Billionaire Peter Thiel says people are still underestimating Bitcoin

Peter Thiel. Photo: Saul Loeb/AFP/Getty Images

Peter Thiel is the latest big name from the world of tech and finance to offer commentary on Bitcoin, and he’s optimistic about the future of the cryptocurrency.

However, rather than discuss Bitcoin’s potential uses as a means of exchange, Thiel focused on its effectiveness as a store of value.

According to CNBC, Thiel compared Bitcoin to gold and said that due to the difficulty of the digital mining process, it’s actually harder to mine Bitcoin than it is to mine the precious metal.

“If bitcoin ends up being the cyber equivalent of gold it has a great potential left,” Thiel said.

Thiel was speaking from Saudi Arabia, where he’s attending the Saudi government’s Future Investment Initiative in Riyadh.

His comments are interesting in the context of what Bitcoin and other digital currencies actually represent, amid the explosion in popularity of initial coin offerings.

Earlier this week, a research report from Bank of America Merril Lynch (BAML) outlined why Bitcoin may struggle as a payments system.

BAML’s argument was based around cost and speed — that transactions on the Bitcoin network are too slow and expensive to compete with traditional payment processing companies such as Visa and Mastercard.

“The most important technical issue, we think, is to do with the coin’s capacity to scale,” the analysts said.

Transaction speed is a key point of contention in the Bitcoin development community.

Currently, two competing camps are in dispute about whether to increase the size of transaction blocks to two megabytes from the current maximum of one megabyte.

The disagreement means Bitcoin is on track for yet another split in the currency, which is expected to take place around mid-November.

Even if transaction speeds double, Bitcoin’s processing ability would still be far slower than existing platforms.

But it highlights an interesting debate around how various interest groups are considering the use-case for Bitcoin within the financial landscape.

For his part, Thiel was quite direct in how he views the currency.

“You don’t need to use it to make payments,” Thiel said, according to CNBC.

“I’m skeptical of most of them (cryptocurrencies), I do think people are a little bit…underestimating bitcoin especially because…it’s like a reserve form of money, it’s like gold, and it’s just a store of value,” he added.

“Bitcoin is mineable like gold, it’s hard to mine, it’s actually harder to mine than gold. And so in that sense it’s more constrained.”

Bitcoin prices fell from record highs this week following a second hard fork which saw the establishment of a second Bitcoin off-shoot called — as it happens — Bitcoin Gold.

Advocates of Bitcoin Gold want to further decentralise the process for mining new Bitcoin, which they said will make the cryptocurrency more resistant to future shocks or manipulation.

However, as it has throughout 2017 in the face of trading bans in China and the Bitcoin Cash hard fork in August, Bitcoin has again proved resilient. Prices climbed back towards $US6,000 overnight after hitting a weekly low of less than $US5,400:

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