Fungibility, privacy features, and the future of Bitcoin and Litecoin

A few days after Charlie Lee’s latest appearance on CNBC’s Fast Money, I scrolled across an intriguing Twitter poll posted by Mr. Lee himself.

Indeed, fungibility is a feature we need to define sound money. Fungibility confirms both aspects of a classical Austrian economist’s definition. That is, fungibility is important because we say it is. Thus, reflecting the market’s choice. The second aspect required for a sound money regards the government’s ability to meddle and obstruct within the currency’s system. Bitcoin’s lack of fungibility has been exemplified many times in the past through government seizures of Bitcoin and related arrests (e.g. Ross Ulbricht, Charlie Shrem, Morgan Rockwell).

Currently, my definition of sound money requires price stability, or the majority of people not taking inflation into account before transacting (the relationship between price and people not taking deflation into account is an idea I would like to explore in the future). I view Bitcoin as a sound store of value despite Bitcoin’s price volatility. Bitcoin’s deflationary nature, sharp increases in development and user adoption, second-layer solution reality and potential all contribute to my positive outlook on Bitcoin’s future success and increase in value. That outlook is always open to change. The idea that is most likely to pivot my views were inspired from CIO of Blocktower’s Ari Paul in his interview with Peter McCormack on the What Bitcoin Did podcast. This is the idea that prices in the future will be sticky.

As Bitcoin fluctuates, so will the prices of the products and services. This may sound unsettling from user’s perspective. But, hopefully the user will not see any evidence of fluctuations. These conversions will be dealt with on the backend. Much like how the internet developed a complex backend to produce the desirable user experience we have today. This is one example of many theories I keep my eyes and ears open to.

Regarding Charlie Lee’s tweet, I believe taking the right precautions and adding an opt-in privacy feature to Litecoin is a good idea. It must be opt-in because I believe opt-in is more practical than privacy-by-default currency. Please correct me if I’m wrong, but cash is an opt-in currency. You may either deposit cash into a bank, and by using credit or debit card, forego your anonymity for convenience, or transact with cash privately.

Litecoin was built as a testnet for Bitcoin. With the right pre-cautions, testing privacy features on Litecoin only makes sense. Choosing the right privacy feature is a complicated task in of itself. Then implementing a privacy feature without exploiting security of the network on top of that. The largest risks are hacks or significant loss of value. Since January, Litecoin’s price has seen a drop from $300 to $80. There is still a long way down.

After experiencing the decline from Litecoin’s all-time highs, I imagine many of the early Litecoin adopters and HODLER’s would agree that adding a privacy feature is a good idea. The most recent steady decline and sideways price action represent a stagnancy to me. Some refer to Charlie Lee selling of his Litecoin and its price’s steady decline as an indication the past six months has been a period of capitulation. I disagree. There is too much benefit to come of this technology for anyone to throw their hands in the air. The potential benefiting factors for adding an opt-in privacy feature are a significant increases in value, awareness, user adoption and user experience. That is why I believe this time is so valuable in the experimentation and development for Litecoin and Bitcoin.

Unfortunately, I am not familiar with the technical details of the privacy features listed on Charlie Lee’s poll. I hope to write about each of them and more in the future. Thanks for your time and always, thoughts and critique welcome.