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Litecoin (LTC), a nine-year cryptocurrency whose price returns have chronically underperformed the largest and best-known bitcoin in recent years, is tying its bandwagon to a new star: privacy.
The blockchain industry’s subsector of “privacy coins” – cryptocurrencies with embedded technology that protects identifying information from public view – is becoming one of the hottest purchases this year. One of the largest privacy coins, zcash (ZEC), which offers “secure transaction” functionality, has nearly tripled so far in 2020, while monero (XMR), which uses a technique called “ring signatures” to obscure data of sender and recipient, is doubled.
Litecoin founder Charlie Lee told CoinDesk in an interview that the project is now looking to adopt key privacy-enhancing features, which he considers increasingly attractive to cryptocurrency users. The improvements are already being tested and an upgrade to the main network is planned for next year.
If the effort is successful, it could inject a jolt of enthusiasm into a project that has suffered from a lack of momentum and enthusiasm in digital asset markets. Litecoin is up 21% this year after a 38% gain in 2019, which pales compared to bitcoin’s year-to-date 59% gain and a 94% increase last year.
“I want to make sure that users don’t have to worry about giving up their financial privacy by using litecoin,” Lee said. “Even if you’re not doing anything illegal, you don’t want people to know how much money you have or what your salary is.”
Read more: Monero leads the privacy coin rally, climbing to two-year highs
An innate feature of blockchain technology is that cryptocurrency transfers across computer networks are typically visible to anyone with Internet access, making it easy to track and monitor specific wallet addresses and sometimes trace those addresses to identifiable entities.
So digital asset developers have worked for years to invent new ways to preserve the benefits of blockchain – the ease and speed of money transfers without the need for banks as intermediaries – without the obvious transparency.
Such features are becoming even more desirable as regulators and law enforcement agencies increase scrutiny of cryptocurrency trading and compliance with tax and anti-money laundering regulations.
Lee, a former software engineer at Google and Coinbase who leads litecoin, is a closely followed entrepreneur, in part because his experience dates back to the early years of cryptocurrencies, following the launch of bitcoin in 2009.
Litecoin is often referred to as the silver for bitcoin’s gold, and has been used throughout its history as a basis for testing technologies that later became a mainstay of larger blockchain networks, including bitcoin. The network processes new blocks of data four times faster than the Bitcoin system, but its small size makes it less secure.
The new privacy features are designed to operate in compliance with the increasingly stringent compliance of cryptocurrency exchanges with global regulators.
Litecoin relies on a technology called mimblewimble, which reduces the amount of publicly visible data on the main blockchain network, through the use of “extension blocks” that help hide inputs and outputs.
“The analogy I like to use is that it’s similar to wrapping and unwrapping the coin,” Lee told CoinDesk.
Learn more: The web wasn’t built for privacy, but it could be
It is still unclear whether regulators will move to limit the use of privacy features, which could potentially be used to hide illicit fund transfers or protect money from tax authorities.
Both zcash and monero, which include privacy directly in their protocols, have faced regulatory pressure. Europol, an EU law enforcement agency, recently declared privacy technologies, including privacy-centric coins, a “major threat” in an Internet-based organized crime assessment. Cryptocurrency exchange Coinbase removed zcash for UK trading in 2019 without giving a reason, but speculation immediately focused on the digital token’s identity shielding capabilities.
For litecoin, it could be another possibility of differentiation from bitcoin, which has caught the attention of many cryptocurrency traders as a hedge against inflation.
“I don’t think bitcoin will follow this path of what we’re doing, because it’s a bit drastic,” Lee told CoinDesk in a video chat.
In other words, litecoin has a lot more to prove.
