The Most Important Change in Money in 5,000 Years
2017 has been the year of the cryptocurrencies… This week’s expert says the rally is just getting started
We begin this week’s dispatch with a note from an Inner Circle member:
Hi guys… You write a lot about bitcoin and other cryptocurrencies but NO MENTION ON HOW TO BUY THEM?
– Peter G.
As we forecast in these pages last summer (catch up here), cryptocurrencies have taken off.
As you can see from the chart above, so far this year, bitcoin is up 147%. And ether, the second most valuable crypto by market cap, is up 2,400%. That compares with gains of about 7% for the Nasdaq, the S&P 500, and the Dow.
And that’s before you get into the gains for some of the smaller, less-well-known cryptos. For example, in the 12 months to the end of June 2017, Aeon was up 8,324%, Burst was up 9,209%, BitBay was up 10,704%, CloakCoin was up 12,688%, and Viacoin was up 19,644%.
I don’t need to tell you that these are life-changing returns. A grubstake of just $1,000 invested in the worst performer above, Aeon, would be worth $83,240 today. That’s enough to travel around the world, put a child through college, or buy a nice new car.
If you’re keen to know how to get involved and buy your first bitcoin, don’t worry – I’ll be sharing with you a step-by-step guide from one of the top tech experts in our network later on.
But before we get into how to buy cryptocurrencies, let’s first talk about why they make sense in the first place.
A lot of folks have heard about the eye-watering gains. They know the crypto market is on fire right now.
But according to this week’s expert, Sam Volkering, if that’s ALL you know about cryptocurrencies, you’re missing the most important development in money of the last 5,000 years.
Sam is the editor of Revolutionary Tech Investor, a British and Australian investment letter that focuses on the big trends shaping the world of tech.
Sam first bought into bitcoin in 2011 when it was selling for about $12. (At time of writing, bitcoin trades for about $2,300 – or about 19,000% higher.) And he’s continued to analyze and research the crypto market ever since.
As Sam explains below, bitcoin and other cryptos are about to completely reshape our financial landscape. It’s a new technological wave that is about to break over the world of money and finance. Perhaps even a new monetary epoch.
Frankly, this has been extremely niche stuff up to now. But it’s starting to go mainstream…
For example, Peter Thiel, cofounder of PayPal, has invested $2 million in crypto payment systems. And billionaire hedge fund investor Mike Novogratz holds 10% of his personal wealth – over $100 million – in bitcoin and ether.
Meanwhile, Dutch bank ABN AMRO is creating its own digital crypto “wallet” (used for storing, sending, and receiving crypto payments). And the vampire squid itself, Goldman Sachs, is now offering market analysis on bitcoin. (Watch its excellent introductory presentation on cryptos here.)
At Inner Circle, we’ve been ahead of the crowd. We first urged you to buy bitcoin back in December 2015 when it was selling for just $362. And we’ve made the rise of cryptos one of the Top 6 big-picture investing trends we track for you. (See box below).
But bitcoin is not just a currency. It’s also new technology – a decentralized global payments network that doesn’t rely on banks, governments, or central banks.
Make no mistake: Money, banks, and finance are about to be massively disrupted by this groundbreaking technology. Today’s monetary model of national currencies and centralized institutions is undergoing a profound change.
That means it’s not too late to invest. In fact, the potential for long-term gains is phenomenal… even at today’s prices.
Q&A With Sam Volkering
Chris Lowe (CL): Why should people care about bitcoin? Isn’t it just some flash-in-the-pan tech trend? Or worse, a speculative bubble?
Sam Volkering (SV): I get these questions a lot. I’ve been involved with bitcoin for about six years now. From what I’ve seen, a lot of people have heard of bitcoin and maybe a couple of other cryptos. But they don’t understand how important this “new money” is.
A lot of people still see cryptos as little more than get-rich-quick schemes. Yes, the prices of some cryptos have skyrocketed, minting new millionaires… and even billionaires. But what’s happening with the underlying technology is a far bigger deal than what’s happening with the price.
This is the most important development in the monetary system of the last 5,000 years.
CL: For folks who still have a tough time wrapping their heads around what the bitcoin network is, what’s the best way to think of it?
SV: Imagine if every financial transaction that takes place in the world is recorded in one giant notebook-style ledger. Now imagine that a network of people can see this ledger and verify each transaction recorded in it without relying on a bank, central bank, or clearinghouse. Instead, a consensus among individual users of the network confirms every transaction – without interference or influence.
Of course, most people don’t want the entire world to know about every transaction they make or have it permanently etched in this public ledger. That’s why each bitcoin transaction is encrypted. The people who verify each transaction can see it took place. But they don’t know the identity of the people behind the transaction.
That’s what the bitcoin network is: a decentralized, peer-to-peer network that operates a secure digital bookkeeping service.
CL: The price of bitcoin has skyrocketed from $648 to over $2,300 in the past year. That’s more than a 250% gain. Why are so many people flocking to bitcoin?
SV: It’s pretty simple. With the debt built up around the world Bill Bonner and others have been warning about – and with central banks printing more fiat money to fund all this debt – governments are eroding the wealth of their citizens.
Meanwhile, what started as a basic idea to enable commerce – credit – has developed into this all-consuming beast we know as the global financial system. It’s far too complex, convoluted, and corrupt. It’s a broken system that needs an alternative.
CL: You’re saying bitcoin is that alternative?
SV: Just think about your own life. Are you sick of government ripping you off? Are you sick of banks and giant multinational corporations ripping you off? Of the political elites and establishment ripping you off?
If the answer is yes, then bitcoin is for you. Because it’s purely “peer-to-peer” electronic cash, it allows the transfer of payments from one party to another without going through a financial institution. [See box below.]
This cuts out the need for intermediaries and middlemen. And it allows millions of strangers around the world to transact without any central issuing or controlling authority such as a bank or a central bank.
That’s the aim of bitcoin: to reduce the barriers, costs, and borders of commerce. It’s for everyone. Not just the elites. Not just the powerful and already wealthy. It’s the libertarian, anti-establishment, alternative digital financial system.
CL: That’s not the way a lot of folks see it. Most people still see cryptos as some sort of techie fad or modern-day Tulip mania.
SV: There is definitely plenty of speculation in the crypto market. I’ve described it as the “Wild West.” But bitcoin and other cryptos are about a lot more than their price.
Last time we talked, I urged your members to read the original bitcoin white paper by the mysterious creator of bitcoin, Satoshi Nakamoto. It’s an absolute game changer.
In fact, the bitcoin white paper will surpass the significance of any treaty, agreement, law, or constitution that exists today. Because what it describes is fundamentally anti-financial system, anti-establishment, and anti-corporate greed. The whole point of bitcoin is to serve as an alternative way to buy and sell things, transfer money around the world, and build your financial wealth.
CL: What’s the big difference between bitcoin and other payment systems?
SV: To really understand what’s going on, you need to know a bit about the underlying cryptography that powers the Bitcoin network.
Each digital bitcoin wallet – which you use to store, send, and receive bitcoin – has a public “key.” This works as an “address” you can share with other bitcoin users you’re transacting with. But each wallet also has a private key. And as long as you keep your private key private, only you can access your wallet.
For example, if I want to send you some bitcoin from my wallet, all I need is your public key. And all you ever see is my public key. We can’t access each other’s wallets because neither of us has access to the other’s private key. This allows “peers” – you, me, and anyone else – to transact with each other safely and securely online.
Each bitcoin transaction is then digitally “signed” and verified using these keys. This confirms the transfer of bitcoins from one wallet to another. It’s this process of signing transactions, and confirming them across the network, that makes bitcoin 100% accurate and tamperproof.
What’s so revolutionary about bitcoin is that the network itself becomes the trusted party. No bank, no government – no third party of any sort – touches, sees, or has anything to do with your bitcoin transactions.
CL: One criticism you hear a lot is that it takes too long to confirm bitcoin transactions. Right now, for instance, bitcoin payments are processed somewhere in the order of 400 times slower than Visa payments. At that rate, how can bitcoin be a serious threat to established payment systems?
SV: Transaction times have definitely been an issue. But bitcoin is about to scale up… epically.
Let me explain…
The blockchain – the decentralized public ledger that powers the Bitcoin network – does what it says on the tin. It’s a giant chain of records, or “blocks.” These blocks make up the ledger that records all bitcoin transactions.
To chain each block together, each new block must be traced sequentially back to the “genesis block” – the first block on the chain, which was created in 2009. So with each block you add, you need more computing power to trace it back to the first block. This slows down each new transaction.
CL: That sounds pretty technical.
SV: Think of the blockchain as a giant linked chain piled up on the floor. When you lift the first link it’s easy. But with each new link you lift, the chain gets heavier… and harder to lift. Eventually, you get to the point where you can barely lift it anymore.
Right now, the Bitcoin blockchain is at the point where the chain is extremely heavy. This has slowed transaction times. Unless something changes, each new transaction will get so slow that bitcoin will become near impossible to use… certainly for the kind of mainstream adoption you’re talking about.
CL: How slow?
SV: The most important figure here is transactions per second. As it stands, the Bitcoin blockchain can handle about three to seven transactions per second. Right now, Visa handles about 2,000 transactions per second. That puts bitcoin way behind the eight ball if it is to reach mass adoption.
Realistically, Bitcoin needs to handle closer to 100,000 a second – maybe even 1 million transactions a second – to be a true global payment systems disrupter. The good news is it looks as though it will get there.
I don’t want to get too technical for your readers. But on July 21, the Bitcoin network will be radically reengineered to make transactions about eight times faster. [For more, see box below.]
CL: What’s the significance of this reengineering in terms of the bitcoin price?
SV: With faster transaction times, bitcoin will be able to grow, scale, and bring in even more users. The 2.5 billion “unbanked” in developing countries – folks who don’t use banks but have increasing access to smartphones – will start to transact in bitcoin instead of in government fiat currencies. More merchants will accept bitcoin as payment. And companies will find new, innovative ways to allow you to transact in bitcoin – for instance, credit cards that allow you to pay with bitcoin or fiat currencies.
That exponential growth of the network will continue to push the price of bitcoin higher. Next year, I think we’re going to see bitcoin breaching the $10,000 barrier.
CL: What about the longer term? Where are we headed over the long run?
SV: My position has always been that bitcoin will be around far longer than you or I will be alive. Bitcoin is, and always has been, an online medium of exchange. It is, in its purest form, anti-government and anti-central bank. It provides the perfect basis for an alternative payment system. My view is that, by 2027, bitcoin will become the world’s global reserve currency.
CL: Wow… that’s a big call. What does that mean in terms of everyday life?
SV: You will be able to get paid and spend in bitcoin in the U.S., Europe, Japan – anywhere in the world. It will be the first real global currency… the first real alternative global financial system outside of the influence and control of central authorities such as banks and central banks.
And this is where it’s going to get really interesting… Because at this level of mass adoption, people will talk about the price of goods and services not in dollars or bitcoin but in “satoshi,” the smallest unit of bitcoin. You’ll be able to buy your groceries… put gas in your car… even buy a house in satoshi.
[Just as dollars can be broken down into cents, bitcoin can be broken down into subunits. The smallest is called a “satoshi,” named after bitcoin’s alleged creator Satoshi Nakamoto. One satoshi is one hundred-millionths of a bitcoin, or 0.00000001 bitcoin.]
Folks who hold entire bitcoins – 100,000,000 satoshi – will see their wealth multiplied many times over, as the price of bitcoin exceeds the fiat equivalent of $50,000… then $100,000… and pushes on to $1 million.
What to Do
Chris here – Now, back to the question at the top of this week’s dispatch…
How the heck do you buy cryptos?
It’s actually easier than you think. It’s all explained in simple steps in “What’s the Big Deal With Bitcoin? Cryptocurrencies 101,” a special report from Bonner & Partners tech expert Jeff Brown.
In it, you’ll find a deeper dive into what bitcoin is and why it matters… a rundown on the other popular cryptos out there… plus a complete step-by-step guide to how to buy your first bitcoin.
Until next week.
Editor, Inner Circle
P.S. Have you bought and profited from bitcoin’s rise? Or have you had trouble buying cryptos? Either way, I’d love to hear from you. Write me and the Inner Circle team at email@example.com.
P.P.S. Don’t miss out on your Inner Circle special reports library. You can find all 10 special reports there, including my exclusive interview with former Fed chairman Alan Greenspan at the Inner Circle roundtable event in Baltimore in February.
The Inner Circle Top 6
Ride the cannabis legalization wave – A wave of cannabis legalization is sweeping across the globe. Buy cannabis stocks (5/12/17).
Follow the golden ratio – Middle-aged big spenders are the biggest population group, and U.S. stocks will benefit. Dollar-cost average into U.S. stocks (4/21/17).
Prepare for peak globalization – U.S. stocks with a lot of overseas revenues will get destroyed. Buy these “America First” stocks instead (3/10/17).
Cybersecurity splurge – Governments, banks, and companies around the world are spending big bucks on cybersecurity. Get ready for a rally (12/8/16).
Defense stocks for a bellicose era – The world is experiencing a rise in militarism. Go long defense stocks (11/5/15).
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