Bitcoin captures the essence of currency; what it aims to do is simulate perfect money.
Speaker: Mai Gang, Founder of Entrepreneur Factory
Compiled by: Xu An/iBlack Horse
Bitcoin has been very popular in recent years. As an international currency that is both celebrated in the internet age and has faced countless criticisms, what does its past, present, and future look like? This is a question many people are concerned about. Recently, producer Mai Gang shared his insights with the students of the Black Horse Camp, hoping to provide some help.
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, such as those studying physics, deal with constants like length, width, weight, and time. 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 in my undergraduate years, and I should revisit the most essential things that are always changing in this discipline—currency.
Subsequently, some books, like "Currency Wars," sparked nationwide attention on 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 computational 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 transparent strategy; it is clear what Bitcoin is doing. All Bitcoin data can be checked online at any time by anyone. Bitcoin captures the essence of currency; what it aims to do is simulate perfect money.
Why Can Bitcoin Simulate Perfect Money?
(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 circulate 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. This is something many people do not realize.
Bitcoin has a limited total supply, is distributed, and as long as there are computers, anyone can participate, making it very equitable. Bitcoin is a commodity simulated by 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 not be a problem like gold exiting the historical stage due to scarcity. For digital currency, the issue of scarcity does not exist.
(2) The Probability of Forging Bitcoin is Extremely Low
First, the computational power is immense and held by various people around the world; it is very difficult for one person to control so much manpower and computational power simultaneously.
Second, even if someone has the opportunity to control this computational power, from an economic and logical perspective, that person should control the network rather than attack it, because their wealth is in Bitcoin, and they would not destroy their own assets. Therefore, this is a probability issue, a logical issue.
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 eight decimal places (0.00000001 BTC is the smallest unit at present), which is the existing computational system of Bitcoin.
(3) The Bitcoin Network is an Advanced Clearing and Payment System
The Bitcoin network is a fully automated clearing and payment system that is not managed by anyone; Bitcoin is the circulating unit produced by this network. This network is a natural clearing and payment system that does not require management, and the use value of Bitcoin is reflected in its role as a clearing 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 ranging from 5% to 8%. This is a highly profitable 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 framework and foundation. This is where Bitcoin excels in the circulation network and 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 people around the world, 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? All of this is because the dollar is a universally accepted 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 laws 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 for a lifetime"; 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 believe in 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: after Bitcoin emerged, which country is most afraid of it? — The United States.
This explains why the European Union was the first region to support Bitcoin; when the leader is attacked, the second place feels relieved. 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 about 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 long-term strategy of the U.S. monetary strategy, as well as the complexity of global multi-country games. Bitcoin is not a celebration for libertarians or anarchists; it is 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 today. However, I can tell everyone that in the future, in as short as 10 years and as long as 30 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 computational 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, 30 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 not Bitcoin."
Child: "Dad, where can I buy Bitcoin?"
Father: "If we make socks and shoes for another 30 years, 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 currency, 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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