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The Most Important Change in Money in 5,000 Years


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IN THIS WEEK’S ISSUE

  • Cryptocurrencies have trounced stocks in 2017
  • Sam Volkering: A financial revolution is coming
  • Why cryptos are fundamentally anti-establishment
  • Bonus report: How to buy bitcoin

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.

Massive Disruption

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.]

What Does a Peer-to-Peer Network Mean?

On a peer-to-peer network, participants make resources – processing power, disk space, network bandwidth, etc. – available to the network.

These shared resources power the network. This does away with the need for a centralized source of power. In this way, peer-to-peer networks are collaborative and egalitarian.

Napster, the peer-to-peer file-sharing network, upended the music industry. Peer-to-peer blockchain networks are about to do the same for the financial and banking industries.

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.]

How Will Bitcoin Speed Up?

Bitcoin developers will implement the scaling upgrade in two steps – “Segregated Witness” and a block-size increase.

Segregated Witness (SegWit) will reduce the size of each bitcoin transaction. This will allow nearly four times more transactions to fit into each 1-megabyte block.

Step two will increase the size of each block to 2 megabytes. The so-called SegWit2x agreement calls for this to occur within six months of SegWit rolling out. This will double the number of transactions that can fit into each block and allow for up to 56 transactions per second.

And SegWit2x is just the first upgrade on the docket. It will pave the way for the next upgrade – the Lightning Network. This will allow the bitcoin blockchain to process thousands, and maybe even tens of thousands of transactions per second.

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.

Regards,

Signature
Chris Lowe
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 feedback@bonnerandpartners.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).

Bullish on Bitcoin – Cryptocurrencies are the “new gold” (7/21/16). Use them to bet against the doomed fiat money system (9/15/16).

Defense stocks for a bellicose era – The world is experiencing a rise in militarism. Go long defense stocks (11/5/15).

Crypto Corner

The Return of Currency Competition

By Nick Hubble, London

[Editor’s note: We continue our weekly bonus essay series focusing on the rise of cryptocurrencies. This week, a look at how cryptos are bringing competition back to the currency markets.]

How many note-issuing banks does Britain have?

It sounds odd. The Bank of England issues our pounds and De La Rue in Basingstoke prints them. So the correct answer is one.

Then why do Clydesdale Bank, Bank of Scotland, Royal Bank of Scotland, Danske Bank, Northern Bank, First Trust Bank, etc., all issue their own pound banknotes with different designs? They are all worth the same as Bank of England pound notes.

Britain’s variety of banknotes is a remnant of the days when banks, not governments, issued currency. After all, who would trust a politician to issue money?

Those days were known as “free banking.” Banks competed with each other to issue the soundest currencies. A dodgy bank that issued too much currency saw its pound notes decline in value relative to others. Too many people would show up demanding the redemption of their gold or silver pounds in exchange for its promissory notes. Then a bank could go broke.

It sounds like a messy system. None other than Adam Smith was caught out by such a bank run and failure. But the general evidence suggests the system worked quite well.

That’s because competition in currencies has the same effect as competition elsewhere. You end up with an improved product and a proliferation of consumer choice.

Thanks to cryptocurrencies such as bitcoin, currency competition is back. And the improvements are already in motion: faster transaction times, less loss of value through inflation, a predictable money supply, international acceptance, lower costs, and much more.

The beautiful thing about cryptos is they can be designed in all sorts of ways with all sorts of features. Cryptocurrencies backed by precious metals are already up and running.

OneGram is backed by a gram of gold. It’s Sharia law compliant. ZenGold is the same idea. And the Chicago Mercantile Exchange, the biggest commodity market in the world, is working on its own version using gold in the Royal Mint, Britain’s 1,100-year-old mint.

Advocates of free banking don’t necessarily want money to be privatized. They just want the opportunity to compete alongside government.

Governments may also jump on the crypto bandwagon. Rumor has it that Russian president Vladimir Putin asked Ethereum cofounder Vitalik Buterin to look into creating a national cryptocurrency for Russia. (Putin reportedly doesn’t have a computer screen in his office and does all his work by paper. So that’s quite a step.)

Imagine a world where you can choose your money. It’s already a day-to-day matter for Venezuelans, Zimbabweans, and many others. The decentralization and digitization of money has enhanced the selection you can choose from. Anything can be created.

Perhaps the most important feature of cryptocurrencies isn’t their particular characteristics or the digitization of the payments system. Perhaps it’s the reemergence of currency competition. And perhaps the really important innovations are yet to come.

Given what competition did to all our other goods and services compared to the likes of consumer choice in Soviet Russia and Communist China, we probably have a long way to go.

New to Inner Circle?

Our goal is to help you connect the dots in a broader way between what’s happening in the world and how you should be strategically positioned in your portfolio.

In your weekly Inner Circle dispatches, you’ll find the best ideas our “brain trust” has to offer. From time to time, you’ll also find “deep-dive” Q&As with world-renowned experts outside of our immediate network.

You can find the full archive of Inner Circle dispatches on the password-protected website here. And you’ll receive the latest weekly dispatch direct to your inbox at 5 p.m. E.T. every Thursday.

You can find the library of special reports here. This is packed with actionable ideas and how-to guides – everything from how to prepare for a bank run to why you should buy gold now to how to make sure your children have a good grasp of investing.

If you have any questions about your membership… or comments on the ideas you read about in your weekly dispatches… you can contact the Inner Circle team anytime at feedback@bonnerandpartners.com.

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