20VC Litecoin Founder, Charlie Lee on Why ICO's Are The Biggest Threat To Crypto, Why Ethereum Will Run Into Huge Scalability Problems & How To Assess The Trade Off Between Decentralisation & Scale

In a revealing conversation on the 20 minutes VC podcast, host Harry Stebbings interviews Litecoin creator Charlie Lee, who also serves as the Director of Engineering at Coinbase. Lee recounts his journey into the crypto world, starting with his fascination with Bitcoin in 2011, leading to the creation of Litecoin as a faster, more nimble alternative with a strong focus on transactional efficiency. He discusses the trade-offs between decentralization and scalability, the challenges of consumer adoption, and the importance of ease of use for widespread acceptance of cryptocurrencies. Lee also touches on the contentious nature of forks within the crypto community, the speculative nature of the ICO market, and his vision for Litecoin as a daily transactional currency. He emphasizes the critical role of secure yet accessible storage solutions for cryptocurrencies to achieve mainstream adoption.

• Charlie Lee is the creator of Litecoin, a popular alternative currency to Bitcoin.
• He founded Litecoin in 2011 as a side project while working at Google.
• Litecoin has a significant market cap, indicating its success and adoption.
• Charlie is also the director of engineering at Coinbase, a major cryptocurrency exchange platform.
• His previous experience includes roles at Microsoft, Google, and Guidewire.
• The episode mentions First Republic and Segment as examples of innovative startups and services.

"Charlie is the creator of Litecoin, the most popular alternative currency to bitcoin, which Charlie created as a side project in 2011 while working at Google. Today, Litecoin has a market cap of $3.29 billion."

This quote introduces Charlie Lee as the founder of Litecoin, emphasizing the currency's market capitalization as a measure of its success.

• Charlie's interest in cryptocurrency was piqued by a Silk Road article in early 2011.
• He became engrossed in Bitcoin, consuming all related news and forum posts.
• His experimentation with a Bitcoin fork led to the creation of Litecoin.

"I found out about bitcoin in early 2011 from an article about Silk Road and I was really hooked on bitcoin. Basically started reading all about bitcoin and followed pretty much every news article, if there are any forum posts on bitcoin. And fell down the rabbit hole."

Charlie Lee describes his initial fascination with Bitcoin and how it led to his deep dive into the cryptocurrency world, ultimately resulting in the creation of Litecoin.

• Charlie joined Coinbase in 2013, driven by his commitment to cryptocurrency.
• Coinbase's mission to simplify Bitcoin use for the masses resonated with him.
• The consumerization of Bitcoin is identified as a significant barrier to its widespread adoption.

"I joined Coinbase in 2013 because I wanted to go all in in cryptocurrency. I saw that Coinbase was a great company, trying to make bitcoin easy to use for the mass and it was a really compelling thing."

The quote highlights Charlie Lee's decision to join Coinbase and his belief in the company's goal to make Bitcoin accessible to a wider audience.

• Litecoin is described as "silver to Bitcoin's gold," suggesting a complementary relationship.
• It is characterized as more nimble, with faster transactions and greater block space.
• The Litecoin team's smaller size allows for quicker adoption of new technologies.
• There is less drama and more consensus within the Litecoin community.

"Litecoin is a more nimble version of bitcoin. It's faster in terms of transaction speed. It has four times the block space. So right now it scales better than bitcoin and transactions are faster."

This quote explains Litecoin's technical advantages over Bitcoin, including transaction speed and scalability.

• Bitcoin is seen as a store of value, while Litecoin is positioned for transactional use due to its speed and lower fees.
• Litecoin's scalability is contrasted with Bitcoin's scalability issues, which stem from the trade-off between decentralization and scale.
• Increasing block size can lead to more centralization, which is a concern for Bitcoin but less so for Litecoin.

"Pretty much. Bitcoin is going to be the best store of value, and litecoin, being faster, more nimble, and also have cheaper fees, will be better used for transactions as payment method."

Charlie Lee outlines the distinct roles of Bitcoin and Litecoin, with Bitcoin as a store of value and Litecoin for transactions.

• Bitcoin aims to be the most decentralized cryptocurrency and scales slower, potentially using layer two technologies like the lightning network.
• Litecoin has found a balance between decentralization and scalability, offering four times the block space of Bitcoin, which allows for more transactions but is slightly more centralized.
• Ethereum faces significant scalability challenges due to the complexity of the programs that can be written and run on every node.

"Developers of bitcoin and I all agree that bitcoin really needs to err on being the most decentralized cryptocurrency out there and scale slower or scale off chain using layer two technologies like lightning network."

This quote emphasizes the priority of Bitcoin's developers to maintain decentralization even at the cost of slower scaling, with potential off-chain solutions like the lightning network.

"So litecoin has four times the block space of bitcoin, so it's a little bit more centralized, but can have a lot more transactions in the blocks."

Charlie Lee explains that Litecoin has made a trade-off to allow more transactions by increasing block space, which introduces a slight centralization compared to Bitcoin.

"Ethereum actually has a lot harder problems with scalability, because Ethereum is doing a lot more."

Charlie Lee points out that Ethereum's ambition to support complex programs inherently creates scalability issues, as all code must run on all nodes.

• Bitcoin and Litecoin primarily aim to be currencies that transfer value efficiently.
• Ethereum's goal is to be a platform where developers can write any kind of program, which complicates scalability.
• Litecoin plans to add more smart contract capabilities but will not go to the extent of Ethereum to avoid compromising its core function as a value transfer system.

"For bitcoin, litecoin, the goal is just to be currency. All it does is be able to transfer value, and it does it really well."

Charlie Lee clarifies that Bitcoin and Litecoin are focused on being currencies that excel at value transfer.

"For Litecoin, we're looking into adding more programmability, like more smart contract stuff."

Charlie Lee indicates that Litecoin is considering expanding its capabilities to include smart contracts, enhancing its programmability.

• A cryptocurrency fork occurs when there's a divergence in the consensus code, leading to two separate chains.
• Forks often result from irreconcilable differences within the community.
• The lack of a central authority in decentralized networks makes forks unpredictable and consensus difficult to achieve.
• The competition for the original name and identity of the cryptocurrency can be contentious after a fork.

"So what holds a cryptocurrency together is that everyone is running the same piece of code, or at least code that has compatible consensus."

Charlie Lee explains that a cryptocurrency's integrity is maintained by the community's agreement on the fundamental rules encoded in the software they run.

"But if a major part of your community wants to do something different... they forked off."

Charlie Lee discusses how significant disagreements within the Bitcoin community led to the creation of Bitcoin Cash.

"That's why the forks are so unpredictable. And you never know when consensus get formed where a fork will actually happen."

Charlie Lee points out the inherent unpredictability of forks due to the lack of a central authority in decentralized networks.

• Litecoin is considered to have better technology than Bitcoin and can implement new technologies more quickly due to its smaller size and willingness to take risks.
• Litecoin activated Segregated Witness (SegWit) before Bitcoin, demonstrating its ability to move faster technologically.
• SegWit and the lightning network are developments that help with scaling by changing how transaction signatures are stored and enabling off-chain transactions.

"Litecoin was always viewed as bitcoin with better tech. Now bitcoin maybe has successfully fought will Litecoin continue to differentiate itself on better tech?"

Harry Stebings brings up Litecoin's reputation for having better technology than Bitcoin and questions how it will continue to differentiate itself.

"Yeah, because we are always able to move faster... we are able to take more risks to introduce more newer technologies before bitcoin."

Charlie Lee asserts that Litecoin's agility and smaller market capitalization allow it to innovate and adopt new technologies more rapidly than Bitcoin.

"So being able to take more risks also means that we're able to scale better."

Charlie Lee links Litecoin's willingness to take risks with its ability to scale more effectively, highlighting the activation of SegWit as an example.

"The major feature of Segwit is Segrit stands for segregated witness. What that means is signatures for the transaction is located in a different part, is segregated from the re"

Charlie Lee starts to explain that SegWit, short for Segregated Witness, changes the storage of transaction signatures, which is a key feature in addressing scalability.

• Transaction malleability is an issue where the hash of a transaction can be changed by mutating the signature, without altering the transaction itself.
• This causes problems when transactions are chained together, as a change in the transaction ID can invalidate subsequent transactions.
• Segregated Witness (SegWit) was introduced to solve this by separating the signature from the transaction hash, thus preventing malleability.

"So the transaction id could be mutated by a separate third party. And doing that, you can't really chain transactions together." "So segregated witness. What that did is it moved signatures to a different part of the transaction and only used a non-signature part for transaction id."

The quotes explain the problem of transaction malleability and how SegWit addresses it by separating signatures from the transaction hash, thereby allowing transactions to be securely chained.

• Bitcoin's community is larger and more ideologically diverse, leading to more disagreements.
• Ethereum and Litecoin communities originated from Bitcoin's community but are more aligned in their direction and goals.

"I think bitcoin communities is larger, and so there's more disagreement within the community." "And also I think for Ethereum and Litecoin, the communities are formed from part of the bitcoin community, and it's more focused towards the direction of where Ethereum and Litecoin wants to go."

The quotes highlight the differences in the size and ideological alignment of the developer communities among Bitcoin, Ethereum, and Litecoin.

• Miners choose to mine BCH over BTC for ideological reasons despite a potential profit loss.
• Mining profitability is influenced by the choice of cryptocurrency and the cost of electricity in different locations.

"What I actually tweeted about was that a minor or a group of miners is leaving $300,000 on the table every day because they're mining BCH instead of BTC." "So they are supporting BCH for ideological reasons as opposed to profit-driven reasons."

The quotes discuss the economic and ideological reasons behind miners' choices, particularly why some miners may forego higher profits from mining BTC in favor of supporting BCH.

• Miners are distributed globally, with a concentration in areas with cheaper electricity.
• They make money by finding blocks that contain a certain number of coins.

"Okay, so miners are geographically all over the world, so you can mine, anyone can mine. That's by design." "They make money by finding bitcoin, litecoin, BCH, ethereum."

These quotes describe the decentralized nature of mining and how miners earn revenue by finding and confirming blocks across different cryptocurrencies.

• Miners are primarily motivated by profit and show no loyalty to any particular cryptocurrency.
• GPU miners can mine various currencies and switch to the most profitable ones.

"If all they care about making money, then they have no loyalty to any particular cryptocurrency." "So there are pools that jump between different GPU mineable currencies and mine whichever is the most profitable and sell that for bitcoin or litecoin or whatnot."

The quotes emphasize miners' focus on profitability and their tendency to switch between different cryptocurrencies to maximize earnings.

• Initially, the community is vital for a cryptocurrency's growth and adoption.
• As a cryptocurrency matures, its community may consist more of speculators and investors rather than early adopters.
• In the long term, the importance of the community may diminish as the use of the currency becomes more widespread and normalized.

"I think initially, in the beginning, the community is most important." "But for the long term, the community wouldn't matter as much because it's all about using it as the currency."

The quotes discuss the evolving role of the community in the lifecycle of a cryptocurrency, from critical in the early stages to less significant as the currency gains mainstream acceptance.

• The current cryptocurrency market resembles the "Wild West," with rapid gains and speculative trading reminiscent of the 1980s Wall Street era.
• Concerns exist about the sustainability of profits in the market, especially with ICOs that may lack substance.

"Yeah, it definitely is the Wild west." "Because you can't just create money out of thin air, right? So if everyone is winning, then who's losing?"

These quotes convey the speaker's apprehension about the speculative nature of the cryptocurrency market and the potential for a bubble due to the influx of ICOs with questionable value.

• Charlie Lee predicts a significant downturn in the ICO market.
• A flight to quality would occur, with investors moving funds to more established cryptocurrencies.
• Stronger currencies like Bitcoin and Litecoin would benefit from such a market event.

I think there will be a flight to quality, so people would sell their tokens for ether and potentially sell their ether for bitcoin. This quote indicates Charlie Lee's expectation that investors would shift their investments to more stable and established cryptocurrencies in the event of an ICO market crash.

• The biggest concern for Charlie Lee is the possibility of the ICO market crashing.
• He acknowledges this could lead to a crash in many ICO tokens and altcoins.

Yeah, I would say that's the biggest concern. Is the ICO market crashing? Charlie Lee confirms that the potential crash of the ICO market is his primary concern regarding the crypto industry.

• Charlie Lee's favorite book is "A Game of Thrones" by George R. R. Martin.
• He appreciates the book for its engaging content and considers it one of the best he's read in a decade.

My favorite book is George R. R. Martin's a Game of Thrones. Charlie Lee highlights his preference for "A Game of Thrones," praising its quality and impact on him.

• Initially, Litecoin was a side project for Charlie Lee, and he did not anticipate its future success.
• There was a period when Litecoin was not making significant progress, leading to doubts about its potential.

Yeah, well, initially it was more for fun. Right. I didn't expect it to be what it is today. This quote reflects Charlie Lee's initial perspective on Litecoin as a casual project without expectations for major growth.

• Litecoin's value surged in 2013, increasing from under a dollar to around $50.
• This significant price jump occurred after a similar increase in Bitcoin's value.

2013. It had a huge jump. Charlie Lee identifies 2013 as a pivotal year for Litecoin, marking its substantial rise in value.

• A common misconception is that one must buy an entire Bitcoin or Litecoin.
• This misunderstanding may have inadvertently helped Litecoin as it seemed more accessible to those who found Bitcoin too expensive.

I guess misconception? I guess it would be that people think you have to buy one whole bitcoin or one whole litecoin. Charlie Lee addresses the misconception about purchasing cryptocurrencies, clarifying that partial ownership is possible and has influenced buying behavior.

• Charlie Lee believes that cryptocurrency will eventually replace fiat currency as the world's reserve currency.
• He foresees a future where everything is based on cryptocurrency, with Bitcoin possibly leading the way.

I guess I believe that cryptocurrency will take over fiat currency and become like the reserve currency, or bitcoin could become, will become the reserve currency of the world, where everyone would base everything on cryptocurrency. Charlie Lee shares his vision of cryptocurrency overtaking fiat currency and becoming the foundational reserve currency globally.

• Charlie Lee envisions Litecoin as a daily payment method of choice for people.
• The primary obstacle to this vision is the current difficulty in securely and conveniently using cryptocurrencies.

My vision is people would use litecoin every day to buy things. Charlie Lee expresses his aspiration for Litecoin to be widely used for everyday transactions.

• The main barrier to cryptocurrency adoption is ease of use, particularly in terms of secure storage.
• Hardware wallets are improving the situation, but the ideal solution has yet to be achieved.

Ease of use. So I think what's stopping all of cryptocurrency is just ease of use. Charlie Lee identifies ease of use as the critical hurdle for widespread cryptocurrency adoption, emphasizing the need for secure and user-friendly storage solutions.

• Harry Stebings thanks Charlie Lee for his participation and provides information on how to follow him on social media.
• Harry also extends gratitude to Brian Armstrong for facilitating the interview.
• Harry promotes First Republic and Segment, highlighting their services and importance to startups and data management.

I told you a very special episode and I'd like to say a huge thanks to Charlie for giving up the time today to come on the show. Harry Stebings expresses his appreciation to Charlie Lee for joining the podcast episode and provides additional information for listeners interested in learning more about the guest and the services mentioned.