Payments processor LitePay abruptly shut its doors Monday, taking a good 10 percent off the top of the Litecoin price too. The proposed company was supposed to make seamless transactions using Litecoin and a proprietary debit card that could even work at cash ATMs. However, there was one big problem: The whole thing appeared sketchy.
Litecoin founder Charlie Lee—who goes by the humble but entertaining handle “SatoshiLite” on Twitter—said, “Like everyone else, we got too excited about something that was too good to be true and we optimistically overlooked many of the warning signs. I am sorry for having hyped up this company and vow to do better due diligence in the future.” His Litecoin Foundation had backed LitePay.
Since we’re not getting a debit card linked to our smartphones and crypto accounts anytime this week, let’s go over the lessons we learned instead:
Compliance is king
Even now, it’s hard to prove utility on any single coin. Crypto was supposed to liberate us from banks and credit card fees. LitePay wanted you to believe that you’d be able to fill up your gas tank with Litecoin. But even just getting any financial system working in all 50 states is a herculean task.
Only 12 days ago, LitePay’s founder Kenneth Asare held a very suspect AMA (“Ask Me Anything”) on Reddit that had trouble answering, at times, just what the hell they were doing with their time or who was on the team doing it. “We have a team of 10, with our largest group being compliance/legal,” he said. “What we are building is a compliant crypto merchant payment processor in the USA. That distinction is important, and not obvious from outside of the industry.”
It took him two full days after the AMA started to give that answer.
Kick the tires
Or better yet, talk to engineers. Another redditor laid it all out in one comment:
“Let’s be honest, your website looks like scam. There is no company information, no people, no phone number, no address, a 3rd-party zendesk domain support email address. Your domain is listed as a virtual office in SF. Your website is hosted at 1&1.No developer documentation.No way to sign up other than send confidential information to an email address. Convince me this is real.”
Charlie Lee, for what it’s worth, is very active on Github, and you can see when he is actually working on a project and what he’s doing, sometimes line by line in code.
You can’t make everyone happy
Entrepreneurs have two choices: They can follow all laws and regulation or they can build a product hoping it will eventually pay for dealing with legal issues.
Lee learned this lesson the hard way, making further leap-of-faith announcements harder on his audience. In December, 2017, Charlie Lee was accused of hyping Litecoin prices, so he sold all his Litecoin. “[W]henever I tweet about Litecoin price or even just good or bads news, I get accused of doing it for personal benefit. Some people even think I short LTC! So in a sense, it is conflict of interest for me to hold LTC and tweet about it because I have so much influence,” Lee posted in the Reddit forum r/litecoin.
He infuriated people, but it was profitable for him. He bailed out when his own coin was trading at $366. Today it’s at $134.
It’s easy for people to tell you what you want to hear when you tell them what you want to hear
Lee has gone on record saying that the “flippening” (when ether overtakes bitcoin in total market capitalization) won’t happy. But he has made a game of predicting when the “flappening” (when Litecoin overtakes Bitcoin Cash) will happen.
Coin CEO’s are just as much a servant of their coin’s price as much as any public CEO worries about their stock’s price. But when you have a silly game to watch the health of your company, any idiot with a working idea is going to sound like a winner to you. Litepay seemed like such a good idea that even just the idea of it raised Litecoin’s price during a dicey market week.
Seeming like a good idea has always been Litecoin’s weakness. But you can look directly at the flappening’s website data to see why. There are twice as many active Litecoin addresses (82,849 as of Wednesday) than Bitcoin Cash addresses (42,942) yet Bitcoin Cash handles about 54,000 transactions per day versus just under 29,000 for Litecoin.
Fess up before you mess up
If LitePay spent another month building a solid plan, perhaps we could have had more faith in their new product. Instead, its CEO went on Reddit and that freaked out the Litecoin Foundation, a nonprofit made up to support the Litecoin system. “Even a fool is thought wise if he keeps silent,” so says Proverbs 17:28. “And discerning if he holds his tongue.”
It all went down like this, according to the foundation:
“[The] foundation had approached Kenneth regarding his less than transparent nature with the company and to express our, and the community’s, concerns regarding his recent Reddit AMA. It was at this time that Kenneth asked the foundation for more funds to continue operations. The foundation refused any further funding as he was unable to provide a satisfactory picture of where the money had been spent and refused to go into exact details about the company and show objective evidence to back up his statements.”
If anything, it’s good to know that Litecoin is focussed on growth and willing to pull the plug when necessary.
Perfection is the enemy of good enough
Chasing headlong after the holy grail—an ATM card with zero fees—still bumps right into existing banking problems. Even a perfect Litecoin system today is tacking on $0.17 to every transaction. Ripple, meanwhile, is still at less than a cent. But that doesn’t make them any closer to getting you a gallon of gas at the pump.
In tech we fettishize “disruption” over improvement. Cabs suck, but Uber is easy and just slightly cheaper so we like it (even if “slightly cheaper” means hell for the company). Most humans hate traffic and car accidents are still the leading cause of death among young people, but who would be impressed if self-driving cars got you home 5 minutes earlier and only killed 75% as many people? Crypto has huge applications for businesses, billpay, and in general any online transaction that doesn’t need to be settled in the next 5 to 10 minutes (hello, Amazon!).
There is still huge promise in the second-layer Lightning Network (key investor: Charlie Lee). But for this week we’re going to have to live with doing our in-person shopping the old fashioned way (paying a credit card fee and never carrying cash).