Keynote
Speakers: Charlie Lee
Transcript By: Bryan Bishop
It has been a while since I have been back to MIT. So. So um. Yeah, it’s. I got extremely excited that the expo is at 26100. This was one of my favorite classrooms. Almost 20 years ago, I took 1802 with Professor Rogers. Yeah. I hope I am not as boring as he was back then.
Another thing I remember about this classroom is that we watched a lot of LS movies. Does LCE still suck? Um, yeah. I definitely did not expect back then to come back and give a talk. So I am extremely honored.
I graduated in 1999-2000 with a bachelors in computer science. I went to Silicon Valley. I worked at Google for 6 years on projects like youtube, chrome OS, google play games, and back in 2011 I found out about Bitcoin and later that year I created Litecoin, an open source fork of Bitcoin. In 2013 I wanted to go all-in with cryptocurrency, I talked with Coinbase, I told them I graduated from MIT, I worked at Google, I created Litecoin, give me a job. So they did, and the rest is history.
I took 6046 here with Professor Ron Rivest, the R in RSA. 6046 is actually just algorithms. Mostly boring stuff. Professor Rivest would every now and then talk about cryptography, which is more exciting than search algorithms.
My other experience in cryptography was that I started a company at MIT doing encrypted instant messaging, this was about 15 years before Telegram. Back then, people didn’t really appreciate encryption as much. They didn’t care if people snooped on their instant messages like they do today. The company did not take off. We implemented blowfish symmetric encryption for encrypting messages between users, in C++ and Java. We wrote and implemented both encryption and decryption, and that was pretty hard.
Bac then there were not that many crypto libraries, and we were a bunch of MIT nerds, and if you can write it yourself then why use someone else’s code?
And then I also learned about economics. I took 1402, Macroeconomics. I learned about monetary policy. Tried to question why it’s so much like a game. Change some numbers there, tweak a dial, you can all the sudden… Right? If there’s a natural disaster, all you have to do is keep interest rates at 0, do some quantitative easing and wala the economy is back.
And then also I learned about fractional reserve banking where money gets created from debt. If I deposit a dollar into the bank account, the bank can create 9 dollars out of thin air. I have three letters for that: w, t, f.
One thing that I found out about at MIT is gold. I bought it for $300 and I thought at that time that it was extremely expensive. Why is gold so expensive? And now it is like $1000, which is ridiculous for something made out of brass. I also found out that gold is being manipulated. The gold price is being pushed down because high gold price means dollars are weak. The government may not even hold the gold it says it does. The Audit the Fed bill, this is the Federal Reserve which sounds like a federal institutio, but it’s actually a private corporation that is practicing monetary policy and controlling our money supply.
So in 2011, I actually found something better than gold, and that’s Bitcoin. Y’all know Bitcoin is open-source, rules enforced by the code, it’s decentralized, fixed production, total 21 million coins, low fees, and it’s borderless.
When I first found out about Bitcoin, I realized that what struck me is that it’s the best form of money. It’s better than gold, it’s better than dollar, it’s better than anything we’ve ever had in our entire history. To realize why it is the best form of money, we have to ask ourselves first what is money.
So money can be defined by a few properties. Money has to be divisible. If I spend $10 dollars at a store to buy some gum, I have to get change back. Money has to be divisible. I have to be able to transport my money. A cow is not a good form of money because it is hard to transport. It has to be scarce; if you can print as much money as you want, then it’s not really a good form of money. It has to be fungible, what that means is that if you get a dollar, it doesn’t matter which dollar you get that it is still worth a dollar. Must be durable, it has to last. It has to be non-consumable, it cannot rot, fruit is not good money, egg is not good money. Something you can eat is not good money.
Seashells? Is that good money? They have been used as currency in our history. It is not divisbble, it’s barely transportable, it’s not durable, and the only good thing is that you can’t eat it and it doesn’t go bad.
So next we have gold. Gold has been used as money throughout our entire history until recently. Gold is transportable, it’s not divisible, it’s fairly transportable except it’s kind of heavy, it’s scarce, it’s mostly fungible except there’s fake gold coins and fake gold bars. You can’t be sure really if the gold coin or gold bar is real. It’s mostly fungible. It’s durable, and it’s not consumable.
Next we have the dollar, fiat currency. It’s fairly divisible. You can get change. It’s transportable. It’s not scarce. It’s fairly fungible but there’s counterfeit dollars, you have to check if it’s fake, and if it’s not fake then it’s not worth $100.
We also have Bitcoin, which is the best format of money. It’s divisible up to 1 satoshi BTC. It is transportable. To take cash on a flight, you have to declare it. But with a brainwallet you can just walk on the plane. You can send BTC overseas. It’s scarce, only 21 million total. It’s fungible. Some people are saying that if you use stolen Bitcoin that you shouldn’t be allowed to use it– we shouldn’t care about the history. The fact that there is history tied to it may make it less fungible. It’s durable, and it’s non-consumable.
I believe Bitcoin is the best form of money that we have. Once I realized that, what did I do?
I immediately went out to buy some Bitcoin. So, it’s interesting. The first time that I bought Bitcoin, I bought from Mike Hearn. You may know him. Core developer. He was at Google at the same time. He was a big proponent of Bitcoin. I sent him $1000 over paypal and he sent me Bitcoin. I bought at the high price of $30 per Bitcoin. Thta was extremely high because after I bought it, the price dropped to $20, and then a few months later it was at $2 after the mtgox hack.
Did I panic? No, I didn’t sell. The fundamentals of Bitcoin didn’t change over that time period. So if you realize something before others do, you can make money from this. I bought more Bitcoin.
In late 2011, I decided that I wanted to play around with the Bitcoin source code. This is when I created Litecoin. I wanted to create silver to Bitcoin’s gold. Silver and gold have been used throughout human history as money. People use silver because it’s easier, it’s worth less, it’s easier to carry around. I wanted to create the same thing.
I first wanted to find a memorable name. I think Bitcoin is a good name. I think Litecoin is a pretty good name too. I created more coins. I also made it so that transactions are 4x faster. Lastly, this is the most important, I made it “CPU mined”. The reason why this was important was that in for order for an altcoin to survive, it cannot compete with Bitcoin in terms of miners. It must have its own miners to support the coin. I saw many competitors to Bitcoin because miners wuld jump betewen the two coins and Bitcoin would always win out. Coins can’t compete with Litecoin even in the scrypt space, now.
Yeah, so. These days, so over time, Bitcoin became, uh, when Bitcoin was CPU mined, when Bitcoin became ASIC mined, at no point in history was Litecoin competing with.. So now that Litecoin is no longer a CPU coin, why is it still valuable? I like to explain that with an analogy.
What you see here is Dragon Stone Castle from GoT. Bitcoin network is like a castle. It has high security. It’s protected by the hashrate. Attacking it is next to impossible. Because of King Satoshi’s decision to subsidize mining, the protection is actually paid for by mining rewards today. The number of transactions is not too high. In this case, everybody can be protected by this castle because there’s room for it and it’s low cost.
Can this last? Mining rewards will asymptotically approach zero. The fees would have to be increased. Once it’s not free to be protected in this castle, the poor people who cannot afford protection and they will have to be outside or do something else. This is where Litecoin can fill this role. So Litecoin is not as spectacular as Bitcoin castle, but it provides some protection and it’s cheap, kids love it. If you are buying a house or a car, or interbank settlement, you want the protection of the Bitcoin network. You are willing to pay the higher fees to be on the Bitcoin blockchain. But if you are buying coffee, it will be too high for the Bitcoin network so you will be doing it off blockchain or on another network like Litecoin. Bitcoin’s end game will be where fees pay for the network. Why would anyone mine Bitcoin if anyone is paying?
Someone has to pay for the costs of decentralizations. A high-value transaction versus a low value transaction puts the same amount of burden on the Bitcoin network. So fees will have to be increased so that it makes sense. Low value transactions will kind of be spammy transactions on Bitcoin and they will be pushed out. I think it is going to take many years for us to see this reality because the fees are still too low, everyone can still use the Bitcoin blockchain, but in the future other alternative currencies will help out to accept the lower value transactions. Litecoin may not be the go-to alternative cryptocurrency in the future.
What I know today is that if you have Litecoin today you can spend them. This is my purchase for my ticket to this conference. A couple minutes ago I went to CheapAir, which accepts dogecoin, and I paid for my ticket using Litecoin. I paid for my flight using a currency that I created 3.5 years ago. I think this deserves an “achievement unlocked”.
So I like to talk about Bitcoin again. Why is it exciting? I think people talk about how it is analogous to an internet. The way I think about it is that, before Internet, information is restricted, right? You can get your information from newspaper or TV, and that’s it. So um, after the internet, now everything is decentralized, you can get information from twitter, blog post and all these news sources. Bitcoin is the same. Before Bitcoin, money is controlled by the government. There are checkpoints to restrict money flow. A few years ago, the government cracked down on internet poker. All they had to do is talk with Visa, Mastercard and all the banks, and tell them to not allow payments to go to these gambling sites. And just like that, people can’t deposit into poker sites.
I think that’s wrong. It’s your money, why should the government be able to tell you what you can and cannot do? Well, Bitcoin solves that. They can’t shut down Bitcoin. They can’t prevent you from transacting.
Recently they took down Silk Road. And after that, 10 more sites came up. And now the whole underground like, underground Silk Road kind of sites is like 10x bigger than a year ago. So this quote from Rothschild… if you give me control of the nation’s money supply, then I can control who writes the laws.
“He who controls the spice controls the universe.”
So I think that’s extremely exciting about Bitcoin. Bitcoin will revolutionize money. The last thing that I want to say what’s exciting about Bitcoin is that it is programmable money.
Right now, everything is programmable. I have a Nest thermostat at home. When I go home, I turn off my home alarm, and this turns my Nest thermostat that I am home, and then it will turn on to the temperature I like. That’s really powerful.
Bitcoin allows programming spending money. You can have a smart fridge that can when milk is running low, it can send money to Google Shopping Express to deliver milk to your house. Or if you have autonomous thinking cars, it can just pay for parking on its own.
And lastly, Bitcoin really makes it possible to have autonomous agents. Can you imagine having AI that can pay for its own server space? Its own storage? And pay for upgrades to computing resources?
And one thing that the AI can also do is it can actually pay people to do work for it. There’s Amazon’s Mechanical Turk which allows you to pay to have people to do work. Well imagine if mturk accepts Bitcoin. And then you have AI with people doing work for it.
The possibilities are endless. It’s up to us whether you are a cryptographer, programmer, economist or just a Bitcoin enthusiast, what Bitcoin can do is only limited by our imagination. So go out there and create the next amazing Bitcoin thing. Thank you.
I have some time for questions.
Q: Are there any ways to stop the fees from going higher?
A: Decentralization costs more. It is more efficient to run a centralized system. To have everyone keep track of the blockchain is expensive. I think that fees will have to go up. There’s only so much you can increase the block size by, at some point people are ust doing a lot of work for very little money. So the economics have to make sense. The fees have to go up.
Q:
A: It is not that related to the difficulty for miners. That’s controlled by how many people are mining (WRONG- it’s the hashrate, not people). Difficulty will go down.
Q: Do you see any possibility of centralized mining operations evolving? Somebody who invests massive amounts of money into computing power to run giant mining fields that become analogous to a kind of centralized server?
A: Mining is already pretty big these days. You can still have, it wont be centralized to just one or a few. There can still be a lot of different miners. It’s getting more centralized.
Q: Is that trend evolving to Google/Apple style collections of miners?
A: It’s possible, but as long as the Google/Apple don’t attack the network, I think that’s fine. There’s no incentive for them to do that.
Q: For your definition of money, you did not include the stability of money. A lot of economists define money include stability, why didn’t you include that one?
A: Stability of value is not a property of that money. Stability is what the people make of. The reason why Bitcoin is so volatile is because nobody really knows where Bitcoin is going to go. It could be deemed illegal and nobody uses it. Or it could become the … it doesn’t define the money we’re talking about.
Q: Other than the first mover advantages to the altcoin market, how would you say, after watching the history, how would you characterize your advantages?
A: Well, the first mover advantage is big. It’s also big for Bitcoin. That’s one of the reasons why Litecoin is the most popular one, it’s on all the exchanges, volumes on exchanges is high, and it’s hard to overcome that. Litecoin has played a huge role because being able to trade in and out of Litecoin is easy. Trading with dollars.. moving dollars around is hard, but moving crypto around is easy. So there’s a lot of arbitrage between Bitcoin and Litecoin. And I think that is why Litecoin has succeeded.
Q: Do you think the confirmation time in the future will be an obstruction for acceptance?
A: Oh. Yeah. So the reason why I changed Litecoin to be afaster is because the 10 minute time was fiarly random (WRONG… wtf)… So for merchant payments, zero confirmation still works. I think trusted green address payments.. I think we will have to figure out zero confirmation… So the confirmation time doesn’t matter that much…. you can’t really trustt this other person, so you have to wait for 1 confirmation, sometimes in Bitcoin in rare cases it takes over an hour. It’s just not fun. With Litecoin, the most I actually ever did was like 10 minutes and that’s more bareable. That’s why I like Litecoin over Bitcoin.
Okay, thank you.