How “hyperbitcoinization” may propel Bitcoin to $1 million | Interview with Samson Mow

Because Bitcoin is digital gold. There is no constraint to it being used for payments, but you need things like second layer technologies.

This is Samson Mao, the CEO of Gen3, a company that aims at boosting Bitcoin adoption across the globe. Mao is convinced that the lightning network, Bitcoin's layer two protocol, will eventually replace Visa and MasterCard as a payment system. In this video, Samsung tells us how Bitcoin is being adopted as money in different parts of the world. He also explains why blockchain developers should switch their attention from Defi to Bitcoin.

Defi is not decentralized at all. If you're not building on Lightning, it's like you're not building on the Internet.

But before we start, don't forget to smash the like button and subscribe to our channel. I'm Giovanni, your host, and this is a cointelegraph interview. So, Samson, you recently quit Blockstream and you founded a new company called Gen3, the goal of which is accelerating hyper bitcoinization. So can you tell us a little bit more about this new company and what is hyper bitcoinization?

Right, So I guess first, to better describe Gen3, it is a bitcoin technology company. So we'll be working on various Bitcoin projects like wallets, general infrastructure, helping nation states interoperate with the Bitcoin network, potentially taking Bitcoin payments and things like that. But hyper Bitcoinization is effectively the point in time at which you no longer need to go back to fiat currencies like the dollar, euro or yen. So you would just get paid in Bitcoin and spend your Bitcoin as if it were money and there's no need to go back into a fiat currency.

I remember an interview that we had back in 2019, end of 2019, in Singapore, where I asked you about your opinion on Bitcoin and you said that according to you, Bitcoin was not a payment network, it was more of a store of value. But now you seem to have changed your mind about it.

I wouldn't say I've changed my mind. I think Bitcoin can evolve on all three axes of money. So store of value, medium of exchange and unit of account. Because Bitcoin is digital gold, there is no constraint to it being used for payments, but you need things like second layer technologies. I might have said Bitcoin's layer one or base layer is not suited for payments because it is a settlement network. Right. The block times are 10 minutes. And if you choose to ignore some basic fundamental constraints of that, then you can get the impression that Bitcoin is bad at doing something. But we have layer two technologies like liquid layer, like Lightning, that can enable new use cases and free payments effectively. So payments over Lightning network are almost free and instantaneous. So you can transport Bitcoin through this new network and use it for payments.

Okay, and so tell us more about the way you are trying to accelerate this hyper bitcoinization. What are you concretely doing in order to achieve this goal?

Right, so I've been working with a number of nation states, so I guess the best known one is El Salvador. So back when I was at Blockstream, we started advising them on bitcoin topics like custody, cold storage, etc. And we also proposed the bitcoin bond structure to them. And at January 3rd, I'm still engaging with them and advising them as they request. But we're working with other countries and other people in other countries, like senators, to drive more bitcoin adoption. So we've announced that we're working with Madera, it's a Portuguese independent territory that is looking to adopt Bitcoin. So we're talking to them about different ways they could roll out bitcoin adoption there. And I've been working with Senator Indira Campus of Mexico to see what we can do to get bitcoin accepted as legal tender. There's.

And so when you're talking about these locations that are going to accept bitcoin as a legal tender or to adopt Bitcoin, what do you mean exactly? So what is exactly. What does exactly mean to adopt Bitcoin in a specific jurisdiction or territory? It means that people are going to be able to pay taxes with it or to pay for service with it. What is the concrete use case?

Right. So the language there is very specific. It's adopting Bitcoin and that is because it can take a number of forms. So as we saw in El Salvador, they have made bitcoin legal tender, but that is an outlier. I don't think every country will go the legal tender route. And not every country needs to necessarily go the legal tender route. So legal tender means it's accepted as payment and there's no tax on any bitcoin capital gains. But if you have a jurisdiction like say, Switzerland, where there is no cap gains, they don't necessarily need to make bitcoin legal tender just because there is no tax on bitcoin gains. So what you have in the case of Switzerland is Lugano, which made bitcoin de facto legal tender. They don't need to make bitcoin legal tender in the law. And they can't do that because it's a city. But the city itself was adopting bitcoin, so they accepted bitcoin for all their municipal services. You can pay your taxes in bitcoin, et cetera, et cetera. But it's a really key point because it illustrates bitcoin adoption can take a number of form factors. It doesn't need to be a top down legal law. It can also be more organic and it can be a de facto law. And I believe Madera is approaching it from the same angle. So there is no capital gains tax on Bitcoin in Madera. So they will do something very similar, I think, to Lugano, where they're adopting and accepting and encouraging merchants to use Bitcoin.

And so what would you say is the incentive for this jurisdiction to approach bitcoin in such a way? So adopting bitcoin, why would they do that?

Right. So I believe the incentive is really to drive economic growth. I believe when you have a free money that is movable across borders, instantly, easily, like bitcoin, then you'll have a lot more economic growth. You'll draw companies to invest, you'll have companies growing their businesses locally through accepting bitcoin. And you're giving bitcoin to the citizens that live there so that they actually have access to sound money or know about sound money now. And I think that's very important in this day and age where we're dealing with rapidly increasing inflation rates.

So let's go back to El Salvador for a second. So you said that you define yourself as the architect of the volcano bonds of El Salvador, which are the very first bonds backed by bitcoin. So can you explain a little bit how they will work?

Right, so it's more like other people said that I'm the architect because I brought together all the different parties to the table. I was at Blockstream at the time. So Blockstream helped with the design of the bond, the modeling of bitcoin returns over a 10 year period. And then I introduced El Salvador to Bitfinex 2, which is the technology platform on which the bonds will be launched. So I kind of brought all the different parties together. But the interesting thing about the bonds is, like you said, they're a very novel instrument and they do have the potential to lift El Salvador out of their existing debt. So in the 10 year period for the first bond, the volcano bond, it's possible that the bitcoin part of the bond could Appreciate to a point where, where it could eradicate all of their national debt.

The IMF and other international financial institutions have expressed concerns about that the adoption of these bitcoin bonds could lead El Salvador to default on its debt. So can you comment on these concerns?

Well, I don't think that the bonds would lead them to default. If anything, it would prevent default because El Salvador has to grow its economy. The bulk of its GDP is through remittances right now. They need to grow in a number of sectors like industry, technology and tourism. And we actually do see tourism growing. It's actually up 30% as of today. So I think the bitcoin aspect of their aspect of embracing bitcoin is definitely driving economic growth. And without economic growth, it's difficult for them to become a prosperous nation. And I believe that is the greatest risk factor to default on debt. Now, a lot of those organizations like the imf, they're very critical of everything to do with bitcoin. But I don't believe the legacy system has any potential for the future. The only way that the central banks can continue on is to print more money. They can't stop printing money or else economies around the world would collapse. So the only way to fix things is to slowly transition or quickly transition into a bitcoin standard. And even if you look at the IMF alone with El Salvador, the only way for El Salvador to maintain itself is to continue borrowing from the imf. So it's basically a debt spiral. You have to keep borrowing money to repay existing debts. So I see bitcoin as a way out for El Salvador and other nations in Latin America that want to break that debt cycle.

If bitcoin will crash in price, then it will be difficult for El Salvador to pay back those who invested in those bonds.

Well, the bonds, it's a 10 year bond and you're paying back investors at the end of the 10 year period. The principal is repaid. At the end, you have a coupon throughout. But a 10 year period encompasses two Bitcoin halvings. And if we look at bitcoin historically, we've never seen bitcoin go down over two halving periods. It's always up on an upwards trajectory in 10 years.

What is the expected value of bitcoin that will kind of make this initiative of the bitcoin bond successful?

There are a number of predictions about bitcoin price. The modeling we used when we presented the design was 30% year over year appreciation of bitcoin. And that brought us to almost a million dollars at the end of 10 years. But I think it's possible we might see a million dollars after five years and there are even more bullish predictions than that. So it's remaining to be seen what the exact price will be. But I would almost certainly say at the end of the 10 year period, it's unlikely Bitcoin will still be $40,000.

In a previous interview I was talking with Anton Buchov who is the co founder of One Inch Network. He is not a big fan of bitcoin. He said that bitcoin is unsuitable for developers. It's not made for developers and developers are not interested in buying in working on Bitcoin because you cannot really build applications on top of bitcoin. So what would be your response to this argument?

Well, I think he's wrong there. You can build on top of bitcoin, but it's not necessarily in the same way as a lot of the Ethereum smart contract based things work. So bitcoin, the protocol, you cannot modify that easily. You can't embed things into the blockchain. What you can do is build on top of bitcoin in other layers like the liquid network or the lightning network. And we see at the layer 2 level there's tons of companies building there and there's a massive amount of innovation taking place. You have companies like Bitmatrix, Sphinx, Chat, all of these companies are building on the lightning aspect of it. And then you have companies like Open Ventures building on the liquid stack, tdex. There's just tons of innovation and building happening, but it's not at the base level of the bitcoin protocol. And that's because bitcoin at the base level, at the fundamental level is money and it should be immutable and difficult to change. So it's different than all those other projects. I would bunch those other projects into being more like companies than anything. Like a protocol actually. Right. They're effectively entities. They might have a foundation somewhere else that purports to govern the blockchain, but really it's a, a for profit company in essence. So what they can do is act like a company, change their protocol as needed and tinker with it and just hack and change the rules anytime. If you can change at will, then you're no better than a fiat currency governed by the Fed. But I think there's just a big divide between bitcoin and everything else. So everything else, they don't really look at the bitcoin ecosystem because they're not interested in sound money. And censorship resistant money. They're interested on hacking on things and making little science projects. So maybe they haven't heard of a lot of the developments that are happening in bitcoin on liquid and on lightning. But then the converse is also true. I don't know what the 1 inch project is. I don't even know what they do. So there's definitely a big gap here.

So you're not very much into defi?

Not really. I mean, defi is not decentralized at all. A lot of people tend to buy the narrative and buy the marketing. So defi is marketed as decentralized finance. Right. That's what defi stands for. But you can't just take it at face value and say it's decentralized when a lot of those defi projects are simply running on AWS or they're using infera, which runs on aws. So if you remember a year ago, there was a big Amazon outage and all the exchanges stopped accepting Ethereum and ERC token deposits because they could no longer query in fira. So when your entire system is built on a centralized system, none of it is actually decentralized.

According to Bukov, the lightning network has not really succeeded so far. There is very few people using it and it became a sort of Twitter meme, according to him. What is your take? What is your opinion on these statements?

Well, all of that is patently false. There is a massive amount of adoption of the lightning network. There's thousands of bitcoin locked into lightning channels. Businesses around the world are transacting using lightning. We have a country like El Salvador that's adopted bitcoin and they've rolled out a national wallet that is powered by bitcoin and lightning. We have businesses in El Salvador that are taking lightning. Lightning is banking the unbanked in a way that we never imagined possible. And we have a conference in Miami or had a conference in Miami with 25,000 people there where lightning was a major topic. And you had Michael Saylor on stage saying, if you're not building on lightning, it's like you're not building on the Internet. And recently Morgan Stanley published an article saying lightning payments, payments for small things make more sense on lightning than with a debit card or credit card. So I mean, all the writing is on the wall. I guess he's incentivized to not pay attention to it because it takes away from the defi stuff.

So would you say that lightning is playing a crucial role in this hyper bitcoinization? You are trying to incentivize.

Definitely. The Bitcoin base layer is not ideal for payments. It is a settlement network. But on top of a settlement network, you can build a payments network, which is exactly what lightning is. Lightning will displace Visa, MasterCard and everything else just because it's far superior, far more scalable, and it reduces costs for merchants, which means better experience and savings for consumers.

Great. Thanks a lot, Samson, for coming on our show. It was very interesting to talk to you.

Yeah, thanks, Giovanni. It's been great.