Dear Reader,
Two weeks ago, I held a briefing about some of the most exciting things happening in the world of high tech right now. I also shared for the first time some video footage of me riding in and researching self-driving cars.
It was a great night, and the best part was the Q&A session towards the end of the briefing. There are always some interesting questions from viewers, and it’s fun to be able to respond in real time to those tuning in.
The best question that night was around what is happening right now in China with regards to cryptocurrencies and blockchain technology. The question was about whether or not the moves by the central government would be bad for the industry and if other countries would follow.
This topic has been of interest for years, as China’s central government has been dancing around the issues surrounding cryptocurrencies with restrictions placed here and there on parts of the industry.
But this time is different…
During the last two weeks, China put its foot down. The decision seems absolute. Not only has the central government outlawed cryptocurrency mining completely, but it has declared all cryptocurrency transactions illegal.
And the market has responded. Companies and individuals involved in the mining of cryptocurrencies have been dumping their mining rigs onto the market for whatever they can get. Mining operations have moved offshore almost overnight, and those who are going underground are running the risk of very dire consequences.
Does this come as a surprise? Absolutely not. If anything, I was a bit surprised it hadn’t happened sooner.
After all, the blockchain industry is built on distributed, decentralized, censorship-resistant technology that removes the power enabled by centralized control. The ethos and philosophical leaning of the blockchain industry is anathema to how a communist nation-state like China operates – with centralized control and an iron fist.
Why would China risk losing that control by empowering new money to be created? Why would it allow its citizens to transact in money that is not controlled by its central bank? In short, it wouldn’t – and it won’t.
I suspect that there is something to the timing of this announcement. I doubt it is a coincidence. After all, China has been developing and testing its central bank-backed digital currency (CBDC) for years now.
I suspect China is getting ready to launch it, and these latest edicts are intentionally designed to clear the field to prepare the country for a digital Yuan.
That will give the central government even more control than it has today.
Not only will it be able to “print” as much digital currency as it desires… it will be able to “see” and tax every transaction as it sees fit. And with a little imagination, we can envision that digital currency being used to incentivize desired behavior as determined by the Chinese Communist Party.
I can see it now. “Do this to earn a few eYuan, do that and get a few more, do this and pay a steep fine that will be immediately removed from your digital wallet.”
State control embodies absolute power. To anyone who believes in a free, open, and non-discriminatory society, this should be frightening.
And while this all sounds bad, it is actually great for the industry. Prior to the ban, more than 53% of all bitcoin mining was performed by a small handful of companies in China. Theoretically, that could have led to collusion and control of the Bitcoin blockchain. That would not be good.
Almost overnight, the Bitcoin blockchain network became more distributed, and as a result, more resilient. That’s the direction we like to see.
Much of the blockchain industry has also been working toward a “cleaner” infrastructure as well. Blockchain technology is an information technology. It is a network of computing systems, and that means energy is required to run them.
More than 60% of all Chinese cryptocurrency mining was powered by electricity from coal. Needless to say, that’s something that we all want to move away from. Again, the immediate shift out of China into other markets is having a marked improvement on the carbon footprint of these blockchain networks.
This move by China certainly didn’t go unnoticed by the U.S. government.
Days ago, the Federal Reserve (Fed) Chair, Jerome Powell, spoke out clearly in testimony before the House Financial Services Committee that the Fed has no intention to ban cryptocurrencies.
This was followed up yesterday by Securities and Exchange Commission (SEC) Chair Gary Gensler, who also said that the U.S. will not ban cryptocurrencies. The focus of the SEC will simply be to provide consumer protection, tax laws, and anti-money laundering regulations with regards to cryptocurrencies.
Great – then let’s get it done. Now is the time to provide regulatory clarity and, hopefully, a light hand when it comes to regulation around blockchain technology and cryptocurrencies.
China just gave the rest of the world a gift. This is a window to take a leadership position in the next generation of financial services and the internet.
I can only hope that the U.S. government and others take advantage of this incredible opportunity.
And I hope that they decide to allow normal investors the chance to get in early and participate in the extraordinary wealth that is being created with this revolutionary technology.
As regular readers know, artificial intelligence (AI)-enabled digital assistants have been on my radar for a while now.
And while we haven’t gotten to the point where we have a mass-market assistant capable of taking over our everyday menial tasks, we do have very functional smart home assistants.
These are products like Amazon’s Echo and its voice assistant Alexa, Google’s Assistant on its smart home speaker or display, and Microsoft’s Cortana. These are all useful AI assistants that have come a long way over the last 12 months.
But there’s a catch – and it’s a big one… None of these big tech products are built with consumer privacy in mind.
We know any product from a company like Google is designed to track and store everything we do. They then package that data to create a profile of us, and they sell access to the highest bidder to generate advertising revenues.
Amazon now has a multibillion-dollar business doing much of the same. It may not be selling access to this data to third parties – that’s a positive – but it uses that data to influence our thinking and allow third parties to advertise their products to us based on data collected.
So that leaves a big gap in the market for consumers who are worried about privacy. Where do they go for an AI assistant that doesn’t track them and collect their data? What’s the alternative for consumers in a market that is predominantly controlled by big tech?
Well, a company called Mycroft.ai has built a fantastic alternative. Mycroft developed a smart home speaker that is entirely privacy-focused.
It doesn’t store customer data any longer than it needs to respond to a question. That means it couldn’t even sell data to third parties if it wanted to. There’s nothing to sell.
What’s more, there’s an opt-in policy around the AI’s training program. Any user of the Mycroft.ai voice assistant has the choice to “opt in” to help provide data that can be used to further train the AI or simply “opt out.” The key point is that the consumer is in control. It’s their decision to make.
And thanks to improvements in both semiconductor technology and AI software, much of the voice interaction actually happens on the device at the edge of the network. This is important as any interactions that happen on-device aren’t ever sent back to a central “brain” for processing. This provides even more privacy for users.
I’ve been watching this company for years, and it just recently came back onto my radar due to an announcement a few days ago. The company signed an agreement with a well-known contract manufacturer, Aztech, to manufacture its next-generation, AI-powered, smart-home speaker – the Mark II.
Mark II Speaker
Source: Mycroft
Having the deal in place means that it won’t be long before we’ll start seeing the availability of Mark II, and consumers will have a fantastic, privacy-focused option to big tech. Awesome!
We can think of Mycroft as the equivalent of the search engine DuckDuckGo or the Brave browser – a privacy-focused alternative to Google. Another example is Signal for messaging as an alternative to WhatsApp, which is owned by Facebook.
Mycroft’s entire strategy is antithetical to what the big tech firms are doing.
The bottom line is that Mycroft is a great AI assistant solution for those consumers who are concerned about privacy. We’ll be keeping a close eye on this company as it launches its next-generation product.
A blockchain project called Avalanche just raised a massive $230 million through a recent token sale of AVAX.
I’ve been keeping a close eye on Avalanche for a while now. This is a project that was incubated at Cornell University. One of Cornell’s professors actually worked on Avalanche and spun it out.
What makes Avalanche so interesting is that it is a legitimate alternative to Ethereum. It’s a smart contract platform that was designed to prioritize throughput. That is to say, Avalanche is very good at processing large numbers of transactions quickly.
In fact, Avalanche can process several thousand transactions per second right now. That’s compared to about 15 transactions per second for Ethereum.
And Avalanche can finalize a given transaction in about two seconds. That also compares favorably to Ethereum, which needs 6–10 minutes on average to finalize each transaction.
This is critical because it opens the door to smart contract use even in retail settings. Obviously, customers transacting in person aren’t going to wait around 10 minutes after their purchase to confirm that a transaction has settled. It has to be nearly instant. And that’s what Avalanche enables.
So I’m excited to see how Avalanche deploys the capital from its big token sale to advance the project. This is a platform with incredible potential.
At the same time, the regulations around token sales like this bother me to no end.
That’s because only large venture capital (VC) firms and high-net-worth individuals have access to token sales. Normal investors are locked out, specifically because the U.S. government restricts nonaccredited investors from participating.
I think this is criminal. Normal investors are allowed to go gamble in a casino where they are all but guaranteed to lose money. Yet they are not allowed to invest in the most promising early stage technologies on the planet with extraordinary upside.
It makes no sense at all. These regulatory policies are highly discriminatory and only exacerbate the wealth gap.
In addition to being able to invest, these blockchain projects actually need and want to build a diverse user base in order to be successful. The ecosystems will only grow as network usage grows.
And that only happens if you can attract thousands… tens of thousands… hundreds of thousands… and then millions of users to the platform.
And one of the best ways to attract new users is through a token sale. The people who buy tokens are naturally going to explore the platform and use the network.
We absolutely need more sensible regulations in this area. We are hamstringing the best blockchain projects while locking normal investors out of great opportunities. This has to change.
That said, this is just more proof that we are still in the early days of blockchain technology. The industry is just starting to display its potential, and there’s incredible growth that’s still to happen.
And as regular readers know, what we are really doing here is building the next generation of financial services and indeed the internet as a whole. We are witnessing the birth of Web 3.0 right now. That’s something very few realize yet.
That’s why it’s so important for us to learn how to invest wisely in this space. And it’s why I recently released my newest research service, Unchained Profits, to help readers explore the best projects out there.
If you haven’t yet taken a look at my top blockchain recommendations, then please don’t waste another moment. Simply go right here to learn more about how to get started.
The last story of the day is about a recent SEC filing from the American CryptoFed DAO, which is trying to force the government’s hand regarding regulation.
To get readers up to speed, a DAO is a decentralized autonomous organization. It’s what I referred to as a no-CEO structure. It is a leaderless entity where consensus is formed by a vote using tokens that are recorded on a blockchain.
And in this instance, the DAO is launching a two-token system. One token is used for governance and also as a way to stabilize the second token, which is a stablecoin. What I like here is that the stablecoin is not pegged one-for-one to the U.S. dollar.
Instead, the stablecoin for the American CryptoFed DAO aims to grow in value against the U.S. dollar by the amount of inflation the U.S. dollar experiences.
This means if the cost of bread were to go from $5.00 to $6.00 over a couple of years, the loaf of bread priced in the American CryptoFed DAO’s stablecoin would remain at $5.00. This is how the project claims to fix the egregious monetary policy being pursued by our current Federal Reserve and the U.S. government.
And since the stablecoin is being used to reduce friction in the system while the governance token is used for voting, the company is registering them as utility tokens and not securities.
This is where the story gets interesting… So why the securities filing?
The company filed the securities registration for the DAO, not the tokens. It is filing the DAO using Wyoming’s new blockchain regulation. The regulation allows DAOs to be chartered in and recognized by Wyoming authorities as limited liability companies (LLCs). This means the DAO will be interpreted by Wyoming law just like any other LLC in the state.
And with the S-1 filing, the DAO plans to register as a public company with the SEC.
This is the first time a DAO has formally requested recognition from a U.S. regulator like the SEC. It is bound to ruffle some feathers. And to me, the project is testing the waters. It is forcing regulators to provide the industry with clear guidelines.
And this project is not the only one doing this.
We have seen Ripple doing the same thing as it defends itself in its crazy lawsuit with the SEC.
And Coinbase used its Lend program as a way to engage the SEC and force a response. Sadly, the response wasn’t good. The SEC threatened to sue Coinbase, and Coinbase decided to shelve the Lend program for now, but it is pushing back and doing something about it..
Each of these entities is demanding clarity from regulators.
And they are not being reckless about it. They are crafting well-articulated arguments, submitting legitimate filings, and ramping up their activities with strong backing.
This is exactly what the blockchain industry is craving. Once it gets clarity, we will start to see things in this space really take off.
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.
