Speaker: Mai Gang, Founder of Entrepreneur Factory
Original text organized by: Xu An/i Heima
This article is the full text of Mai Gang's speech at the Entrepreneur Training Camp in 2014:
The most essential thing in economics is currency.
Before the financial crisis, I read a book about a famous physicist. He said that we scientists and engineers, who study physical quantities like length, width, weight, and time, deal with constants. You economists study variables.
For example: "How much is a McDonald's worth?"
You have to ask if it's in dollars, yuan, or yen?
You have to ask if it's the dollar from 1958 or the dollar from 1985?
After reading that, I felt enlightened; it turns out that economics studies things that change. I studied economics as an undergraduate, and I should go back and take another look at the most essential thing in this field that is always changing—currency.
Then some books, like "Currency Wars," sparked nationwide attention to currency. I gained a relatively comprehensive understanding of currency, so when Bitcoin appeared, I could only say one word: "Wow!"
Bitcoin Captures the Essence of Currency
What is Bitcoin? It can be explained in two sentences.
Bitcoin is a perfect currency simulated by mathematicians, geeks, and network scientists using distributed algorithms;
This property is maintained by the immense computing power of distributed, powerful computers.
Bitcoin is this thing. All discussions, doubts, questions, and innovations regarding Bitcoin return to this framework. Therefore, Bitcoin is not a conspiracy but a clear strategy; it is clear what Bitcoin is doing. All Bitcoin data can be checked online by anyone at any time.
Bitcoin captures the essence of currency; its purpose is to simulate perfect currency.
Why Can Bitcoin Simulate Perfect Currency?
(1) Bitcoin's Currency Characteristics Surpass Precious Metals
The history of currency spans five thousand years, while the history of nations is three thousand years; currency is a concept that predates the existence of nations. Thus, China's currency has undergone various forms, from feathers, shells, stones, livestock, and even women as currency in some countries, until the emergence of precious metal currency.
Precious metals cannot be forged, or the cost of forgery is extremely high; they have low transaction costs, are relatively easy to store, can be divided, and are relatively soft—these attributes are reflected in precious metals. Therefore, precious metals circulated as currency. However, trading gold still incurs costs, and there are risks associated with delivery and payment when exchanging it from one place to another. Many people are unaware of this.
Bitcoin has a limited total supply, is distributed, and anyone with a computer can participate, making it very egalitarian. Bitcoin is a commodity simulated using mathematical methods, possessing all the characteristics of precious metals and surpassing them in all aspects.
Moreover, the Bitcoin network can continue to upgrade, so there will be no issue of gold becoming insufficient as it did in the past. For digital currency, the issue of insufficiency does not exist.
(2) The Probability of Forging Bitcoin is Extremely Low
First, the computing power is immense and held by various people around the world; it is very difficult for one person to control so much manpower and computing power simultaneously.
Second, even if someone has the opportunity to control this computing power, from an economic and logical perspective, that person should control the network rather than attack it, as their wealth is in Bitcoin, and they would not destroy their own assets. Thus, this is a probability problem, a logical problem.
Third, Bitcoin has low transaction costs, which is a particularly important feature. The total number of Bitcoins will be permanently limited to 21 million, and Bitcoin can currently be divided into units with up to 8 decimal places (0.00000001 BTC is the smallest unit currently).
(3) The Bitcoin Network is an Advanced Settlement and Payment System
The Bitcoin network is an automated settlement and payment system that operates without management, and Bitcoin is the circulating unit produced by this network. This network is a natural settlement and payment system that does not require management; the use value of Bitcoin is reflected in its role as a settlement network.
Western Union, an international remittance company in the U.S., has a history of over fifty years, with annual profits in the billions of dollars, especially widely used in relatively underdeveloped countries. It helps customers remit money, with a delivery time of one to two weeks and fees of 5 to 8 percent. This is such a lucrative and wonderful business.
In contrast, Bitcoin payments are typically received within minutes, with very low transaction fees. Therefore, companies like VISA, which represent the existing financial circulation system and commercial banking system, are surpassed by Bitcoin, which uses a new technological architecture and foundation.
Thus, this is where Bitcoin excels in the circulation network and in the foreign exchange functions of commercial banks.
Decentralization is the Guarantee of Bitcoin's Security and Freedom
There are three forms of currency in human society: one is the currency system represented by precious metals like gold, and the second is credit currency supported by government credit. In the era of credit currency, we commonly see issues like inflation, excessive currency issuance, and currency wars.
The currency system we are currently in is dominated by the U.S. dollar, which is rampant globally, and we, especially the struggling Chinese, are working for the U.S.
Why do American jeans cost $10 or $20, but in China, they sell for $100? This is all because the dollar is the global currency, and the dollar has achieved this through its hegemony.
However, the emergence of Bitcoin has ushered humanity into a third era of currency. The third era I speak of does not mean replacing the first two. Just as the internet did not replace fax machines and telephones, they coexist. This is decentralization, a virtual currency built on mathematical concepts, and decentralization is the guarantee of Bitcoin's security and freedom.
Bitcoin is Supported by Credit for a Certain Period
Currency needs credit to support it—state credit, state power, state machinery, military, and law can support credit currency. So, what supports Bitcoin?
It's simple; there is a lot of credit in the world. Some people vow, "I will love you forever"; some promise, "I will mortgage all my property"; others guarantee, "I was a good student in the past"… all of these are forms of credit. What is Bitcoin's credit? It is mathematics and probability; if you trust mathematics and this probability, it exists.
I believe Bitcoin will exist as a circulating currency for a certain period. In certain economic activities, especially those related to the internet, internationalization, and virtual activities, there will be a circulation form like Bitcoin because it is unrestricted.
Bitcoin is a Tool for Multi-Party Game Theory
Let me ask a question: which country fears Bitcoin the most? — The United States.
This explains why the European Union was the first to support Bitcoin, as the top dog was hit, and the second was pleased. Thus, this is a very subtle and interesting game. The California legislature has already declared Bitcoin a legal currency, although it still needs to go through a vote in the House of Representatives. Bitcoin is a significant innovation in the financial sector, and it will certainly bring a series of new regulatory behaviors that we must study; this is the attitude of the U.S. government. The Chinese government has a similar attitude, but new things often bring new challenges.
I particularly want to emphasize that the Chinese government and the public must understand the variability and foresight of the U.S. currency strategy and the complexity of global multi-country games. Bitcoin is not a celebration for libertarians or anarchists but a tool for multi-party game theory.
Everyone Should Pay Attention to and Learn About Bitcoin
I am not an anarchist, nor am I advocating that we use Bitcoin instead of the yuan. However, I can tell everyone that in the next ten to thirty years, the U.S. will reconstruct a global currency system, and in this global currency system, the U.S. will likely link the dollar to a new series of assets, including virtual currencies represented by Bitcoin.
To achieve this, the U.S. only needs to do one thing: gain a voice in the Bitcoin field, which could be in terms of computing power, reserves, or pricing power. Why does the U.S. have an advantage in this? Because the U.S. has Wall Street, the elite of the global elite.
I have a hypothetical story about Bitcoin: if, thirty years from now, Bitcoin becomes a global asset, there might be a conversation between a child and their father like this.
Child: "Why are all the people with Bitcoin Americans and Europeans, and not Chinese?"
Father: "Sorry, dear, when I was young, I still had money, but back then, money in China could buy love but could not buy Bitcoin."
Child: "Dad, where can I buy Bitcoin?"
Father: "We just need to make socks and shoes for another thirty years, and we can trade them for Bitcoin with the Americans."
I hope everyone, including government agencies, realizes the greatness and complexity of the Bitcoin game, which truly concerns our descendants. In the last century, Americans used the power of the dollar to gain the right to mint dollars, making the whole world work for them. If Americans gain the voice of Bitcoin in the coming decades, they will continue to make the whole world work for them.
I hope Chinese entrepreneurs, Chinese companies, and ordinary Chinese people can gain a voice in the Bitcoin field, and I also hope everyone pays attention to and learns about Bitcoin.
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