How Litecoin's founder convinced Coinbase's CEO to support SegWit

Coinbase CEO Brian Armstrong was previously a supporter of Bitcoin block expansion. He once wrote that "it was a mistake to prioritize the implementation of Segregated Witness before expansion", but recently he suddenly changed his mind and strongly supported the activation of Segregated Witness. The person who changed his mind was Litecoin founder Charlie Lee (who served as engineering director at Coinbase).

Charlie Lee expressed his views on Segregated Witness and Lightning Network in a blog post. Here’s what you can think of:

You may be aware of my recent advocacy for the activation of Segregated Witness (SegWit) on Litecoin and Bitcoin. I didn’t do this before because it would have been a waste of my saliva before the code was finished. But now, with SegWit tagged and binaries close to release, I thought it was time to make some noise.

So, you might be wondering why I am pushing for SegWit. Litecoin is not currently experiencing block size issues. I would say that block size is only a secondary benefit of SegWit. The main benefit is to solve the transaction malleability problem, which enables the Lightning Network (LN) to be built on top of the Litecoin project. In addition, SegWit has a whole host of benefits.

But some people say that by applying Lightning to Bitcoin, there is no reason for people to use Litecoin anymore. If people can do instant Bitcoin transactions, why would they use Litecoin? I don’t think that’s the case, and even with Lightning, Bitcoin still can’t serve everyone in the world. I think Lightning and Segwit can make Bitcoin serve 500 million users at 1 MB blocks. Lightning nodes charge a fee for Lightning transactions, and this fee is related to Bitcoin network transaction fees. Therefore, Bitcoin Lightning transactions will be more expensive than Litecoin Lightning transactions. From an economic point of view, it makes sense to make a Lightning transaction through Litecoin and then back to Bitcoin, and get a lower fee. Lightning allows this because the two Lightning networks are interoperable. I don’t know if this will be the case in the end, and we will have to wait until Lightning is up and running to find out.

We can imagine Bitcoin and Litecoin as two highways: Today, the Bitcoin highway is full of cars, while the Litecoin highway is empty. Currently, even if the Bitcoin highway is full, these cars will not go to the Litecoin highway because they are not connected and it is inconvenient (only centralized exchanges can be used, and on-chain transfers are too slow). The Lightning Network will serve as a bridge to connect the two highways. Maybe the bridge on Bitcoin is enough to make cars still willing to stay on this highway. But I bet that the lower tolls and more convenience of the Litecoin highway will encourage car owners to switch to the Litecoin highway. But until both are built, we won't know what the real situation will be.

Another benefit is atomic cross-chain transactions via Lightning. Instantaneous transactions of BTC and LTC between two users without risk. Efficient decentralized transactions are now possible. If a merchant only accepts Bitcoin and you only have Litecoin now, this problem can be solved well after Lightning is implemented. You can pay with Litecoin and exchange it for Bitcoin through a Lightning Network transaction node and then send it to the merchant. In short, it is a decentralized ShapeShift. One thing I thought about recently was balancing the uneven payment channels of two Lightning Networks. There are probably millions of cool things like Segregated Witness and Lightning Network, and we just haven't touched them yet.

I didn't realize the need for testing Litecoin until after Segregated Witness, Lightning Network, and Confidential Transactions. So I'm happy to let Litecoin continue to develop without doing a lot of development work. With Segregated Witness and Bitcoin's current block size impasse, I think Litecoin has the potential to help Bitcoin break through this impasse. Litecoin can play a leading and positive role in the cryptocurrency space. We have drafted the plan behind Bitcoin Racing for many years, and now it's time to show the results.

This is my vision for Litecoin and Bitcoin in the future, working together to solve the world’s transaction needs. That’s why the analogy of “Bitcoin is gold, Litecoin is silver” always resonates with me. Do you want to be a part of it?

The author believes (this is only his personal opinion) that Charlie Lee regards Segregated Witness and Lightning Network as a capacity expansion path for Litecoin and Bitcoin to achieve a win-win situation, but the highway metaphor he used also exposes his ambition.

The reason why Brian Armstrong chose to support Charlie Lee's idea is inseparable from the transformation of Coinbase. It is no longer a simple Bitcoin company, but a digital currency company that supports multiple assets.