Notes from Charlie Lee’s “Creating Litecoin” presentation

Charlie Lee came to Google last week to talk about how he designed the cryptocurrency, Litecoin. Charlie is an ex-Googler & ex-Director of Engineering at Coinbase. I took notes from his talk that you can find below:

What is Litecoin?

• Open source fork of BTC
• 4 x number of coins (84 mn LTC)
• ¼ block confirmation time — 2.5 mins
• Scrypt proof of work (Bitcoin uses SHA256 for hashing) — “Silver to Bitcoin’s Gold”
• Launched October 13, 2011

Altcoin explosion

• Alternative crypto to BTC
• There’s even a website to create new crypto nowadays: build-a-co.in

Altcoins before Litecoin

• Namecoin: First fork, launched in 2011, decentralized DNS of blockchain, same proof of work as BTC (SHA256D), have difficult time to force merge mining — need to piggyback on Bitcoin, Bitcoin hash have the same problem
• Ixcoin: Exact clone of Bitcoin, launched in 2011, 580k coins postmined, became popular because people wanted to be in altcoin
• I0coin: Fork of Ixcoin with 0 pre-mining, bad name, didn’t really take off because no one knew how to pronounce it
• Solidcoin: Launched in 2011, fork of bitcoin, 30,080 coins postmined, 3 min blocks, fixed fees — attacked with spam transactions, shutdown and relaunched as Solidcoin 2
• Geistgeld: Built on multicoin, 7.7 mn coins premined, 15 second blocks, high orphan rates, miners might waste electricity mining blocks that did not really get to the blockchain
• Tenebrix: 7.7 mn coins premined, 5 mins blocks, 50 coins rewards indefinitely, first scrypt proof of work, difficult for GPUs to mine and have to use CPUs (GPU is more efficient than CPU) due to Scrypt
• Fairbrix: Fork of tenebrix, created by Charlie Lee, no premine, plagued with various bug in multi coin

Why create Litecoin?

• An excuse to learn BTC code
• Create an altcoin better than the rest

Design of LTC

• Scrypt proof of work: Don’t compete with Bitcoin miners (Namecoin), CPU mining is fun (Tenebrix) → LTC is newer only 6 months, so mining is still profitable compared to BTC
• 2.5 min blocktimes: Fast block makes coin easier to use (Solidcoin), too fast and it becomes inefficient (GeistGeld)
• Fair launch, no premine (I0coin, Fairbrix)
• Fork of Bitcoin and KISS (Fairbrix, Soldicoin)
• Good name and marketing (all)

Source Code Design — Code Source: https://github.com/litecoin-project/litecoin

• Addresses start with ‘L’ so that people don’t mix it up with Bitcoin
• 2.5 mins block, keep the same reward schedule
• Find the hash of the block that’s harder and harder for Bitcoin, Litecoin blocks do not start with zero due to scrypt proof of work
• Hardest work is to creating the genesis block and this code is not published by Satoshi so Charlie had to reverse engineer this → added a quote on Steve Jobs passing away ;)
• Fair launch: Source / binary released a week before launch (a long time before then!), launch time selected by forum poll
• Genesis block withheld — can only mine on testnet — make genesis block a secret (you can’t mine on top of it because there are two numbers that are params)
• Switching to mainnet with a config change

Why is Litecoin successful?

• Easy to remember name
• Good marketing with “silver to bitcoin” tagline, which ended up being a self-fulfilling prophecy
• Arbitrage coin with BTC
• On practically every exchange
• Reuse of old Bitcoin mining GPUs
• When BTC moved to ASICS, because BTC miners wanted to reuse their CPUS
• Fair launch → don’t pre-mine your coins!

Q&A

• LTC was made for currency — how do you see transition of crypto to fiat? Censorship resistance is value proposition (no one can block your payment) — example: donating to Wikileaks which is forbidden by some government. Not everyone needs it — but freedom of money is very helpful! It’s like cash.
• Is cryptocurrency like BTC or Litecoin a currency or a security? Essentially, it’s programmable money so it’s like currency. Before cryptocurrency, AI cannot survive in the wild (monetary transaction requires banking institution) — but with BTC, AI can use money (buying, selling) and this creates a currency that can be used by AI. ICOs are closer to security. Right now, it’s still a speculative security. It’s like gold because of a fixed amount — it’s an experiment of decentralized currency with fixed cap could be useful
• Problems with BTC and how it affects Litecoin BTC block is 1 MB — so you can only fit certain amount of transaction per block (probably only 3 transaction / block). Make the block larger? Everyone who runs a node needs to process all these blocks — does it make sense for every single person buying coffee to be stored in blockchain? People will stop running nodes — it requires 10 GB of hard disk space, but if people stop running nodes and only big cos run nodes, then normal users are relying on large companies and it’s no longer decentralized! Becomes easier for government
• Is volatility the reason why it’s stopping crypto from currency use? In large part, yes! But volatility has decreased over time. Gold was similarly volatile when it first was used as alternative to currency.
• Compare Ethereum to BTC and LTC? ETH lets you do more smart contract and programming. It targets decentralized application developers. Problem: Harder scaling problem than BTC due to larger block sizes, ETH contract is gonna be a lot more in size. Won’t be best way to transfer value → ICOs get congested. BTC and LTC’s value proposition is transfer of value
• How do you assemble a team? Make money to fund team using ledger wallets, donation, merchandise — create unique stuff that community wants. Created a legal entity of Litecoin Foundation to sponsor litecoin developers — we don’t need to do too much because we can copy Bitcoin developers, having more developers is just cherry on top
• What do you think the launch of Bitcoin Gold? Bitcoin Gold is kinda like Bitcoin Cash (it’s not exactly the same as Bitcoin). Seems to Charlie like a way to make more money from Bitcoin.
• Should you buy coins or ETFs of the coins (e.g. eToro)? Buy the coin! It’s like gold vs. gold ETF ! When shit hits the fan, the value of ETF (eToro) will be worth nothing. But Coinbase could give you protection, because people might not be good at securing themselves and Coinbase could do a better job! Bitcoin exchanges require you to create a secure ledger
• What do you think of centralization of mining in China? Concerning — only 5 / 6 miners. However, big players will jump in and it’ll become more like a commodity. I’m not too worried of centralization, because miners get paid their due amount. When Bitcoin and Litecoin gets attacked from a system perspective, there will be a consensus to fix it — we might switch proof of work — and essentially that will be similar to firing miners
• Proof of work vs. proof of stake Don’t think proof of stake will be as good as proof of work. Proof of work cost electricity — because it’s wasteful — protects network. Proof of stake is like getting free lunch — you can’t create security out of nothing — “Nothing at stake”
• What’s the need for decentralized app? Right now, people still trust AWS and GCP so a lot of things does not need to be decentralized!
• What’s next for Litecoin? Similar to what’s next to Bitcoin. Lightning network, adding more programmable element like smart contracts, and work on confidential transaction — hide transaction amounts so you can get better privacy (right now, if I buy LTC to get coffee, people can see how much I have) — everyone can validate my payment but don’t know the amount — this is what’s missing from bitcoin and litecoin as of today compared to cash