CHARLIE LEE: I found out about Bitcoin in 2011 and kind of just went down that rabbit hole. Only recently do we have the concept of fiat currency where the state has control over it. Throughout history, we've always used things like gold and silver as real money. There will definitely be thousands of different cryptocurrencies but there will only be maybe a handful that actually have real value.
MICHAEL GREEN: Mike Green. I'm here in Las Vegas for Real Vision at the World Crypto Con Conference. Amidst all the noise of the conference, I'm going to get to sit down with Charlie Lee, who is the inventor of Litecoin, the first alternative to Bitcoin, really an extension of Bitcoin as we'll talk about. I'm excited to sit down and talk with Charlie about the history of how he became involved in crypto and his thoughts on how it develops on a forward-looking basis. I hope you find it as interesting as I know I will.
Charlie, I'm excited to sit down and talk with you. A lot of our viewers aren't going to know much about you. But you were the founder of Litecoin.
CHARLIE LEE: That's correct. Yeah.
MICHAEL GREEN: In Litecoin, you built off of Bitcoin, the general idea. And as I understand it, the primary differences are in block transaction size and frequency. And the idea behind Litecoin was to improve the efficiency for transactions, the actual utility of Bitcoin.
CHARLIE LEE: We made it faster. It's 2 and 1/2 minutes per block as opposed to 10 minutes for Bitcoin. The general idea was to kind of complement Bitcoin. I saw it as a kind of market as silver to Bitcoin's gold. I see Litecoin and Bitcoin working side by side.
MICHAEL GREEN: And so this is not a competing cryptocurrency, effectively. You actually really do see it as a symbiotic relationship.
CHARLIE LEE: I do. But in some sense, it's competing. Right? It's competing for my share differently. It's a different coin so if people using Litecoin, they may not use Bitcoin. So it does compete a little bit but I see it more as complementary.
MICHAEL GREEN: What got you interested? Because I mean, you have a very different background than most people. First of all, you were not born in the United States or even China as I understand it. You came from the Ivory Coast. How'd you end up there?
CHARLIE LEE: Well, my dad was there. He had a business. So I grew up in Ivory Coast and came to the US when I was a teenager.
MICHAEL GREEN: And did you come with your family at that point?
CHARLIE LEE: Actually, I came by myself. Boarding school in the east coast.
MICHAEL GREEN: So you went to boarding school on the east coast. Was this a choice of your family's or was this something that was interesting, important to you?
CHARLIE LEE: It was a choice of my family. I think the environment in Ivory Coast was getting a little bit crazy with overthrowing of the governments and just demonstration on the streets. So they decided to send me to boarding school. Also, for a better education. Yeah.
MICHAEL GREEN: And so from boarding school on the east coast, you then went to MIT where you focused on computer science. Correct?
CHARLIE LEE: Correct. Yeah.
MICHAEL GREEN: And from MIT, you went to the west coast to Silicon Valley.
CHARLIE LEE: Yeah. I went to Silicon Valley and been there ever since.
MICHAEL GREEN: And that was roughly 2000?
CHARLIE LEE: Yeah, at the peak of the dot-com boom.
MICHAEL GREEN: So you got to live through the peak of the dot-com boom. You began working for Google, when?
CHARLIE LEE: In 2006.
MICHAEL GREEN: So this would have been right after Google went public then.
CHARLIE LEE: A couple of years after, I think. Actually, 2007.
MICHAEL GREEN: 2007. OK. And when you think about that transition to Google, one of the things that Google has encouraged its employees to do is to take time to focus on personal projects. Is that where your interest in Bitcoin and Litecoin emerged? How did you move from working on Chrome, which was one of your projects as I understand it?
CHARLIE LEE: Chrome OS, actually. Yeah.
MICHAEL GREEN: To focusing on crypto?
CHARLIE LEE: Yeah, I was actually just spending all my time outside of work on cryptocurrencies. Yeah, I found out about Bitcoin in 2011 and kind of just went down that rabbit hole and been, I guess, in it ever since.
MICHAEL GREEN: What was the motivation? What got you interested? Other than the mathematical challenge of crypto, which I know can be exciting for some people?
CHARLIE LEE: Yeah, I saw Bitcoin as a better version of gold. Actually, a better form of money than we've ever seen and that just captured my attention. I've always understood how gold and silver were used throughout history as money and how we came to the fiat currencies we have today. And I just saw Bitcoin as just kind of very similar to gold, but better, and it could actually replace the current monetary system. And I also understood the math and the cryptography behind it. So this really captured my attention.
MICHAEL GREEN: A lot of people became interested in Bitcoin, the work of Satoshi was published in the immediate aftermath of the global financial crisis. Was that a motivating factor for you? Looking at the current system and saying this didn't work?
CHARLIE LEE: Yeah, definitely. I saw that for one thing, currently, we have a system of money that the government can inflate away. With quantitative easings and other things, they can just print more money and devalues everyone's currencies. And I also saw that because of that, it's not good to keep your money in the bank because your money will become less valuable over time. So it kind of forces people to essentially gamble with their money. They have to put in the stock market or some other asset class that doesn't get devalued or that has potential of making more money. Effectively, it just keeps the same purchasing power because of the devaluation of the US dollar. And if you make 3, 5, 10% on your investment, effectively, you're just keeping the same purchasing power. So I think it's just a broken system. And with something like gold or Bitcoin, it's a better form of money I would say.
MICHAEL GREEN: And so are you ambivalent between the idea of an alternative currency in the form of gold versus Bitcoin or Litecoin? Or do you see the need for an electronic version because of the challenges of gold?
CHARLIE LEE: Yeah, definitely.
MICHAEL GREEN: Transactions, et cetera.
CHARLIE LEE: I mean, gold is great. Government can't devaluate it, its fixed supply rate. But the problem is their storage cost and then if you want to transfer it, it's not easy to transfer gold across country, across borders. But something like Bitcoin and Litecoin, it has pretty much all the good properties of gold except it's not physical and then you can store it cheaply and you can transfer it cheaply. It's just a better form of gold.
MICHAEL GREEN: So one of the challenges that I always look at when I look at this idea that it's a better currency. Right? There's a school of thought that says currencies are about the efficiency or the ease of use which definitely crypto and even arguments behind things like electronic gold or gold script, et cetera, by and large attempt to address. Certainly, our credit based system is much more associated with the ease and facilitation of transactions. But there is a second role which is the role of the state which has a monopoly, at least under current constructs, on violence and the enforcement of contracts as it relates to those currencies. How do you think about crypto addressing those dynamics and the transition process in which the state will ultimately have to forfeit that monopoly?
CHARLIE LEE: From my point of view, I don't think the state needs control of money. Right? Money is just a way where people can transfer and store value. There's no reason why the state needs to have control of it. I mean, only recently do we have the concept of fiat currency where the state has control over it. I mean, throughout history, we've always used things like gold and silver as real money, as ways to transfer and store value, and I think Bitcoin will help us get back to that better kind of way of people using money.
MICHAEL GREEN: It's interesting because I struggle with that history. Right? The idea that fiat currencies are relatively recent. The idea of minting or re-minting coins, or seigniorage, is very simply an idea that a tax is effectively created on top of the metallic content. So the metallic content of currencies was a reference point but you could always debase it, literally add base metals, lead, to a gold coin, generating revenues for the state in the process. Again, facilitating the role of the state in providing enforcement, how does crypto allocate toward something like that? Or does it just believe there is no need for violence in the process?
CHARLIE LEE: I don't think there's a need for that.
MICHAEL GREEN: Interesting.
CHARLIE LEE: I guess the thing with cryptocurrencies is that you can't add that, you can't debase it. Yeah, so it potentially could cause some conflict with the current state of things.
MICHAEL GREEN: When you think about that conflict, how does it get resolved? Have you looked forward into that space, that transition?
CHARLIE LEE: Honestly, I don't know. Yeah. It'll be very interesting because the US government definitely has fought wars over keeping control of the reserve currency. So yeah, we'll see what happens. But I believe in decentralization. I believe that kind of like freedom of money. We should have control of our own money. One thing Bitcoin and cryptocurrency brings about is a censorship-resistant form of money, where I can send money to you or to whoever and no one else can stop me. Right? It's my money, I should be able to spend it however I want. The state can maybe say that whatever I'm purchasing is illegal and block me from buying something but they shouldn't be able to block me from actually sending money.
MICHAEL GREEN: When you think about that though, I mean, how do you think about the difference between buying something that is illegal and transferring money to somebody who then provides you with an illegal service?
CHARLIE LEE: What do you mean?
MICHAEL GREEN: I can execute a transaction that says I buy illegal drugs or I purchase prostitution or I label that a money transfer and those services are provided without any contractual trace. Right? Which is why the cash economy is typically useful.
CHARLIE LEE: It's why we have the AML, KYC laws. I personally don't believe governments should actually regulate money movement. They should actually do it other ways to block illegal things. Right?
MICHAEL GREEN: So when you say otherwise, what would be an example? How are you thinking about that?
CHARLIE LEE: Basically catch criminals in the act of doing illegal things. Right? And not the money movement part. I guess the money movement part is easy for them, easier for them to catch and that's why they're blocking it there. But that really clamps down on the freedom of your money.
MICHAEL GREEN: So I mean, that's a relatively recent innovation. We highlight Al Capone captured for tax evasion. Right? If we are unable to track the efficient movement of the money, it provides an avenue of enforcement that may not be open in other ways. When you think about foregoing that, are you concerned about potential rise in illegal or criminal activity as we saw this with obviously Silk Road? Right? Do you think about that framework or is that more of a user and an enforcement dynamic than the engineering challenges?
CHARLIE LEE: Yeah, I would say the latter. I'm more concerned about working on sound money, building something that is good money. So the reason why Silk Road would use something like Bitcoin is because it's a better form of money. I would just leave it at that. It's for the governments and the enforcement agencies to figure out how to catch the bad guys. But I think having sound money where people can spend it however they want or send money to whoever they want is something I think it's good for money.
MICHAEL GREEN: When you think about the technical challenges, let's turn to the technical challenges because you continue to work with the Litecoin Foundation. What do you see as the barriers to adoption?
CHARLIE LEE: Ease of use. Yeah, like right now, it's still not easy to use cryptocurrencies. Cryptocurrencies is being speculated a lot but actually like spending it, buying things with it, transferring value, actually transferring value is still not easy to use. So I think building better UI and user experience on a better hardware wallets, better ways to secure the coins, is really important for adoption.
MICHAEL GREEN: When you think about the dynamics of ease of use, again, you kind of come back into this component of you're replacing the current alternative. If I want to purchase services for a haircut, I can use cash or I can use credit card. Part of that dynamic is that the accounting systems are in place that facilitate the government's capturing of its piece of the pie, the taxation. How do you think about a taxation layer on a global currency like Bitcoin or Litecoin?
CHARLIE LEE: What do you mean by that?
MICHAEL GREEN: Well, the underlying dynamics of US dollar transactions, for example, are that the vast majority of them are conducted on a geographically proximate basis. So I go to my local barber, he has a tax requirement that is auditable although the frequency of that has fallen with the increased cost of compliance, and he is collecting a local sales tax whether that's state, federal, local. If you're in Europe, it would be a value-added tax, which would be effectively a pure tax on that. If I'm using Bitcoin, it becomes a challenge how to identify what portion is a capital gain. Did I purchase the Bitcoin at a discounted price and therefore, when I sell that or I transact, a portion of that shows up as a capital gain? A portion of that has to be captured in the equivalent use tax, a sales tax or a value-added tax. But when you're operating a global currency, it becomes extraordinarily difficult for the tax enforcement mechanisms to track what is strictly a transfer, what is a use purchase, et cetera. How do you think about that in terms of the use component? Is that something that you guys are actively working on in Litecoin?
CHARLIE LEE: Well, for one, Litecoin transactions is more trackable than cash transactions. So if someone came with cash, they can evade taxes, sales tax and stuff, and we see that happening. So with the cryptocurrency transaction, it's actually even better because it's on a blockchain and so it's public, so it's harder to evade taxes that way. As far as capital gains on cryptocurrency, I actually believe that we shouldn't have capital gains on cryptocurrency payments because it's basically money. You're converting between US dollar to another form of money and then converting back. So for small purchases. I think there is some bill that's being pushed to make it so that for something below $600, that there won't be any capital gains. Because otherwise, if you're buying a cup of coffee and you have to calculate like when I get this Bitcoin or Litecoin, how much did I pay for it and what is it now? And then how much did I make off of it? It gets really burdensome and practically impossible for people to spend the coin. So I hope something like small purchases will be exempt from capital gains. It would be a good thing to have for cryptocurrency.
MICHAEL GREEN: So when I think about that dynamic and I understand that some form of legislation is actually in motion. I believe it's on a state, not a federal level though. Is that correct?
CHARLIE LEE: I don't know.
MICHAEL GREEN: OK. The challenge is is that interrupts the monopoly that the state has on currency. Right? So if I engage in transactions, certainly at a large scale, If I buy euros and then sell those, I have to pay capital gains associated with that. Would it make sense to advantage crypto in that context? Or do you think it's more a function of it's currently at a disadvantage because the record-keeping can potentially be so robust?
CHARLIE LEE: I think it's currently at a disadvantage that I hope it will change. Yeah. Right now, you want to spur, at least I want to spur adoption, at getting people to use it. And right now, it's just too burdensome to spend coins.
MICHAEL GREEN: So that's actually an area that I'd like to diverge into which is this idea of spurring adoption, it's difficult for people to get coins. One of the challenges that exists within the crypto space mirrors a broader concern within society is this general idea of equality. So the ownership of crypto is very concentrated. We're all familiar with the statistics behind what fraction of crypto is held by a few very well-placed individuals. How do you think about that getting distributed and back in without a government function of taxation and redistribution?
CHARLIE LEE: I actually disagree that crypto is concentrated. If you look at the reason why people say to us if you look at the blockchain, a lot of the addresses hold the majority of the coins. And the reason why that is because these coins are actually held on exchanges and exchanges could have like a million users storing all the coins on one address as an extreme example. So an address holding like a thousand Bitcoins could actually belong to a million users or a thousand users. So we actually don't know the real distribution but it's a lot better than what we actually see in a blockchain today.
MICHAEL GREEN: But let's be fair on this. Right? So in Bitcoin, there's roughly 17 million Bitcoins out of 21 million possible. In the case of Litecoin, I think the statistic is about 60 out of 85. Is that correct?
CHARLIE LEE: 84, but yeah.
MICHAEL GREEN: 84, OK. Close enough for government work. Right? Yet there's an incredibly small penetration of wallets and participation in Bitcoin exchanges, et cetera. So we know it has to be very concentrated. Right?
CHARLIE LEE: I mean, it's definitely more concentrated than the US dollar, a lot more. Right?
MICHAEL GREEN: Right.
CHARLIE LEE: But this is early. Right? People getting in, there aren't that many cryptocurrency users. We're talking about millions as opposed to billions for fiat currency.
MICHAEL GREEN: But that's part of the challenge. Right? How