• The IRS is going on a treasure hunt…
  • This “super hearing” tech is a privacy nightmare
  • A bullish sign for cybersecurity companies…

Dear Reader,

Before we get to today’s issue, I want to remind you about our Timed Stocks: Final Countdown event this week. It is taking place just two days from now on Thursday, March 18, at 8 p.m. ET.

During this online investment summit, we are going to discuss a small subsector of the technology market in which companies still go public early. In fact, many of these companies go public at valuations we haven’t seen since back in the late ’90s.

What’s more, these stocks go public with a “timer” attached to their share price. When that timer hits zero, these stocks can explode hundreds of percent higher in a matter of hours. That’s why I call them “Timed Stocks.”

To me, this is one area of the public markets in which normal investors can still reap venture capital-like gains.

And I’ve spent more than five years developing and refining a system to identify and trade these “Timed Stocks.” We are going to talk all about it on Thursday evening. This is a fantastic tool that all tech investors should have in their tool belt.

So please mark your calendar for 8 p.m. ET this coming Thursday. The investment summit will be free for all readers of The Bleeding Edge. I just ask that you reserve your spot ahead of time.

Just go right here for all the details.

Now let’s turn to today’s insights…

Operation “Hidden Treasure” is set to launch…

The Internal Revenue Service (IRS) just announced a new operation cleverly named “Operation Hidden Treasure.” This is an initiative designed to find tax evaders among those who have traded or invested in cryptocurrencies.

The IRS has been training new agents to sift through transactions on many different cryptocurrency blockchains. And these agents will work closely with blockchain analytics firms to find unreported transactions. It hopes that this will lead to a windfall for the government in tax revenues. That’s the so-called “hidden treasure.”

This is the IRS’s most expansive initiative to track and trace cryptocurrency transactions yet. It is clearly getting serious.

As a reminder, IRS guidance says that the conversion of one cryptocurrency or digital asset to another is a taxable transaction.

So if someone bought bitcoin and later sold some of it to buy ether, Litecoin, or any other cryptocurrency, the IRS would view that sale as a taxable event. We would be required to report this transaction and pay taxes on any capital gains generated if bitcoin appreciated in value while we held it. This is true even if we never moved back into fiat currency like U.S. dollars.

This is an extremely arduous policy that makes tax reporting complex for anyone dealing with digital assets. And the IRS is now sending a strong message that it plans to enforce this policy.

In fact, one of the top agents overseeing this operation said, and I quote, “The transactions are not anonymous. We see you.” Strong words.

Of course, the agent is right about this. Transactions are visible by default on most blockchains.

These transactions don’t include our personal information, but that doesn’t make them anonymous. The analytics firms have gotten very good about matching blockchain transactions with individuals using IP addresses and hardware identifiers.

Please consider this a fair warning that we should all report any profits made in digital assets to the IRS. Agents could go back years to find out when we built positions, and then they could track down all the transactions that we made after that.

We should remember that blockchains are immutable public ledgers of transactions. They’re a time stamped record of what has been bought and sold.

It’s no surprise to see the IRS stepping up its efforts around cryptocurrencies considering the impressive run-up in the price of bitcoin and other popular digital assets. I can only recommend that investors track, record, and report any profits (and losses) to the IRS just as we would for any stocks.

Google’s Project Wolverine is a lens on the future…

Google’s X division has been secretly working on a fascinating project it calls “Wolverine.” It has to do with technology that enhances augmented reality (AR) applications, but not in the way we might think.

Google’s X division focuses exclusively on “moonshot” projects. These are bold initiatives, but the company doesn’t know if they will work. The idea is that these moonshots will either become huge mass-market products… or they will never gain traction and fizzle out.

And Project Wolverine is all about supplying users with a wearable device that employs directional microphones to enable “super hearing.” It’s a reference to the X-Men character Wolverine.

The technology is still being fleshed out. The idea is that these directional microphones will connect to ear pods and likely work in conjunction with both outward- and inward-facing cameras on a pair of glasses or some other wearable device.

This will allow the sensor-packed hardware to know who we are focusing on in the room. And then we can direct the microphones to zero in on what that person is saying. The mics will filter out the background noise so we can hear our target clearly.

This technology is called speech segregation, and I think it is the future.

Prior to the COVID-19 pandemic, I typically attended several conferences every month. These events feature formal presentations as well as informal networking events.

And often the most valuable part of the conference is simply talking to people in the common areas before and after the events. I have gained some incredible insights into companies and technologies in this way.

The only problem with this is that it is often chaotic and very noisy in these common areas at large conferences. There can be thousands of people buzzing around, and it can be hard to hear the person you are talking to clearly.

Speech segregation solves that problem.

We can imagine using this device at events like these to focus in on the person we are speaking to. This cuts through all the chaos in common areas. And it would be incredibly useful for the formal presentations as well.

Of course, the same dynamic is true for any other event or gathering. This tech would be useful even at our holiday cocktail parties.

So I think that every company working on AR will ultimately adopt this technology. It just makes too much sense.

That said, there are major privacy concerns with this. It’s easy to imagine how this tech could be used for nefarious purposes. Bad actors could eavesdrop on private conversations happening at coffee shops, restaurants, and town squares.

And then there’s Google…

We already know that Google’s goal is to extract as much behavioral data from us as possible. The company packages this data into a detailed dossier that it sells to anyone willing to pay. In this way, the argument could be made that Google knows many of us better than we know ourselves.

Now, imagine Google pairing facial recognition technology with speech segregation. Suddenly, Google can document exactly what we are talking about out in public. That gives it an even more invasive framework in which to build its profile on us.

So this is incredibly useful technology that I believe will gain rapid adoption. But as with everything, we need to be diligent about how it is used.

Just when I thought Microsoft couldn’t get any worse…

We’ll wrap up today with a deeply concerning topic.

Critical holes in Microsoft’s servers have exposed more than 30,000 U.S. organizations to a massive nation-state-backed hack perpetrated by China. This includes divisions of the federal government, local governments, major corporations, and small businesses. It is so big that we are still trying to figure out how extensive the damage is.

If we recall, Microsoft claimed that it was buttoned up from a cybersecurity standpoint in response to the SolarWinds hack back in December. Not so fast…

As it turns out, Microsoft was highly vulnerable. It had critical bugs in its Microsoft Exchange servers. This allowed hackers to infiltrate Outlook and all of Microsoft’s server infrastructure.

That means every Microsoft product has been infiltrated to some degree. The breadth of this hack is unbelievable. It’s so big, the U.S. government can’t get its head around what to do about it.

Of course, Microsoft is scrambling to patch its server infrastructure and remove the “backdoors” in its computing systems.

But this is too little, too late. It will likely take years to clean up this mess. And we’ll start to hear about how governments and corporations have been negatively impacted in the meantime.

To me, there are two takeaways here.

First, it is time for enterprises to move away from legacy Microsoft infrastructure. It’s all based on decade-old software architecture. The company can patch it, but the problems will persist.

We should migrate to bleeding edge server software that’s been built from the ground up with security in mind.

Cybercriminals and nation states are using bleeding edge technology. And they’re doing this while the public and private sectors, in general, are resting on software architectures that can be a decade old or worse. 

It is critical that the industry migrates to the next generation of software architectures to reduce the attack surface and overall risk of cyberattacks.

Second, this will be a major catalyst for the cybersecurity industry.

Up to this point, companies have viewed cybersecurity as an expense rather than an investment. It’s kind of like insurance. Nobody wants to pay for it until it’s needed.

Going forward, we’ll see companies increase their allocation to cybersecurity. That’s very bullish for the sector.

And we’ll see strong developments coming from the top public and private cybersecurity companies as a result. This will be great for investment returns.

And it will also enhance the security of the core internet infrastructure most of us depend on daily.


Jeff Brown
Editor, The Bleeding Edge

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