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Litecoin must be getting tired of standing in Bitcoin’s shadow. After many years as Bitcoin’s second fiddle, Litecoin core developers are getting more interested in following the likes of privacy coins such as Monero (XMR) and Zcash (ZEC).

Charlie Lee tilted his hand on Twitter, where he opened a discussion on fungibility and hinted at the addition of Confidential Transactions in a “future release of the full-node implementation” in 2019.

Transforming into a privacy coin might make Litecoin more relevant, but it could also introduce a host of issues on the regulatory and security fronts that could make it a moving target. We couldn’t help but wonder if Lee might be biting off more than he can chew.

Fungibility is the only property of sound money that is missing from Bitcoin & Litecoin. Now that the scaling debate is behind us, the next battleground will be on fungibility and privacy. I am now focused on making Litecoin more fungible by adding Confidential Transactions. ? — Charlie Lee [LTC⚡] (@SatoshiLite) January 28, 2019

Out from Bitcoin’s shadow

It’s not surprising that the Litecoin community is looking to form its own identity. Like a sibling rivalry, it was only a matter of time before LTC grew tired of sharing the spotlight, and enhancing privacy is a popular way to gain traction. From new projects such as Beam and Grin using the Mimblewimble protocol to bellwethers like Monero and Zcash, anonymity is one of the gold standards for decentralization.

Nonetheless, privacy also requires some concessions. Zcash, one of the privacy leaders, has been accused of compromising its privacy to get on exchanges like Coinbase. The Winklevoss twins infamously suggested that regulators prefer Zcash to Monero, inviting jibes from Monero’s lead developer, Riccardo Spagni.

If Litecoin truly wants to become a privacy coin, then it’s going to have to decide whether it wants to be privacy-lite (pun intended) or something more serious. At the moment, it appears to be headed towards the former.

Privacy Lite

Lee is focused on the fungibility issue, which has to do with the identical nature of cryptocurrencies. Like bitcoin, litecoins are non-fungible, meaning it is possible to determine which of your coins come from a specific source.

Lee points to “soft-forking in Confidential Transactions” as the solution to what he describes as the “fungibility problem” that stands between Bitcoin/Litecoin and “sound money.”

Confidential Transactions are semi-private in that they “[obfuscate] the amounts being transacted over the network but not where coins are being sent,” according to Bitcoin Developer Gregory Maxwell. To start, Confidential Transactions will be presented as an option for Litecoin transactions.

Lee, however, would happily follow in the footsteps of Monero for non-optional privacy. “Mandatory is much stronger privacy and fungibility but it’s harder to reach consensus on doing,” he said in a Tweet.

Security and Regulation

As the No. 7 cryptocurrency based on market capitalization, Litecoin is a popular choice; it can be easily purchased across dozens of exchanges and hundreds of trading pairs.

Once it inherits the privacy label, however, Litecoin is placing a regulatory bullseye on its back. This could be a turnoff to crypto exchanges that work alongside regulators, which are becoming increasingly more common. Just ask ShapeShift.

There are further downsides, including “a decent increase in the size of bandwidth requirement and the Unspent Transaction Output set due to the size increase of the output value to 33 bytes from 8 bytes,” not to mention a “substantial increase in validation costs.” But besides that, no biggie.

On the security front, Litecoin.com outlines a scenario in which “an attacker would be able to print new coins into existence without restriction.” It’s an issue that Monero reportedly must contend with as well. The issue could be addressed by further soft-forks, but will still weigh heavily on Litecoin-focused minds.

Litecoin has a new attitude lately, starting with its promotional push at the UFC to its latest interest in becoming an edgier cryptocurrency. It’s a welcome change from the old image, which was tainted by the creator selling his LTC portfolio before the market crash.

The author is invested in digital assets, but none mentioned in this article.

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