max-levchin-18To say Max Levchin is good at math and encryption is like saying Ronaldo can kick a ball. As the founding CTO of PayPal told the audience at last night’s PandoMonthly fireside chat, he learned to program by as a child in the Soviet Union by writing clones of Tetris and Snake…. on paper. He later told his soon-to-be PayPal co-founder Peter Thiel at their first ever meeting that he had ambitions of “inventing all the crypto” that would be used on future handheld devices.

In this context, Levchin’s thoughts on bitcoin, the cryptographic virtual currency that’s caught the world by storm, become particularly interesting. When asked about bitcoin’s future prospects, he first started by praising the underlying technology, saying:

The math behind the original paper, which I read it a many, many times before I decided I actually believed it, is beautiful. It is one of the more impressive piece of, it’s not quite pure math but it’s math at its core, it’s awesome. The fact that it’s a distributed ledger without a third-party trust system is awesome, and a fundamental breakthrough.

But despite what he describes as absolute admiration for the bitcoin protocol and the people who created it, Levchin remains unconvinced of its long-term prospects. He has two concerns: First, he says, bitcoin is flawed from a PR perspective based on its association with underworld marketplace Silk Road and the recent failings of leading exchange Mt. Gox.

Second, Levchin has doubts that a fully deregulated virtual currency can, or even should, replace today’s fiat currencies. To that end, he predicts that a crypto-currency that’s regulated by the US government (or another central body like perhaps the world bank) is more likely.

[Bitcoin] is immune to monetary policy, which is where the zealots love to pound the table, but that’s actually a bad thing. The reason we like US dollars is because we know that when the government deflates or reflates (sic) US dollars they’re doing this generally to speed up the economy or to put some brakes on it, which, no matter how much we think our government is not the best one on the absolute scale, it’s certainly the best on from the monetary policy perspective, given that we are the reserve currency of the world… but I’m not an economist and I can’t even pretend to play one on TV.

Levchin is more certain that the bitcoin’s technological underpinnings will have a major role in the future of currencies, no matter what we call them or who is or is not regulating them.

I am confident that there will be a form of settlement that will be a crypto-currency. And the ledger piece, there’s no need to reinvent that. The bitcoin distributed ledger is a fundamentally sound idea and it will get used, maybe in a slightly different format.

Asked whether he himself owns any bitcoin, Levchin answered no, before remembering that a startup investment he made previously has paid at least one dividend denominated in bitcoin, adding that he has never redeemed it and has no access to those, admittedly small, virtual assets.

So there you have it. One of the most brilliant technical minds of his generation, Max Levchin is curious but not personally invested in bitcoin, and is far more bullish on the prospect of a future crypto-currency with government backing winning this space. By comparison, Warren Buffett, who is certainly one of our era’s brightest financial minds, today called bitcoin “a mirage.

For bitcoin fanatics, neither man’s opinion is likely to sway their thinking. But for those at the margins, it’s valuable to hear how bitcoin stacks up. The price of bitcoin has been uncharacteristically steady in recent weeks, fluctuating between $600 and $700 since March 3.

Levchin concluded the discussion by saying that, if bitcoin does manage to get broad penetration, its value is sure to increase significantly, making today’s prices seem deeply undervalued.

So it’s kind of a very interesting time, where I think the technology is awesome, the currency is TBD, and if the currency goes this way (pointing down) sell your bitcoins now – if it goes that way (pointing up) buy more. The long and short of it is, it’s really interesting. That’s the most honest answer I can give.