Dear Reader,
Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology.
Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here.
I’ve been on a bit of a mission lately. I’ve been crisscrossing the country, researching technology and getting a “boots on the ground” feel for what the economy is actually like.
I can’t trust what I read in the papers. The editorial is far too biased, which is why my team and I do the hard work, dig in, and get out there to find out what is actually going on.
Recently, I had a stop in Indianapolis. I haven’t been there in a while, but I lived not too far from the city when I was earning my B.S. in aeronautical and astronautical engineering at Purdue University, which is in West Lafayette, IN.
Here I am in front of the Lucas Oil Stadium, home of the Indianapolis Colts.
I’ll share more details in the future, but from my travels, I can say that the U.S. economy is humming.
I’ve lost count of how many airports I’ve flown through, but they are all busy. Almost all of the planes I’ve boarded have been packed… some of them at 100% capacity.
My travels have given me some extra time to think about technology and, of course, what makes great technology investments.
So before we get to today’s questions, I’d like to pose a question to readers. It’s something that every serious technology investor should consider.
What is the single most important factor to identifying an incredible technology investment?
Let’s think about that for a moment.
In these pages, we often talk about valuation, go-to-market strategies, and technology companies with unique products and services. Understanding these concepts is very important for investors.
But there’s one more element that can change an investment from just “good” to “life-changing.”
Here’s the answer: exponential growth.
Exponential growth is one of the most powerful forces in technology investing. As the chart below demonstrates, this type of growth sneaks up on us. It appears linear at first. But then there is a sharp “elbow,” and the trend goes vertical.
Readers already know this type of growth.
We’ve witnessed it in the exponential rise in the processing power of our semiconductors. We’ve seen it in the exponential decline in the cost of genetic sequencing.
And we’ve witnessed exponential growth in the adoption of new products and services like smartphones, e-commerce platforms, and cloud-based applications.
The companies that “rode the wave” of exponential growth in these markets became some of the best investments of the past two decades.
In that time, Apple has returned 26,000%.
Amazon has soared more than 16,000%.
And Netflix – on the back of the exponential growth in streaming services – has returned close to 44,000%.
A $5,000 investment into each of these companies in the year 2000 would have now grown into a small fortune of $4.3 million.
I mention this because we are at the very beginning of the next major exponential growth story. And like the technology trends of the past, this investment trend will produce incredible returns in the years ahead. Only this time, I predict it will play out over months and years, not decades.
If any readers believe like I do in the transformative power of bleeding-edge technology, then I encourage you to go right here. On October 21 at 8 p.m. ET, I’m hosting a special investment event. We’re calling it “Beyond Exponential.”
On that evening, I’ll reveal the most important growth story of the 2020s. And I’ll show readers how they can be positioned today with just a handful of investments.
I hope to see you there. You can reserve your spot right here.
Now, on to our mailbag…
Let’s begin with a question on crypto wallets…
Good evening, Jeff. I would like to ask your advice about how to safely store cryptocurrencies. I know about wallets, but they do not seem to be safe. I have been told to store the contract numbers of the coins offline on a Trezor (a digital hardware device). Is it necessary to go to all that trouble, and is it safe?
Is Coinbase totally safe to use? They have a wallet and a vault also. I read that Coinbase Pro is FDIC-insured? I am confused about the safest way to store these coins. Kucoin said that it is insured. It was hacked recently. Does that mean it will repay customers if their funds are hacked? Thanks for your help.
– Hal J.
Hi, Hal, and thanks for your questions. I can offer some general advice that could help readers like you who are wondering about how to safely store cryptocurrencies.
There are literally thousands of cryptocurrency wallets out there that investors can use. These are where consumers can store their cryptocurrencies like Bitcoin and Ether.
A digital wallet can be hardware-based or web-based. It can be kept on a mobile device or a computer desktop. Or users can even write down the private keys and addresses used for access on a piece of paper.
But how safe are these digital wallets?
Human error and fraud are both risks. Every wallet contains a set of private keys… without which the crypto owner cannot access his or her tokens. So if someone loses their key – or if it’s hacked or stolen – the user will never see those tokens again.
That means if you crash your computer where your keys are kept, for example, you won’t be able to recover your money. The same principle applies to misplacing the paper you wrote your keys down on.
Many people recommend a “cold-storage” method, which stores the wallet in a way that has no connection to the internet. This is the absolute safest way to store digital assets while maintaining control over the asset’s private keys.
For investors who want to self-custody, I always recommend using a hardware wallet for anything more than just a few hundred dollars’ worth of cryptocurrency.
The Trezor device you mentioned is a great option in this category. Ledger and KeepKey are also fantastic hardware wallets to consider.
For investors who would like a financial institution to custody digital assets for them, Coinbase is an excellent choice. Coinbase has a cold-storage feature, and it has been the most buttoned-up digital asset exchange from both a regulatory and a security standpoint right from the start.
As for mobile and desktop wallets, it’s critical to only choose a credible cryptocurrency wallet provider. As I said above, there are many wallets to choose from.
Unfortunately, many of them are also scams. You might think you are setting up a legitimate wallet, transferring and storing your cryptocurrencies and tokens… but in reality, your money is gone.
Make sure to do your research when selecting the wallet to use. Options like Abra, MyEtherWallet, and now the Square Cash App are great places to start. And there are many others.
There’s one more point worth mentioning – cryptocurrency users should ensure that whichever wallet they choose is compatible with the coins or tokens they wish to purchase, as not all wallets support all cryptocurrencies.
This is an inconvenience in the industry right now depending on which digital assets we want to own.
You also raised the point of another industry risk – if a project gets hacked. Sadly, this is not an uncommon occurrence. This is where technical expertise is useful in evaluating blockchain projects that are more resistant to being hacked than others.
How each blockchain project deals with a hack will depend on the project. Some projects actually have insurance to cover such an event, whereas others might sell off their own assets to make everyone whole. Some have chosen to “fork” their blockchain and essentially reset the clock.
The industry is still going through some growing pains in this regard.
With all that being said, even owning a small amount of digital currencies is a great way to diversify our portfolio. Digital assets are a quickly emerging asset class and one that I keep a very close eye on.
And now, buying Bitcoin and other digital assets has never been easier. Digital exchanges like Coinbase make the process of buying, selling, and holding cryptocurrencies very simple.
As I mentioned above, Coinbase is my recommended exchange for retail investors. It’s the simplest platform and has one of the best reputations in the industry.
If readers have questions for how it (or any other exchange) insures consumers’ digital assets, I recommend contacting the exchange directly through its customer service channels.
Next, a reader wants to know more about how our infrastructure will support the growing popularity of electric vehicles (EVs)…
It seems there is a general agreement that electrical vehicles will rapidly become a much larger share of total vehicles on the road, especially if predicted advances in battery technology work out. If this happens, it seems to me that a massive expansion in the capacity of the electrical grid will be required. What do you see as the best way to profit from this?
– William M.
Good question, William. Not too many people make the connection that more EVs on the road will require dramatically more electricity… and the infrastructure to support it.
Most people simply think that if we buy an EV, there is less pollution, and we just have to “plug it in.” But in reality, it is critical for us to understand where the electricity comes from to fuel an EV.
The reality is that the majority of electricity is still produced by fossil fuels (carbon-based) and/or hydroelectric sources that damage natural freshwater ecosystems. And that’s very true even in California, a state that we might perceive to be “green.”
For example, more than 50% of California’s utility-scale electricity generation comes from burning natural gas (fossil fuel), another 5% comes from nuclear fission (radioactive waste), and another 15% comes from large- and small-scale hydroelectric production (damage to freshwater ecosystems).
In total, that is 70% of the production that is used to fuel EVs. Only about 22% comes from solar and wind, and California is one of the best states for renewables in the country.
What that means is the vast majority of the electricity produced in the U.S. comes from sources that are not clean and do damage to our environment. This means that the carbon released into the atmosphere is simply displaced (at the power plant rather than in our neighborhood).
What really needs to happen is this…
Each country needs to build new infrastructure for clean energy production. That includes solar and wind where they make sense and nuclear fusion (not fission), which has no radioactive byproducts.
These could be good areas of investment. For any interested readers, I’ve written a lot about the potential for nuclear fusion in particular. You can download a free bonus report right here to find out more about a private company I’m keeping a close eye on.
As for power distribution and the physical electrical grid, the upgrade to EVs will be manageable for one simple reason. The transition from internal combustion engines to electric vehicles will occur over the next couple of decades.
And on top of that, the emergence of very low-cost, shared autonomous vehicle networks will decrease car ownership. This means that large electrical fueling “centers” will be built and managed by companies serving this new industry.
This will lessen the burden on last-mile utility infrastructure.
As for my favorite areas to profit from this trend – I’m very excited about companies that are producing bleeding-edge battery technology for EVs. I also like to focus on autonomous driving technology.
And the semiconductor industry is also a great place to look for companies that are manufacturing products required to support solar energy and electric-vehicle fueling infrastructure.
Let’s conclude with a question about where Google stands today…
Hello, Jeff. You’ve mentioned several times some of the great things coming out of Google, specifically with respect to its computing power and relationship to self-driving cars.
I am not sure if there is a relationship between Google and Tesla. However, it would seem like there would be some complementary overlaps in the area of road navigation.
In any case, I was wondering if you felt that the value of Google is rising or whether it is on a plateau. At one point, it was certainly a leader on “the bleeding edge,” but I’m not so sure it is still there.
I would be interested to hear your thoughts. Thank you for your excellent insights I find both here and in your various services. I look forward to great results from the interesting companies you recommended in technology and biotech.
– Richard H.
Hi, Richard, and thanks for being a reader and subscriber.
We’ve written about Google a lot in these pages. As you mentioned, the two most exciting initiatives coming out of the company involve its self-driving division, Waymo, and its work with quantum computing.
Let’s start with Waymo. It’s made some incredible progress.
Back in May, it released its fifth-generation autonomous technology. And the technology looks solid.
Waymo Fifth-Generation Autonomous Vehicle
Source: Waymo
It followed that release up by taking in $750 million in funding. Outside investors like the Canada Pension Plan, Mubadala Investment Company, Magna International, AutoNation, and Andreessen Horowitz have put capital into Waymo.
Then in July, it announced an exclusive agreement with Volvo. The two are partnering to launch a self-driving ride-hailing service. Volvo will produce the cars. Waymo’s tech will make those cars drive themselves.
The two are targeting Level 4 autonomy with this service. That means the cars can drive themselves from Point A to Point B in a well-defined geographic area under reasonably good road conditions – which largely means no severe weather.
As for quantum computing, Google holds the distinction of being the company to usher in the age of “quantum supremacy.” That’s the point at which a quantum computer outperformed the world’s best classical supercomputer.
Google pulled off this feat in September 2019. Its 53-qubit quantum computer completed a task in three minutes and 20 seconds that would have taken the world’s most advanced classical supercomputer – Summit – 10,000 years to pull off. Incredible.
So I’m following these two initiatives very closely.
As for my general thoughts on Google, I would say the company’s future is secure at least in the short term. But in the longer term – a decade or more – Google’s position looks far from certain.
Remember, Google’s core business model is “mining” our data and using that data to inform ad targeting. Every one of Google’s initiatives is designed to progress this business model in some way.
A simple example is the Android operating system (OS) for smartphones and tablets.
Google championed this “free” operating system, which was integrated with hardware and highly functional. This move empowered smartphone manufacturers to produce Android phones without the headache of a customized software solution.
Google’s strategy was to “infiltrate” the world’s smartphones so that it can surveil on anyone, all day long, and collect data that it can sell.
Was it successful? Android OS smartphones have about 87% global market share. And Google is one of the most valuable companies on the planet.
Most think that Google is developing self-driving cars so that it can have a self-driving fleet like Uber. That’s not the strategy.
Google is developing its own OS for self-driving cars. Its goal is to license that software to car manufacturers – again, taking the headache out of complex software and AI development – so that it can again “infiltrate” our cars and trucks.
That way, it can collect even more behavioral data on us while we are driving or being transported by a self-driving car.
While I don’t at all like Google’s business practices, I do appreciate how it continues to innovate and take on big challenges like software for smartphones, operating systems for self-driving cars, quantum computing, and smart-home systems. And augmented reality won’t be too far behind.
But what if this entire model was disrupted? It’s not as unlikely as we might think.
In June, we discussed an early stage company called Brave. Brave is a privacy-focused web browser that shares its advertising revenues with users through a native token called BAT.
That’s right. Brave literally pays its users to view ads. And as of June, Brave announced it had 15 million monthly active users.
This is the business model that could ultimately take down companies like Google and Facebook. Think about it. Who would willingly agree to be surveilled by Google when they can instead be paid to use a privacy-focused browser with the same level of functionality?
From my perspective, this is an inevitable direction for the industry. A company like Brave likely won’t displace Google any time soon. But longer term? This trend could be a “Google killer.”
In short, Google’s value will continue to rise, and the company will continue to grow over the near- to mid-term…
But in the meantime, companies like Brave will compete on the browser-based business. Apple’s iOS remains the only alternative to Android OS right now for smartphones and tablets. And Tesla is the equivalent of Apple for EVs and self-driving cars.
Companies like Rigetti and IonQ are competing in the field of quantum computing. Amazon competes on smart-home products. And Amazon, Apple, Facebook, and MagicLeap are all big contenders for augmented reality.
The developments in these areas are so fun to track and invest in. These are incredibly exciting technologies.
And even more exciting private companies will factor into the competitive environment as well.
That’s all we have time for this week.
If you have a question for a future mailbag, you can send it to me right here.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
