Speaker: Maigang, Founder of Startup Factory
Original Transcript: Xu An / Dark Horse
This is the full transcript of Maigang's speech at the 2014 Startup Bootcamp:
The most essential thing in economics is money.
Before the financial crisis, I read a book about a famous physicist. He said that we, the science and engineering people, who study things like the length, width, weight, and time in physics, deal with constants. On the other hand, you economics people study variables.
For example: "How much is a McDonald's worth?"
You have to ask, is it in dollars, yuan, or yen?
You have to ask, is it the dollar from 1958 or 1985?
After reading that, I suddenly realized that the fundamental concept studied in economics is constantly changing. My undergraduate major was in economics, so I should revisit the most fundamental thing in this field that is always changing—money.
Subsequently, there were books like "Currency Wars" that drew nationwide attention to money. I had a relatively comprehensive understanding of money, so when Bitcoin appeared, I had only one word: "Wow!"
What is Bitcoin? Let's explain it in two sentences.
1. Bitcoin is a digital currency created by mathematicians, geeks, and computer scientists using a distributed algorithm to simulate the attributes of perfect money;
2. These attributes are maintained through the computing power of an immensely powerful distributed network of computers.
That's what Bitcoin is. All discussions, doubts, questioning, and innovations about Bitcoin go back to this framework. Therefore, Bitcoin is not a conspiracy but a plan. What Bitcoin is trying to achieve is crystal clear. All of Bitcoin's data can be accessed online by anyone at any time.
Bitcoin captures the essence of money, aiming to simulate perfect money.
With a history of money spanning five thousand years compared to the three thousand years of nations, money is a concept that predates states by far. Thus, China's money has gone through various forms of evolution, from feathers, shells, stones, livestock, and even women being used as currency in some countries, until the introduction of precious metal currency.
Precious metals cannot be counterfeited, or the cost of counterfeiting is extremely high, transaction costs are low, storage is relatively convenient, they can be divided, and their texture is relatively soft. These are all properties manifested in precious metals. Therefore, precious metals are used as a medium of exchange. Gold trading still incurs costs, and there are risks in moving gold from one place to another in terms of delivery and redemption. This is something that many people are not aware of.
Bitcoin has a limited supply, is widely distributed, anyone with a computer can mine it, and anyone can participate, making it very egalitarian. Bitcoin is a commodity simulated through mathematical methods, possessing all the unique properties of precious metals and surpassing them in all these characteristic features.
Moreover, the Bitcoin network can continue to upgrade, so there will not be a situation where gold exited the historical stage because gold was no longer sufficient. For digital currency, the issue of insufficiency does not exist.
First, the computational power is immense, controlled by various people around the world. It is very difficult for one person to control so much manpower and computational power at the same time.
Second, even if someone has the opportunity to control this computational power, from an economic and logical perspective, they should control the network instead of attacking it because their wealth is in Bitcoin, and they would not destroy their own assets. Therefore, this is a probability and logic problem.
Third, Bitcoin has low transaction costs, which is a particularly important feature. The total amount of Bitcoin will be permanently limited to 21 million, and Bitcoin can currently be divided into units up to 8 decimal places (0.00000001 BTC is the smallest unit currently). This is the existing calculation system of Bitcoin.
The Bitcoin network is an autonomous, automated settlement payment system without anyone managing it, and Bitcoin is the circulating unit created by this network. This network is a natural settlement payment system that does not require management, and the utility of Bitcoin lies in its role as a settlement network.
Western Union, an international remittance company in the United States with a history of over fifty years, earns billions of dollars in profit every year, especially widely used in some relatively underdeveloped countries. It assists customers in remittances, with funds arriving in one to two weeks and a fee of 5 to 8 points. What a lucrative and wonderful business.
On the other hand, Bitcoin payments are processed in just a few minutes, with fees very, very low. Therefore, companies like VISA, representing the technology and infrastructure used by our current financial circulation system and commercial banking system in the past, are surpassed by Bitcoin, which employs a new technological framework and foundation.
So, this is the advanced feature of Bitcoin on the circulation network and on the exchange function of commercial banks.
Human society has three forms of currency. One is the currency system represented by precious metal gold, and the other is the credit currency backed by government credit. In the era of credit currency, the common problems we see are inflation, currency overissuance, and currency wars.
The currency system we are in today is represented by the US dollar, dominated by the US dollar, and flooded globally by the US dollar. People all over the world, especially the hardworking Chinese, are working for the United States.
Why is a pair of jeans $10 or $20 in the United States but sells for $100 in China? All of this is because the US dollar is the global reserve currency, and the US dollar has achieved this day through its dominance.
However, the emergence of Bitcoin has ushered humanity into the third era of currency. When I say the third era, I do not mean to replace the first two. It's like how the Internet appeared, not to replace the fax machine and telephone but to coexist with them. This is decentralization, a virtual currency based on mathematical concepts. Decentralization is the guarantee of Bitcoin's security and freedom.
Currency needs credit support, national credit, national power, state machinery, the military, and the law can support credit currency. So, what supports Bitcoin?
It's simple. There is a lot of credit in the world. Some vow, "I will love you forever," some promise, "I pledge all my property," and some guarantee, "I was a good student in the past"... These are all forms of credit. What is the credit of Bitcoin? It's mathematics and probability. If you trust in mathematics and this probability, it exists.
I believe that in the field of circulating currency, Bitcoin will exist for a certain period of time. In some economic activities, especially those related to the internet, globalization, and virtual activities, there will be a form of circulation like Bitcoin because this thing is unrestricted.
Let me ask a question first. After the emergence of Bitcoin, which country is most afraid of it? — The United States.
This explains why the European Union was the first to come out in support of Bitcoin because when the big boss is hit, the second in command is happy. So, this is a very subtle and interesting game. The California State Assembly has already declared Bitcoin a legal currency, but it still needs to go through the House vote. Bitcoin is a major innovation in the financial field, but it will bring a series of new regulatory actions. We must certainly study this; this is the attitude of the US government. The Chinese government actually has a similar attitude, but new things often bring new challenges.
I especially want to talk about how the Chinese government and people must understand the variability and farsightedness of the U.S. currency strategy, as well as the complexity of the global multi-country game. Bitcoin is not a celebration for libertarians or anarchists, but a tool for multi-party games.
I am not an anarchist, nor do I advocate for us to use Bitcoin today and stop using the Renminbi. But I can tell everyone that in the near future, maybe in 10 years or as long as 30 years, the United States will rebuild a global monetary system. In this global monetary system, the United States is likely to peg the dollar to a new set of assets, which include virtual currencies represented by Bitcoin.
Before achieving this, the United States only needs to do one thing, which is to gain dominance in the field of Bitcoin. This dominance may be in terms of computing power, reserves, or pricing power. Why does the United States have an advantage in doing this? Because the U.S. has Wall Street, which is the elite of the global elite.
I have a hypothetical story about Bitcoin. If Bitcoin becomes a global asset in 30 years, there might be a dialogue between a child and their father as follows.
Child: "Why are all Bitcoin holders Americans and Europeans, but not Chinese?"
Father: "Sweetheart, I'm sorry, when Daddy was young, he was still wealthy, but at that time, money in China could buy love but not Bitcoin."
Child: "Dad, where can we buy Bitcoin?"
Father: "We'll make socks and shoes for another 30 years, and then we can exchange Bitcoin with the old Americans."
I hope that everyone, including government agencies, should realize the greatness and complexity of the game of Bitcoin, which truly concerns our future generations. Americans used the dominance of the dollar in the last century to obtain the coinage rights of the dollar, making the whole world work for them. If Americans gain dominance over Bitcoin for decades, they will continue to make the whole world work for them.
I hope that Chinese entrepreneurs, Chinese companies, and ordinary Chinese people can gain dominance in the field of Bitcoin, and I also hope that everyone will pay attention to and learn about Bitcoin.
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