it yourself. [But it makes cryptos] really hard to use. It’s like for long-term storage; you can’t really spend it. The compromise [is something] in between. We just have to find a good way … that is both secure and simple. I think that is a very important thing to achieve.
Knowledge@Wharton: Where do you see cryptos in terms of being an investment asset? Is that a good idea? How do you even do a valuation of that?
Lee: As the industry grows, people, at least initially, will value it as more of an investment asset or a speculative asset. But eventually when it becomes more stable, and prices become less volatile, it will become less of an investment asset and more of just money that people would hold on to. I think it is fine right now [for people to consider it as an investment asset], but I don’t see that being the future.
“In the future you will be using cryptocurrencies in your daily lives, and you may not even realize it.”
Knowledge@Wharton: Where do you see cryptocurrencies going? What do you think is its next iteration or use case? Do you see any new trends coming?
Lee: My focus is on the monetary aspect of cryptocurrencies. With Litecoin, I want it to be used as money. My focus for that is merchant adoption, where more and more merchants or people are actually supporting Litecoin or using it or accepting it. One of the key things I am working on is to improve the fungibility of Litecoin.
What that means is right now when you spend Litecoin or even Bitcoin, transactions you make have a history attached to them. People can track back and see where you got those coins and how that person got his coins to send to you. You can track it all the way back to the beginning, so you can almost see if I used the coins to buy illicit goods or gambled with it.
You’ve heard stories of Coinbase banning people from using their service if they found out that the coins you received were sent from, say, a gambling website or from a dark marketplace. That makes the coins not very fungible, because you have to pick and choose which coins to send to someone if you don’t want them to see how much you got paid or what you used with it.
In contrast, if you walk to a store and you have two $20 bills in your wallet, for example, you don’t care which one you spend unless you care about how pretty one of them is. Like the U.S. dollar, fiat currency is very fungible. Bitcoin, Litecoin today are not. That is something that we need to improve.
One of the requirements of fungibility is privacy. If the coin is not private, then it is not fungible. Fungibility and privacy go hand in hand, and it is something that I am really looking into right now.
Knowledge@Wharton: What else is next for you? Are you running for president, like so many are doing?
Lee: No, but it would be cool if an Asian-American becomes president. I am still focused on Litecoin. I am working full time with the Litecoin Foundation on just everything around Litecoin, including development. Also on issues like, for example, what I was talking about with privacy and fungibility. And adoption of Litecoin, partnering with various companies supporting Litecoin, merchants, merchant processors and just getting more exposure for Litecoin.