Peter Thiel, co-founder of PayPal and ex-CEO of hedge-fund group Clarium Capital, is nervous about saying that he is excited about anything, because that sounds “too irrationally exuberant and too emotional”. However, a few things are currently piquing his interest. Firstly, people “are not paying enough attention to developments in biotechnology”. Secondly, while he is generally sceptical about most cryptocurrencies, “people are underestimating bitcoin”. Silicon Valley investors generally focus on “companies, rather than algorithms or protocols”. However, bitcoin might be “the one exception that is very underestimated”.
While many are wary of the currency, because it isn’t backed by any government, Thiel thinks this is a strength of bitcoin, not a weakness. The nature of the mathematics underpinning bitcoin means “it can never be diluted by government… it can’t be hacked and it’s a form of money that’s… secure in an absolute way”. Just as the cost of mining extra ounces of gold makes it “a reserve form of money and a store of value”, bitcoin’s scarcity also gives it worth. Indeed, bitcoin’s algorithm means that “it’s actually harder to mine than gold and so in that sense it’s more constrained”.
Another similarity with gold is that bitcoin is a bearer instrument, “so if you have the code to the key, then you can access it from anywhere in the world”. Of course, if bitcoin does end up being “the cyber equivalent of gold” and becomes more widely used, then it has great potential for further gains. While the total value of all gold in circulation can now be measured in trillions, the total value of all bitcoin mined is still only a few billion.