| Editor's note: The cryptocurrency market is undergoing a massive shift. With scandal after scandal hitting cryptos over the past year, many have lost confidence in the market. But our friends at Stansberry Research believe those folks are making a huge mistake. In today's essay, our colleague and crypto analyst Andrew McGuirk explains the recent breakthroughs in blockchain technology, and he explains why the upside moving forward is huge...
The 'Holy Grail' for the World's Most Popular CryptosBy Andrew McGuirk
Google, Amazon, Facebook, and Walmart are betting billions on this When the Internet came along, most people had never even heard of Google, Amazon, and Facebook. But by becoming early adopters and taking full advantage of the Internet, they became household names. Now, the same companies are among the early movers in a brand-new trend that's expected to deliver a knockout punch to a $3.4 trillion industry and potentially disrupt up to $100 trillion worth of global assets. Get the full details here. |
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 Cryptocurrency markets have had a brutal year...
The bad news just kept coming... First, a stablecoin once valued at over $18 billion evaporated almost overnight, ultimately leading to the arrest of Terraform Labs founder Do Kwon in Montenegro on March 23 on multiple charges of fraud and market manipulation. Then, multibillion-dollar hedge funds and custodians went belly-up, resulting in billions of dollars of losses, namely to retail investors. And when it seemed like it couldn't get any worse, fraudulent activity from Sam Bankman-Fried's FTX crypto exchange led to his arrest and the untimely demise of his former crypto empire. The fiasco destroyed many investors' hopes and damaged the crypto industry's image in the eyes of many – including regulators – in the process. Yet despite all of that, a sense of cautious optimism has returned to the market. And as I will detail today, it's not without reason... Recent bank failures have many investors looking for a monetary regime that's out of the hands of central bankers. And remember, bitcoin (BTC) was originally created in the depths of the 2008 financial crisis as a response to bank bailouts and the need for a decentralized peer-to-peer payments system. Many new investors are flocking to bitcoin and cryptocurrencies now... Even though the headline cryptos are far from their all-time highs from the easy-money days of yesteryear, bitcoin and Ethereum (ETH) are still up about 80% and nearly 60% year to date, respectively. This uptrend has left investors pondering whether the worst is over. The shift in sentiment happens to follow some big upgrades with the Ethereum blockchain, which is the system that records a cryptocurrency's transactions. A technology that has been theorized since the dawn of cryptography in the early 1980s – zero-knowledge ("ZK") proofs – has finally been launched in a meaningful manner. And it could mean big news for Ethereum scalability. Before going too much into detail on ZK proofs, though, here's a primer on Ethereum... Put simply, the Ethereum network is essentially a global supercomputer on which anybody can create applications, but it can't be censored and no one single entity controls it. It's like a decentralized Amazon Web Services. The applications are self-executing, and the terms are written into lines of computer code. They can be used to automate complex business logic and execute transactions in a trustless and decentralized manner. Ether is the token that powers this supercomputer. In order to interact with and change the state of the computer, one must spend ether. This wasn't a problem in the early days of the blockchain, when demand for network space and the price of ether were low. But nowadays, it can be very costly to use Ethereum. For most, it's too expensive. So its actual users tend to be either digital nomads who choose to reject the current financial system or folks who are too wealthy to care. But there's a strong chance that real commercial activity could come to the chain, and soon. There's a well-known "Catch 22" with blockchains called the "blockchain trilemma"... In essence, there are three traits that blockchains must have: security, scalability, and decentralization. But the catch is, a blockchain usually must sacrifice one factor to satisfy the other two. Bitcoin and Ethereum, for instance, are both very decentralized, and the networks are secure – meaning it's difficult to change the consensus of the blockchain about which transactions have occurred. But they both have very limited transaction throughput, making them less than ideal for any sort of real transactional volume in their current states. Bitcoin currently clocks in around five transactions per second ("TPS"), and Ethereum can handle up to 27 TPS. For comparison, payment processor Visa (V) can process around 1,700 TPS. So something will obviously need to change with two of the major blockchains if they are to ever evolve into the global financial settlement layer that many crypto evangelists believe they are destined to be. ZK proofs may be the solution... This technology may be the change the Ethereum blockchain needs to reach the next level. A ZK proof is a type of mathematical proof that allows one party to prove to another party that a certain statement is true, without revealing any other information beyond the truth of the statement itself. Picture this... Say that you have a locked box, and you want to prove to me that you know the lock combination without telling it to me. You could ask me to close my eyes while you unlock the box. And upon opening my eyes, I could verify that the box is indeed unlocked. Since I didn't see you put in the combination, I have no information other than the fact that you know the combination. This is clearly a simplified example. So let's think of it through another lens... Imagine you want to prove to a bank that you have enough money in your account to make a certain transaction without revealing the exact balance in your account. This is possible with a ZK proof. The true power of ZK proofs comes from their ability to enable trust between two parties without requiring them to disclose any sensitive information. Here's how this applies to Ethereum and the blockchain... ZK proofs help to enable a technique called "ZK rollups" for Ethereum. A rollup is a technology that allows for off-chain execution of transactions that are then bundled and compressed and sent to the main chain. Bundling transactions together – rather than doing one at a time on the base chain – reduces the load of the blockchain and increases transaction throughput, all while inheriting the security of the base layer (in this case, Ethereum). Suddenly, this change could effectively increase Ethereum's capacity by orders of magnitude. This theory came to a head recently when Matter Labs and Polygon, two blockchain-development firms, released their long-awaited ZK rollups – called "zkSync Era" and Polygon "zkEVM," respectively. According to the CEO of Matter Labs, Alex Gluchowski, "ZK rollups are the Holy Grail of scaling Ethereum... " Increased transactional throughput for Ethereum means many more commercial use cases. Take the ticketing industry, for instance... I'm sure you've all read or heard stories about the recent fiasco regarding Taylor Swift tickets being bought in droves by bots and scalpers and marked up to ridiculous amounts. As it turns out, blockchain fixes this. Crypto Capital subscribers may be familiar with one of our recent recommendations that works to bring tickets to real-life events onto the blockchain, making the tickets provably legitimate. Not only that, but it lets folks exchange tickets on a peer-to-peer marketplace like Ticketmaster or StubHub, only without the ridiculous platform fees. Ticketing companies, including one that's headquartered here in Baltimore, are already adopting this project. And I believe it's only a matter of time until this technology flips the ticketing industry on its head. Now that transactional throughput on Ethereum is increasing, projects like these can become much more than just a niche. The real-world applicability of the blockchain will become self-evident... When it comes to the state of Ethereum today, I'm reminded of this quote from one of my favorite authors and philosophers on the markets, Nassim Taleb, from his book Fooled by Randomness... You can be optimistic that the long-term growth trajectory is up and to the right, but equally sure that the road between now and then is filled with landmines, and always will be. Those two things are not mutually exclusive. The cryptocurrency world has had a rough year in the headlines... But new work continues with its underlying blockchain technology, with the idea of improving its capacity and growing crypto's footprint for years to come. And these breakthroughs have the potential to overhaul entire industries. After a brutal year for cryptos and as advances keep happening, the potential upside right now is significant and overlooked... Regards, Andrew McGuirk
June 26, 2023
Editor's note: Andrew's colleague Eric Wade says these blockchain developments aren't the only reason for a shift in the crypto markets. On July 1, the Fed is launching a new instant-money platform that is opening the door for a historic moneymaking opportunity. In fact, Eric says people who take action now could make more than 3,000%... enough to turn every $5,000 into nearly $160,000. Click here for the details.
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