Welcome to the Friday mailbag edition of The Daily Cut.
As regular readers know, our mission is to spot market megatrends early on so you can profit from them ahead of the crowd.
We do that by plugging you into the latest big ideas from Teeka Tiwari, Jeff Brown, Bill Bonner, Doug Casey, Tom Dyson, Dan Denning, Nick Giambruno, Jason Bodner, John Pangere, Dave Forest… and the rest of the Legacy team.
And one of the megatrends we’re tracking is the boom in bitcoin and other crypto assets.
As we’ve been showing you, companies such as Facebook… and even the U.S. government… are looking to launch their own versions of digital money.
So we start this week with a question about this from one of our tech expert, Jeff Brown’s, readers…
Reader question: My understanding is cryptos such as bitcoin reward the keepers of the blockchain with coins that are “mined” by solving complex computational problems or by “proof of stake.”
Now, I am hearing that companies and governments are looking to blockchains to create their own digital currencies. How are they able to encourage enough people to “mine” these government or company blockchains?
– David D.
Jeff’s answer: Hi, David. I’m a member of the Chamber of Digital Commerce. It’s an advocacy group for the blockchain industry. And I regularly publish insights on interesting developments in my free tech-investing e-letter, The Bleeding Edge.
At a high level, on a decentralized blockchain like bitcoin’s, miners have to confirm transactions and then write them into a digital ledger. This is called consensus.
Once consensus is reached, transactions can’t be changed unless one person, or group of people, controls more than 50% of the blockchain network.
For their work, the miners are rewarded with a small amount of the cryptocurrency associated with that blockchain.
Governments and large companies such as Facebook are planning to launch their own digital assets. But there’s a key difference between bitcoin and a digital currency issued by Facebook or the U.S. government.
Bitcoin is decentralized. No one entity has control over the blockchain. But government and corporate blockchains will not be decentralized. They’ll be centralized. One privileged party – most likely, a central bank or committee – will be in control.
There will be no mining, and there will be no rewards. A blockchain like that is simply a ledger of all transactions. So the entity behind it won’t need to encourage miners to get involved.
In the case of the U.S. digital dollar, this would allow the government to do some interesting things.
It could deposit COVID-19 stimulus checks directly into our digital wallets, for instance.
And removing paper money entirely from the system would force all consumers to transact on one single platform. This would allow the government to track and tax every single transaction. The IRS would have a heyday.
I’ll continue to cover blockchain technology in The Bleeding Edge and my other research. This space has incredible promise, as do digital currencies and digital securities.
Longtime readers know why we’re bullish on bitcoin and other cryptos… They’re an escape hatch from a corrupt money system.
That’s why we’re also fans of gold. It’s not anyone else’s promise to pay. It has intrinsic worth. And that makes physical gold a great form of “disaster insurance.”
So next we turn to globe-traveling goldbug Tom Dyson, who writes our Postcards From the Fringe e-letter.
(As a side note, Tom likes to keep his readers’ names anonymous. Here at the Cut, we use the first name and surname initial. But in this case, we’re following Tom’s convention.)
Reader question: You are convinced that gold is THE solution… Me too. But I always read that the ideal proportion of gold in your total assets shouldn’t be more than 10 to 20%. You invested almost 80 to 90% of your total assets. What is the right percentage?
Tom’s answer: You’ll have to decide that percentage for yourself. Personally, I view gold as money. It’s the only money that hasn’t been inflated and debased throughout history. So I’m quite happy keeping 100% of my savings in gold (minus what I need for day-to-day transactions).
The bigger risk, as I see it, is keeping money in anything but gold.
If you don’t see gold as money, then I can understand not wanting to keep your savings in it. Many people see gold as insurance, for example. And if you see gold as insurance, then a 20% allocation makes more sense.
Reader question: I have followed your Postcards From the Fringe with high anticipation. Thank you. I was hoping you could address a little more about silver. I have been trying to find someone who could honestly explain its relationship with gold. It’s often mentioned as a sidebar in most gold presentations, but I don’t ever seem to get a good rundown on it.
Thank you for coming back to us [after leaving Palm Beach Research Group] and giving us the opportunity to learn from all your expertise. We wish you and your family continued happiness and success.
Tom’s answer: Silver is a tricky commodity to analyze… far trickier than gold. For three reasons. 1) It’s money, so it responds to the same macro trends as gold. 2) It’s an industrial metal and has other uses besides money. And 3) It’s produced as a by-product of mining other metals, which means its supply doesn’t necessarily respond to changes in its price.
Personally, I don’t feel I have a good understanding of silver. But I want to own it anyway, just not as much as I want to own gold. Silver is so volatile, I find it harder to own than gold. And it’s bulky and heavy, too. My ex-wife, Kate, and I have about 500 ounces of physical silver, and we also own some shares of a silver ETF.
Tom’s mailbag is always buzzing with reader feedback… just like the mailbag of his mentor, Legacy cofounder Bill Bonner.
Bill uses the word “we” to refer to himself in his daily e-letter, Bill Bonner’s Diary. And last week, one of his readers called him out for it…
Reader comment: He should absolutely quit doing it. Every time I see Bill using the royal prerogative, I think of “The Donald,” or more specifically, The Donald’s hair. So fake. I suppose Bill is trying to remind us he is in a royal class, far above the ordinary man.
– David B.
Bill wrote back with the following…
Bill’s response: The Queen uses the “royal we” to signify that she is not speaking for herself, but for the Crown… an institution that was around for hundreds of years before she was born and will, presumably, outlast her by hundreds more.
At the Diary, we do not use the “royal” we. We use the common we… a plebeian, down-market, gutter kind of we, with no pretension to grandeur, nor even mediocrity.
For here we are, writing from a house we didn’t build… in a country that is not ours… wearing clothes we didn’t design… looking out on rain we didn’t cause…
…and passing along ideas that are not original. Even when we think we have had a new idea, we discover later that someone had the same idea 2,000 years ago.
Not one molecule in our body, thought in our brain, or feeling in our heart is of our own making. It would be vanity to use first-person singular; there is nothing singular about who we are or what we do.
No, we have neither scepter nor orb; all we have is a laptop computer.
We wear no royal purple. We favor brown and gray; we dress in dull colors so we may think in vivid ones.
We have no throne, no influence, no privilege, no position, and no armed guards to protect us.
We speak not for the Crown, but for all those common people who try to put two and two together…
And we use “we” to recognize all those real thinkers whose ideas we have dragooned into our service…
…all those tortured poets whose songs we have misunderstood and misused…
…all those clever people whose insights we have purloined and presented as if they were our own…
…all those scientists, statisticians, and economists whose numbers we have hijacked and abused…
…and all those generations that have come before us and – by bad luck, bad manners, and bad judgment – learned painful lessons so we might be spared from learning them again…
“We” speak for them all – as best as we can.
Have Bill and the other experts here at Legacy spared you from painful lessons? What place does gold have in your portfolio? And are you ready for the digital dollar?
Write us, as always, at [email protected].
June 12, 2020
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