Early one October morning two years ago, Lee unleashed his project, Litecoin, onto an online universe that was still coming to terms with its more famous progenitor, and though Litecoin is still firmly rooted in the Bitcoin code base, it has found a place in the world, showing just how strong the appetite is for a new breed money.
Bitcoin has had an extraordinary run this year, but if you’d sunk your money into Litecoin instead of Bitcoin on January 1, it would have done better. Since then, Bitcoin jumped from just over $13 to its current value of more than $115. Back in January, Litecoin was trading in the $0.07 range. Today, it’s worth close to $2.40. In other words, while it took 200 Litecoins to buy a Bitcoin in January, today it takes only 50.
Government regulation may put the squeeze on Bitcoin — and perhaps Litecoin too. But digital currency will continue to evolve and grow. It’s what so much of the world wants.
Although its dwarfed by Bitcoin’s popularity, people seem to like Litecoin because it’s a more credible alternative to the growing list of Bitcoin imitators, which Lee saw as either technologically challenged or straight up pump-and-dump scams. “I wanted to create something that is kind of silver to Bitcoin’s gold,” says Lee, who left Google last month to seek his fortune in the wild west of alternative digital currencies.
He took the basic ideas behind Bitcoin — a currency created by a pseudonymous character who goes by the name Satoshi Nakamoto — and refined them. Litecoin was designed to pump out four times as many coins as Bitcoin, in an effort to keep the digital currency from becoming scarce and too expensive. It processes transactions more quickly, and discourages the kind of high-volume but very small transactions that have become a nuisance on the Bitcoin network. And it lets regular folks more easily “mine” coins — i.e. provide the online currency system with the computing power it needs, in exchange for digital money.
The result wasn’t a Bitcoin killer. But it was something that gave digital currency yet another stamp of approval.
Down the Silk RoadThe Ivory Coast-born son of an entrepreneur, Charles Lee has long had an interest in economics. He describes himself as a gold investor, skeptical of the Federal Reserve. Like his dad, he graduated from MIT, having studied computer science and electrical engineering. And after kicking around in Silicon Valley for more than a decade, he was looking for something new in 2011.
He found that in Bitcoin: an open-source-software project that seemed to perfectly marry his passions for finance, cryptography, and technology. He first heard about it while reading an article about Silk Road, the online drug shopping mall, and soon, he started playing around with the peer-to-peer software that powers the digital currency. From there, the natural next step was to create his own.
He released one currency called Fairbrix — but it was a dud, plagued with technical problems. Litecoin was his second effort.
His Bitcoin fork was worthless the day he launched it, and it was hardly the only Bitcoin alternative out there. But Lee took a different tack from some of the other Bitcoin imitators. He released the currency to the world after mining a mere 150 Litecoins. That meant that the whole world could get in on the currency on the ground floor.
There was also a bonus for miners, who in October 2011 were engaged in an escalating technology race in the Bitcoin world. Bitcoin miners earned coins by participating in a kind of cryptographic lottery and the folks who could do the most mathematical calculations were rewarded with the most Bitcoins. But as Bitcoin surged in value, people started building complex Bitcoin mining rigs that could do more calculations and therefore earn more Bitcoins.
Litecoin leveled the playing field, using a technology called Scrypt to lower the advantage miners would get by switching to GPU rigs or custom-designed mining systems.
Mirror, MirrorThanks to a few small changes to the Bitcoin way, Lee succeeded where others couldn’t. Two years on, Litecoin has started to reproduce the Bitcoin ecosystem is many respects.
The Silk Road underground drug shopping mall gave Bitcoin a boost, and now Litecoin is accepted at an alternative to The Silk Road, called Atlantis. There’s a company in Utah called Casascius that mints its own physical Bitcoins, and Litecoin has got this too, only the Litecoin version is from Hawaii.
You may have a much harder time finding a pub in London or a taxi cab in San Francisco that will accept Litecoin, but hey, Jay’s Jerky and Goodies takes them. So does the online tech store BitElectronics.
Still, Litecoin is mostly a vehicle for investors who want to get in early on what could be the next wave in digital currencies. But there are a few signs that it’s continuing to strengthen its foothold. Earlier this year, Bitcoin’s most widely used exchange, Mt. Gox, said that it was going to start trading Litecoin.
To get a sense of how things have changed, consider this. About a year ago, Noah Luis — the guy who mints the Litecoin coins in Hawaii — convinced someone on the internet to buy him a pizza in exchange for 3,500 Litecoins, worth $30 at the time. At today’s valuation that medium-sized meat-lover’s pizza was worth $8,400.
Luis says he has no regrets.
In May the project got a boost when Warren Togami signed on. A former software engineer at Red Hat, he’d founded the Fedora Linux project about a decade earlier.
Togami is now Litecoin’s lead developer and he’s creating a nonprofit foundation to manage the Litecoin software development and advocacy, much like the Bitcoin Foundation.
And just last month, a Bay Area startup called Coinbase hired Lee away from Google.
Lee says that he isn’t there to work on Litecoin. He’s written some code that allows Coinbase users to swap Bitcoins via SMS. But he wouldn’t rule out the possibility of Coinbase adopting Litecoin.
Bitcoin’s story has been a bumpy ride. The currency has crashed and risen from the ashes. Bankers, regulators, and law enforcement agencies eye it with suspicion. In all likelihood, Litecoin will have many similar bumps ahead of it, if it continues ride in Bitcoin’s wake.
But even if it doesn’t survive, it’s serving an important purpose, says Jerry Brito, a senior research fellow at the Mercatus Center at George Mason University. Bitcoin is “like any other open-source project where people are going to fork it,” he says. “That’s good in that people are going to take it in interesting new directions.”