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A resurfaced video of Peter Thiel has him forecasting a form of private, cryptographic money back in 1999. Let’s examine Thiel’s early prediction, and measure it against what Satoshi Nakamoto developed 10 years later.
There’s nothing like being ahead of your time. It’s always fascinating to study historical figures who have accurately predicted present realities that once seemed unfathomable. For example, would you believe that Alexander Graham Bell foresaw global warming over 100 years ago? Or that Nikola Tesla theorized about cell phones in 1909, when the home phone was still a relatively new invention?
Today, most people can still barely believe a Bitcoin price prediction of over $100 000. That said, how many would have thought those who predicted Bitcoin’s very existence– before the 21st century?
Billionaire entrepreneur, PayPal co-founder, and venture capitalist Peter Thiel are among those imaginative few.
John Ehrlichman– a CTV news anchor interested in FinTech– recently tweeted an old clip of Thiel predicting something very similar. The clip is from 22 years ago, yet his description matches Bitcoin’s with surprising accuracy. Also, because we live in such a fast-transforming world, Thiel lives to see his prediction come true (to some extent).
Thiel saw the writing on the wall using his understanding of recent technological developments and the status quo monetary system. Here are the details of the new economic order that he expected at the dawn of the 21st century. In this context, we will see why the birth of Bitcoin– or another decentralized money– was inevitable since the internet.
Peter Thiel’s Prediction: Private, Cryptographic Money?
Ehrlichman’s clip begins with Thiel discussing an upcoming request for China, India, and other countries. Some unexplained phenomenon would force these nations to shut down telecommunications or forfeit their long-held “monetary sovereignty.”
A few moments later, Thiel also describes the process of moving from government-backed currencies towards “purely private currencies.”
What private money fundamentally means is that there is no medium of exchange. You exchange value for value– rather than exchanging value for something the government says has value, for value.
Thiel says the current, intermediate step– where the government dictates a currency’s value– is a form of deception. He calls it a game of “musical chairs” that leaves people holding money that’s worth a little bit less with every pull.
Finally, the clip finishes with Thiel saying that his theoretical, digital money would find its role outside politics.
I don’t think the big fights on this are gonna be fought in Washington DC. The people in DC are completely backwards. They don’t understand any of the technology. Even to the extent they can, it can’t be stopped.”
Internet money? Non-inflationary? Unstoppable? Misunderstood? Without knowing any better, one may think Thiel was talking about Bitcoin!
However, that wasn’t exactly what the venture capitalist had in mind. So let’s dispense with the parts of Thiel’s prediction that don’t line up–before delving further.
Contrasting Thiel’s Prediction With Bitcoin
it highly edited Ehrlichman’s clip. A more extended, non-edited version of Thiel’s same speech exists on Youtube. In total, we realize that Thiel was touching on two related but separate ideas– neither of which was Bitcoin.
When describing a phenomenon that would force China to “shut down” telecommunications, he referred to an electronic dollar system. This system would be enabled by the rapid spread of cell phones which was still underway in 1999.
With internet-enabled cell phones, Thiel argues that the world economy would be dollarized entirely. In addition, citizens of other countries would access banking services that weren’t politically controlled by an authoritarian state.
Therefore the telecommunications network would destroy the Chinese government’s monetary sovereignty. However, it would only be in a way that strengthened dollar hegemony across the world. Not exactly what the creator of Bitcoin had in mind.
A Digital Barter Economy
Thiel’s second prediction was that the world might move away from government money altogether. However, he still wasn’t referring to Bitcoin.
Instead, he imagined a new barter economy that would digitally tokenize goods and services with inherent value for trade. Digitization would reduce the transaction costs formerly associated with barter, reviving it as a trade model.
Products used in this new model could include a tokenized index on the S&P 500. The world would find more trusted, inherent value in such an index than in fiat money.
This was what Thiel meant when discussing a “purely private” form of money. By comparison, though Bitcoin is outside of government control, it is still a medium of exchange– not a direct product.
What Thiel Got Right: A Chance to Fix the World’s Money
Despite neither of Peter Thiel’s exact predictions coming true, parts of his theory show remarkable insight. He showed a firm grasp of the issues which plagued the world’s monetary system in the 20th century. Moreover, he knew how it could apply the burgeoning internet to create a solution.
On these fronts, Thiel was correct. In 2009, a solution did emerge– in the form of Bitcoin.
As Thiel expected, access to worldwide telecommunications is threatening China’s monetary control of its people. That’s because anyone with a cell phone and internet connection can access the Bitcoin network.
With Bitcoin, citizens can pseudonymously send and receive money anywhere in the world. They need not fear that their transactions be reversed, canceled, or negatively impact their social credit score. Compare that to what Thiel says of his ‘electronic dollar’:
It’ll be non-traceable. No matter how illegal the Chinese communist government says it is to hold US dollars, you will have a password on your cell phone. The only way to stop this process would be to literally shut down the telecommunications network. That’s the kind of choice China, India, and some of these other countries are going to face.
Right now, it would seem China is desperately trying to have the best of both worlds. But, unfortunately, the government has actively banned Bitcoin and cryptocurrency use within their borders for years.
The task proves extremely difficult, however. Bitcoin’s decentralization is not only an outstanding feature but also its most effective form of security. As a result, China can only reliably crackdown on significant institutions such as exchanges and mining facilities. However, preventing all individual exchange of cryptocurrency within the country may prove impossible.
Like Thiel’s idealized form of “private money,” Bitcoin also avoids inflation’s “musical chairs.”
A currency’s inflation and its control by the government are directly related. Central banks across the world actively manage the supply of their respective countries’ national currencies. With the ability to create money at will, this almost always leads to irresponsible spending practices. This necessitates increased money printing to finance debt and the devaluation of the currency over time.
Before paper money, the world primarily traded using monetary metals– mainly gold and silver. Humanity chose gold and silver precisely because they were naturally rare and un-replicable. Therefore, there was no fear that their market supply would suddenly increase in large amounts, devaluing the savings of individuals.
However, gold and silver were also quite cumbersome to carry around, weigh, and transact in. This led to people gradually adopting “banknotes”– paper money backed by and redeemable in monetary metals at any time. This system eventually led to the purely paper money system we have today. In short: We had to sacrifice economic scarcity for its ease of transfer.
As digitization and telecommunications spread worldwide, Thiel recognized that it could drastically reduce “transaction costs.” Of course, it had already done the same for information, so he naturally concluded that it could do it for money as well.
Ten years later, Bitcoin presented itself as the best of both worlds. It is a digital currency with incredible transferability and verifiable, absolute scarcity. The network produces a stable, predictable amount of bitcoin every 10 minutes. Furthermore, the network supply will never surpass 21 million coins. This makes it a deflationary, rather than inflationary currency, unlike government-backed money.
Lastly– and most humorously– was Thiel’s prediction about who would govern the development of this new money. As he said of telecommunications, Washington bureaucrats possess very little understanding of Bitcoin’s underlying technology. Only now– 12 years after its inception– are they starting to pay attention to regulating it.
At the moment, politicians have at least ruled out Bitcoin as security and have no intention to ban it. Instead, their attention is most fervently directed at stablecoins– the cryptocurrencies that most strongly resemble fiat money.
On nearly every other front, politicians lack any insightful input to the regulatory conversation. For example, Christine Lagarde– president of the European Central Bank– still claims that Bitcoin is primarily used for illicit finance– which isn’t true.
Meanwhile, the US Congress looks ready to pass a bill that may define node validators as “brokers” and tax them appropriately. Though node operators are nothing like that, politicians don’t seem to know any better– and don’t seem to care.
We even see calls from senator Elizabeth Warren– a known bank critic– to crackdown on Bitcoin due to its alleged environmental harm.
Statistics show that Bitcoin is only responsible for about 0.25% of global carbon emissions. However, a slew of media misinformation has the senator proposing to regulate something in her best interest.
In any case, the technology is nearly uncontrollable by these politicians. Nobody knows how they could enforce a tax on node operators or software developers– and neither do they. Moreover, given that the authoritarian Chinese are having trouble containing the network, the United States’ odds will effectively prevent it are incredibly slim. As Thiel concludes in his 22-year old clip:
You cannot stop things on the level of Washington DC in terms of shutting down these encryption protocols.
In the end, Thiel’s exact predictions of a purely private currency, as well as a dollar-dominated China, never quite came true. However, he accurately predicted that telecommunications would bring about a revolution in money. The new monetary order would give people non-inflationary money outside of political control. Politicians wouldn’t have a clue about how it worked or how to stop or regulate it. As it turned out, that new money is Bitcoin.
Today, Thiel is an active supporter of Bitcoin, comparing it to gold and recognizing it as a store of value. But, ironically, he thinks it could benefit the Chinese government because it threatens dollar hegemony instead of supporting it. This suggests that he believes Bitcoin could take over as the world reserve currency, fully realizing his vision.
“I’m sort of a pro-crypto, pro-bitcoin maximalist person”– Peter Thiel