S15 E34: Charlie Lee on MWEB & Financial Privacy

Litecoin did something in May 2022 that Bitcoin would treat as a moon landing: it bolted a whole privacy layer onto its chain with a soft fork, without forcing old wallets or exchanges to upgrade. It is called MWEB, the MimbleWimble Extension Block, and most bitcoiners I talk to have no idea it exists. A day before this recording, I asked David Bailey about it, and the owner of Bitcoin Magazine told me he did not really know much about it. So I went straight to the source.

Charlie Lee created Litecoin in October 2011, ran engineering at Coinbase, and still leads the Litecoin Foundation. He has been on my show before for video games and Star Wars and for the original MWEB deep dive back in 2022. Season 15 Episode 34 was, as I reminded him in the intro, "your fourth time on the show," and a proper sequel to that MWEB episode, with the extension block now almost two years old on mainnet.

We recorded at the end of April 2024, one day after the Samourai Wallet founders were arrested, so privacy was not exactly an abstract topic. We covered an unsettled bet with Roger Ver, confidential transactions and cut-through, what exchanges see when you peg out, the million dollar SegWit dare, drivechains on Litecoin, the nightmare of invisible inflation, Craig Wright, ETFs, and why Charlie thinks the future is already multichain.

The Bet Nobody Could Settle

I started with the spicy stuff. Years ago, on the Bitcoin Cruise, Charlie and Roger Ver made a bet about Lightning adoption. Charlie remembers it as "quite a contentious cruise," held during the Blocksize Wars with both camps on board. The terms, as he recalled them: roughly a thousand stores accepting Bitcoin over Lightning within a year. "If he lost the bet he would wear a Lightning Network t-shirt and come on a podcast or whatever with me," he said, "and then if I lost the bet I would wear a Bitcoin Cash t-shirt and go on a podcast with him."

Merchant processors later published stats showing three or four thousand stores accepting Lightning, but they never released a list of merchants. Roger could not verify it, Charlie could not prove it, and so "the bet was kind of like not settled." Roger still thinks he won. I told Charlie that I think Roger underestimated the network effect, but was right about some of the technical issues that slowed Lightning down.

Charlie did not sugarcoat his own disappointment: "I honestly had higher expectations of it taking off and being more popular than it is today." It is still improving, he said, but "it hasn't really taken off like a hockey stick." (Roger, for the record, told me his side of the Bitcoin story in S15 E26.)

Linear Scaling, Exponential Dreams

Back in 2016 and 2017, Lightning was also sold as a privacy upgrade, so I asked whether that still holds now that network analysis has grown teeth. Charlie was honest: "I'm definitely not an expert in that." It all depends on whether intermediate nodes log what passes through them, but "it's definitely better than just sending on-chain transactions," where everything sits on a public ledger forever.

That is why he still believes in layers. Putting everything on the base layer "scales linearly and you want something that scales exponentially," and if Bitcoin is going to be the world reserve currency, "you'll need to support like trillions of transactions," not a few hundred thousand. Push all of that onto layer one and nobody can run a node, which makes the network easy for a government to shut down.

I brought up the two extremes of the spectrum: tiny blocks where everyone can run a node but nobody can afford a transaction, and giant blocks where everyone can transact but nobody can verify. I mentioned Pieter Wuille's BIP 103, which proposed growing the limit by about 17.7% a year, roughly a doubling per halving cycle, and confessed that I suspect Bitcoin with 8 or 16 MB blocks would be just as decentralized.

Charlie called it a contentious topic and refused to draw a magic line. Bitcoin "is playing it really conservatively," Litecoin has four times the capacity, and there is no tipping point anyone can prove: "it's kind of a sliding scale." Is Bitcoin playing it too safe? "Possibly." His comfort zone is the classic layered bargain, where a second layer can be a bit more centralized "as long as you can always pull your coins out of it and store it yourself."

A Parallel Chain Glued to Every Block

Which brought us to MWEB, the thing that is both a block size increase and a privacy layer. I told Charlie I had synced a full MWEB node with Litecoin Core in about five hours, and asked why so few bitcoiners know about it. Is it by design? "It's probably the latter," he said, meaning nobody pays attention. The Litecoin Foundation is a nonprofit with no premine to burn, so "we don't have money to kind of buy a Super Bowl ad," and besides, "a lot of people in the Bitcoin space, they don't care about Litecoin or any other coins."

The mechanics, in his words: MWEB was added with a soft fork, and "there is a new kind of parallel blockchain, extension block, that is attached to the main chain." Every regular block now has an extension block holding the MWEB transactions. You move coins in, and from there every transaction uses MimbleWimble. Want to pay someone who does not use MWEB? Peg out to a normal address, even directly to the recipient, and the amounts are back in the clear. The design is spelled out in the Litecoin Improvement Proposals for extension blocks (LIP-0002) and MimbleWimble via extension blocks (LIP-0003).

How much extra space? Hard to measure, because it depends on usage, but "it's at least doubling the block size, but Litecoin blocks aren't full." The real bottleneck was access: "until recently the only way to use MWEB is to run Litecoin Core," while most people use mobile wallets or exchanges. Charlie said the team was working hard on light wallets and exchange support and expected usage to pick up within the year. (It did start to: Cake Wallet shipped MWEB support in October 2024, billing itself as the first cross-platform wallet to do it.)

Privacy Is a Human Right, Crime Is Still Crime

Then I asked the uncomfortable question of the week. Samourai Wallet had just been raided. Is privacy still a good idea, or is it going to get crushed? Charlie did not budge from his long-held position: "I think financial privacy is a human right." He compared it to information privacy: "you don't want everyone to know what your social security number is, but it doesn't mean that it's fine for you to do something illegal."

On Samourai specifically, his read was that "they took it a little bit too far," pointing to marketing that seemed to taunt the authorities. Giving people financial privacy should not land anyone in trouble, he said, and while the case "does set kind of a bad precedent," he could see why the government went after them. I added the obvious caveat that I did not want to speculate, since everyone is innocent until proven guilty.

I also pointed out a technical issue I had criticized for years (with the disclosure that Wasabi sponsors my show): if you ran Samourai without your own Dojo node, your wallet's xpub went to their backend, so the server knew your addresses even while you mixed. Charlie agreed this undercuts the whole point: "privacy is still not great if you're using a centralized service." For the record, the two founders later pleaded guilty in July 2025 to conspiracy to operate an unlicensed money transmitting business, and were sentenced in November 2025 to five and four years in prison.

Hidden Amounts, Vanishing Transactions

So what is MimbleWimble, and why did Litecoin end up with an implementation based on Grin++ after looking at Blockstream's confidential transactions work and at Beam back in 2018? Charlie started with the first ingredient. With confidential transactions, "transaction amounts are blinded," hidden from everyone except the sender and the recipient. Outsiders can still verify that what went in equals what came out, but that requires heavy cryptography, and "confidential transactions are like 10 times the size of regular transactions." His explanation of why was the clearest I have heard on air: "It's easy to say A plus B equals C plus D, but it's harder to say A is not negative."

For most people, he argued, hiding the amount does most of the work. Nobody needs to know you receive 5,000 litecoins a month in salary when you pay 0.1 LTC at Starbucks. The second ingredient is cut-through: all inputs and outputs in a block get merged into one big transaction, and "if anything cancels out, they're just dropped from the blockchain altogether."

If I send you one litecoin and you immediately pass it on, the middle hop never needs to be recorded. The third is that hidden amounts make CoinJoin-style mixing trivial, since there is no need to massage everyone into equal denominations. The original MimbleWimble paper by "Tom Elvis Jedusor" is still worth a read if you want the math.

Grin famously has no addresses, so I asked how this was squeezed into a Bitcoin-like architecture. Credit goes to developer David Burkett, who built Grin++ and came up with a way to send to an address without both parties being online to negotiate, now documented as one-sided transactions (LIP-0004).

"One of the features of Bitcoin is that you can send coins without the recipient being online," Charlie said, and keeping that in MWEB is "a huge breakthrough and it's huge thanks to David Burkett." I mentioned that Andrew Poelstra told me in S15 E17 he had lost interest in MimbleWimble, and promised to interview David myself. I kept my word: he came on for S15 E59 on MWEB and privacy.

Ninety Percent Fungible

Fungibility is the one property of hard money that Bitcoin's transparent UTXOs never fully deliver, so I asked whether MWEB makes it real. "There's no perfect fungibility and perfect privacy," Charlie said, but "MWEB gets you most of the way there, 90% of the way there." His analogy was the dollar: "every dollar has a serial number on it," so you could track bills if you had a database of every serial number, but in practice it is so hard that nobody cares which bill you hand over.

I had tested this myself as part of the original MWEB torch, and later challenged people to guess how much LTC sat behind my MWEB address. We even joked that there was no way to prove the torch had actually been passed. "You kind of had to trust that you did," Charlie admitted. The weak spot is the edges: peg-ins and peg-outs are visible on the transparent side, so if you move five litecoins in, people can see it. As with most privacy tech, the fix is a crowd: "more usage, more people using it."

A viewer named satmoto21 asked whether MWEB breaks Ordinal Theory. Charlie's answer: sats can be followed on the transparent chain as usual, but "you can't track sats on MWEB like you can with the regular blockchain," because coins coming back out of the holding address are a different set.

And when people responding to my address challenge claimed that, just like Grin, MWEB privacy can be broken by running a node that saves every transaction, Charlie shrugged it off. The Grin developers "never promised to be like full privacy, 100% privacy that you can't break," and the trade-offs were always public. The base protocol is confidential transactions plus cut-through: "it's half a scaling solution, the other half is a fungibility, privacy solution."

Take Off the Mask at the TSA

Privacy tools are only useful if the off-ramps still work. A handful of South Korean exchanges delisted Litecoin when MWEB launched, and Charlie said he had not followed whether they came back. But pegging out straight to an exchange deposit address works fine, because it is a soft fork: old software sees coins arriving from a holding address that "includes all the coins that are on MWEB." Exchanges can tell the coins came from MWEB, and so far they have accepted them.

I suggested a peg-out looks a lot less suspicious than a CoinJoin, which often triggers questions and document requests on Bitcoin. Charlie was surprisingly relaxed about exchange compliance in general. "As long as you're not doing anything bad, I have no problem answering the questions," he said, then reached for an airport analogy: "If you're wearing a mask and you go through a TSA checkpoint, they ask you to take down the mask." Most privacy diehards will hate that line. Charlie owns it.

The Million Dollar SegWit Dare

Running MWEB means keeping up with every Bitcoin Core change and the Grin side of the code at the same time. I called that courageous. Charlie framed it as a first: "other than MWEB we haven't really changed anything from the initial kind of fork from Bitcoin." As for Bitcoin adopting MWEB, he is not holding his breath: "Bitcoin is probably a little bit too conservative to do something so drastic." Litecoin, in his view, is simply a good place to experiment.

I told him he was underselling his history, because Litecoin activating SegWit in 2017 played a real role in the Blocksize Wars. He admitted he is biased, but thinks it was huge. Back then there was a lot of FUD claiming SegWit outputs were "anyone can spend" and that miners would steal from them. So after activation, "I put a million dollars bounty on a Litecoin SegWit address and basically say come get it."

The bounty was big enough to tempt any miner, and "no one was able to." He also admitted the strategy: "all along I knew that activating SegWit on Litecoin would help Bitcoin," because miners could hardly justify blocking it on a chain where it had overwhelming support from users and from the creator himself. Once it went live on Litecoin, "it just became too much for them to keep SegWit back from Bitcoin."

Federations, Drivechains & a Monero Sidechain Fantasy

Before the sidechain segment I read a deliberately monotone ad from Paul Sztorc for Layer Two Labs, which explained nothing about what Layer Two Labs does and invited listeners to a 3:00 AM ritual in the forest. Classic Paul. Then I asked Charlie whether sidechains are like communism, where the real one has never been tried, since we only have Liquid's federation and Rootstock's HSMs.

His answer was pure trade-off thinking. A sidechain that does not print its own coins needs some other way to secure itself, which means a federation, something more centralized, or proof of stake: "there's no free lunch." He is fine with those choices, and said Liquid "is becoming more and more popular," mainly with exchanges and companies rather than the average person on Twitter. (Sergio Demian Lerner told me how Rootstock is chasing trust minimization in S15 E7.)

On drivechains, Charlie admitted he had not studied them much while the team focused on MWEB, but people have proposed testing them on Litecoin, and "I'm perfectly fine if they want to do that." I pitched my dream scenario: Zcash or Monero style sidechains backed by real coins, which is basically maximalism as Paul describes it with BIP 300. Imagine Litecoin activating it first and stealing users from Ethereum. Charlie was not sure the demand exists, since speculation on altcoin tokens drives a lot of activity, but he agreed that a chain that "hasn't gone down ever since I first launched it in October of 2011" is a solid foundation to build on.

Most Used on BitPay, Stored Under the Mattress

That longevity shows up in payments. According to Charlie, Litecoin "is the most used currency on BitPay," which still surprised him: "I didn't expect people to use Litecoin more than Bitcoin on BitPay." I joked that BitPay should rebrand as LitePay, then remembered that name already belongs to a sad chapter. Charlie's verdict, after a moment's hesitation over the word scam: "it was a failed startup."

Since his brother Bobby Lee makes Ballet cards (and since Satodime sponsored the episode), we talked about physical bitcoin. Charlie likes funded Ballet wallets as gifts and thinks "for most people securing something physical is a lot easier than securing something that is digital." Hide it in a safe or under the mattress, and five years later you might be pleasantly surprised.

Compare that to lost brain wallets and forgotten passphrases, including a story he recalled of an encrypted USB key with only one password attempt left: "it's kind of like Schrödinger's cat." On Casascius coins, he said "most people can trust Mike Caldwell because he's been around for so long," while warning that some other coin makers have stolen from their coins.

His self-custody ladder is refreshingly practical. Spending money goes on a mobile wallet backed up to the cloud. If you are tech-savvy, get a hardware wallet. "If you have a lot of money you may want to use a multi hardware wallet solution like Casa." And if you are not tech-savvy, a Ballet card or the multi-card Ballet Pro, which I set up for my dad, can work. (If you want an NFC bearer card instead, Satodime is the one Bastien Baudoin explained in S15 E20.) He also mentioned a Consensus panel with Bobby. When I asked for a discount code, he refused: "You have to pay full price. It'll be worth it, you got to see me."

The Nightmare of Invisible Inflation

What is next for MWEB? "Pretty simple, we want more people to use it." Kerry Washington was working on adding MWEB to Litewallet, "which would be huge," and the Foundation was courting other wallets. I said it was brave to diverge so far from Bitcoin's code with no guarantee of mainstream use, especially with regulators hostile to privacy.

Charlie's answer revealed what keeps him up at night. "Privacy improvements is hard, it's a tough nut to crack," because a bug in a privacy system can mean "someone can be printing money out of thin air without anyone else knowing." Litecoin has 84 million coins, and if someone could quietly mint more inside MWEB and sell a thousand a day, "that would be the worst of worst thing." It has happened to privacy coins before. That is why the team is taking it slow, and why he was relieved to say that after years of use on Litecoin Core, "so far we haven't seen any problems."

He reminded me that even Bitcoin has had a scare. A simple change by BlueMatt, reviewed by around a dozen people, introduced a nasty bug, the one disclosed as CVE-2018-17144, which could have allowed coins to be created out of thin air. It was disclosed and patched without being exploited, and I recalled how Deadalnix told me he was among the first people to know about it at the height of the Bitcoin versus Bitcoin Cash fight, and never considered exploiting it. After MWEB, Charlie said, "drivechain could be something interesting," but he is aware of the ossification argument: "whenever you change things there's always unintended consequences."

Bitcoin Developers Work on Litecoin Whether They Like It or Not

The Deadalnix story led to a bigger point about developer culture. "The people who are actually doing work and helping improve Bitcoin are not hostile towards each other," Charlie said. Most of the infighting comes from people who "just talk," and Bitcoin developers have quietly helped Litecoin behind the scenes. I noted that Dogecoin's code carries contributions from Gavin Andresen, Wladimir van der Laan and Greg Maxwell for the same reason.

Charlie's favorite joke on the subject: "Bitcoin developers work on Litecoin even if they don't want to." Every fix eventually gets merged downstream into Litecoin Core. And to him, forks are a feature of open source, not an insult: "the more your project is forked the better it is for your project," because more eyeballs find more bugs, and improvements can flow back upstream if the original project wants them.

I, Charlie Lee, Am Not Satoshi

I wanted to give Charlie credit for one of the most useful things anyone did during the Craig Wright saga. When Wright staged his signing ceremony in 2016 and published a "signature" that turned out to be a copied Satoshi signature, Charlie's reaction was, "Well, this is stupid. All you had to do was just use the Genesis address to sign a message."

So he wrote a very short blog post signing "I, Charlie Lee, am the creator of Litecoin" with Litecoin's Genesis address. Wright chose something much more complicated instead, and in Charlie's words, "the reason why he did that is because he's not Satoshi." He was glad the court had ruled on it, but warned that "as long as he still has funding he's still gonna waste people's time and money."

Someone in the chat then suggested Charlie is the real Satoshi. He handled it beautifully: "The only way for me to be Satoshi is if I have multiple personality disorder and my current personality doesn't know that my other personality is Satoshi." When I begged him not to let the other personality take over, he reassured me: "He hasn't taken control for about 9 years, so it should be fine."

ETFs, Staking & Magical Crypto Friends

A viewer asked when we would get a Litecoin ETF. "If I tell you I'd have to kill you," Charlie deadpanned, then got serious: "I think it will happen. I think it's all about demand." Litecoin is so similar to Bitcoin in how it works and how decentralized it is that he did not see it being rejected as a commodity. He was more skeptical about Ethereum, arguing that "Ethereum's path to ETF is much harder than Bitcoin's path to ETF" because of the securities question, and that a successful Ethereum ETF "needs to have staking," something no commodity ETF had ever had to handle.

Hindsight is funny. Spot Ethereum ETFs were approved by the SEC less than a month after this recording, and the Canary Litecoin ETF (LTCC) started trading on Nasdaq in October 2025. Charlie's "it's all about demand" call aged pretty well.

My last question was a fan request: will Magical Crypto Friends ever come back? "Maybe, actually we talked about it," he said, though everyone is busy and on different continents. I told him it was the most reasonable Bitcoin show of its era, one that could explain why Litecoin and Monero are not scams. He reminded me how much harder that would be now: "today the Bitcoin Maxis are a lot more tougher than it was back then. Look at how much crap you got for interviewing Roger Ver. You probably get some crap for interviewing me."

The Future Is Already Multichain

I closed with my usual hobby horse: innovation does not only come from Blockstream, Chaincode and a handful of Core developers. The biggest idea in Bitcoin right now, as I put it, BitVM, came from a guy who used to work on Ethereum. Charlie went further than most Litecoin people would on a Bitcoin show: "You can hate on Ethereum all you want, but Ethereum has done a lot of stuff to innovate in this space," from ICOs to DeFi, which pushed ideas further than Bitcoin would have alone.

He also nailed the hypocrisy I keep running into. "Some people embrace it if and only if it's on Bitcoin," he said, pointing to how many maxis embraced Ordinals even though they do a lot of what Ethereum did with tokens. I added that colored coins did it 12 years ago. Not much is new, it just gets rebranded and recoded.

You can follow Charlie on X at @SatoshiLite or find him in the Litecoin Telegram channel. When I mentioned that I would be speaking at the Litecoin Summit in Nashville about Bitcoin maximalism and whether the future is multichain, Charlie saved me the trouble of preparing the conclusion: "We already know that there's Litecoin and other coins aren't going anywhere, so the future is already multichain." Some maximalists like to call Litecoin the dumbest fork of Bitcoin because it supposedly never does anything different. MWEB is the receipt that says otherwise.

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Time stamps:

00:00:35 - Introduction to the Episode 00:01:19 - Bet with Roger Ver 00:02:49 - Lightning Network Adoption 00:04:10 - Expectations for Lightning Network 00:05:11 - Lightning as a Privacy Solution 00:06:23 - Second Layer Solutions Discussion 00:08:16 - Block Size and Decentralization 00:10:06 - Trade-offs in Scaling Solutions 00:11:51 - Introduction to MWEB 00:14:45 - Technical Specifications of MWEB 00:16:46 - Financial Privacy as a Human Right 00:18:18 - Controversy Surrounding Samourai Wallet 00:19:52 - Mixing and Privacy in MWEB 00:20:34 - Confidential Transactions in MWEB 00:21:32 - Confidential Transactions Explained 00:22:55 - Mimblewimble's Cut-Through Feature 00:24:07 - CoinJoin and Privacy 00:25:09 - Pegging Out from MWEB 00:28:33 - Exchanges and Privacy Tools 00:30:42 - Grin++ Integration with MWEB 00:32:58 - Fungibility and MWEB 00:35:14 - Ordinal Theory and MWEB 00:36:40 - CoinJoin Implementation Challenges 00:38:20 - MWEB's Similarities to Grin 00:39:38 - MWEB's Compatibility with Bitcoin 00:40:43 - Litecoin's Divergence from Bitcoin 00:42:05 - Litecoin's Role in Bitcoin Scaling 00:42:16 - Activation of SegWit and its Impact 00:43:35 - Public Support for Litecoin 00:44:56 - Sidechains & Trade-offs 00:47:47 - Interest in Drivechains 00:49:56 - Litecoin's Longevity and Usability 00:51:50 - Physical Bitcoin Collectibles 00:54:04 - Concerns Over Complexity in Custody 00:55:52 - Self-Custody Solutions 00:58:28 - Future Plans for MWEB 01:00:00 - Risks in Privacy Implementations 01:01:57 - Future of Litecoin Beyond MWEB 01:03:23 - Inflation Bug Disclosure 01:04:17 - Developer Collaboration 01:06:08 - Open Source Benefits 01:06:58 - Craig Wright Controversy 01:09:25 - ETFs and Demand 01:10:32 - Ethereum's ETF Challenges 01:11:20 - Staking and ETFs 01:12:27 - Satoshi Identity Debate 01:13:12 - Magical Crypto Friends Comeback? 01:14:32 - Innovation Beyond Bitcoin 01:18:20 - Multi-Chain Future