- Is Tether a sham?
- In a cashless society, how will we handle emergencies?
- How will automation affect our jobs?
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.
And before we turn to today’s questions, I’d like to take a quick moment to put a time-sensitive event on your radar.
You see, I believe there’s something important happening behind the scenes at Apple. Its newest launch will trigger a key event… a once-in-a-decade phenomenon that could bring truly life-changing profits.
What’s coming could create as much as $12.3 trillion… which is why I want to make sure my readers are aware of what’s going on.
Many people might not realize it, but one of my past executive positions was as the president of a large division of NXP Semiconductors. My division created the chips that made the Apple iPhone’s touchscreen and Apple Pay features possible.
I got an inside look at how Apple ticks by working as a key supplier. And that’s why I’m so excited right now.
And it’s why I’m holding a confidential briefing for my readers on September 22. At this briefing, I’ll explain what I’m seeing… and share my insider knowledge on how investors can get in position.
So please register now to ensure you’re given access to this briefing. I’ll look forward to seeing you there.
Now let’s turn to our questions…
My take on Tether…
Let’s begin with a question on Tether:
Jeff Brown, whom I respect, is a strong proponent of cryptocurrencies. The author of Tradesmith Decoder has made the argument (several times) that Tether, which is the biggest stablecoin, is a sham by making the case that Tether’s tens of billions of dollars’ worth of commercial paper holdings – the nature of which Tether refuses to disclose – are likely parked with Chinese property developers.
I would greatly appreciate Jeff’s take on Tether, which seems to be one of the major glues holding up the crypto universe. Is it a sham? If not, please provide some counterarguments in favor of Tether.
– Joseph T.
Hi, Joseph, and thanks for the kind words. I’m glad you wrote in with this question as it is an interesting topic…
As a recap, we’ve been following events surrounding Tether here in The Bleeding Edge for some time. Earlier this year, the company faced allegations that its dollar stablecoin (USDT) was not backed one-to-one by U.S. dollars as it claimed.
For every USDT token that Tether issues, it is supposed to add $1 in cash to its reserves to maintain 100% backing. But the allegations stated that Tether had been speculating in bitcoin. It had essentially leveraged its assets into an aggressive trade rather than adding more dollars to its reserves.
Of course, if Tether’s stability or solvency comes into question, it could pose a major problem for bitcoin. Since more than half of all bitcoin trades involve Tether, any instability could lead to a liquidity crunch in bitcoin trading. That could result in a crash.
In February, the New York Attorney General’s office (NYAG) agreed to settle the case. Alongside paying a hefty fine, Tether agreed to provide quarterly reports about the composition of its reserves for the next two years.
The goal was for this increased transparency to keep Tether on its best behavior going forward. But the disclosure in its August breakdown leaves plenty of fodder for skeptics.
The disclosure offered less detail than what regulated money-market funds provide. The assurance was also based on a single day, and the portfolio included a combined $2.5 billion worth of secured loans and assets that would be hard to sell if it needed to support the value of USDT. These are all valid points of concern.
That being said, the disclosure is a step in the right direction. And once it eventually provides a full audit, we may get additional details that paint a more promising picture of its financial health.
Yet the truly important thing to keep in mind is that Tether is only one corner of the cryptocurrency market. As new entrants enter the market and learn about these issues regarding Tether, this topic continues to reemerge with a new wave of critics.
To answer your question more specifically… No, I do not believe that Tether is a sham. But I do believe that the company is engaging in some very risky practices in an effort to generate more profit from its reserves. In that way, Tether’s holdings are not “stable.” This is my major concern.
In good market conditions, everything will work out fine, and Tether won’t have any problems. But what if the SEC gets even more aggressive and takes further action against the cryptocurrency industry? What if that resulted in a 50% drop in the price of bitcoin? And what if a large chunk of Tether’s reserves were invested in those same assets that dropped by 50%? It would be a disaster in a scenario like that.
With all that said, the market saw a huge opportunity here. Coinbase and Circle in particular have collaborated and established the second largest U.S. dollar stablecoin that truly is stable. This is a fantastic alternative to Tether, especially for those who might be concerned about Tether’s lack of transparency.
As Circle gains further traction and other stablecoin players enter the market, any systemic risk associated with possible Tether shenanigans diminishes. And even if we do have a near-term “shock” from Tether, it won’t have a permanent impact on the underlying crypto and blockchain technology.
I’m still very optimistic about bitcoin and the blockchain industry overall. More than any other industry, the blockchain industry is incredibly nimble and has the ability to diagnose, self-correct, self-regulate, and improve at a remarkable speed.
That’s why I recently unveiled my newest research service to help investors navigate these uncertain waters and find trustworthy projects with the highest potential.
And if you haven’t yet checked that out, then please go here to learn more about how to begin investing in this space.
What happens when everything shuts down?
Next, a reader wants to know more about emergencies in a cashless society:
This past weekend, in Mississippi, I was only mildly impacted by Hurricane Ida. My son and his family are being impacted as I speak in New Orleans. His text message to say all were safe was very short and spotty. They are in good shape as they prepared early.
My question is: In a cashless society, how could emergency bills, food needs, and other costs be paid with interrupted internet services in rural areas? Thank you for your time, interest, and sharing of your valuable financial knowledge with those of us who are learning as fast as we can.
– Stephanie W.
Hi, Stephanie – I’m very glad to hear you and your family are safe following the recent storms. And you’ve asked an excellent question…
As I’ve written before, the U.S. government is clearly making plans for a central bank digital currency (CBDC) – an official blockchain-based digital dollar.
And it’s likely that once a CBDC is in place, the government will begin the process of removing all paper bills and coinage from the system. We’ll be told that “there’s no need for them anymore” and that removing physical currency will protect us from germs and “keep us all safe.”
In fact, I predict that eventually coins and physical currency will no longer be accepted as legal tender in the United States.
Yet if this comes to pass, what will we do during disaster recovery situations? What about internet outages when we can’t get online? What will we do for payment in those kinds of circumstances?
The reality is that it depends on how bad a situation becomes. For example, if an entire power grid was down with no backup for electricity, then it becomes very difficult to transact. In the absolute worst case scenario, we’d have to revert to bartering and IOUs.
The reality, however, is that in those kinds of situations, emergency services would be present in one form or another in most countries providing the bare necessities to manage through that kind of disaster situation.
With power generation and the ability to set up a wireless network quickly, at least people would be able to charge and use their phones. Thus they would be able to transact with one another.
But there are things that individuals can do to be prepared for a major storm or a disaster scenario.
Having a backup generator to power the most critical things in a home is one logical step to take. A generator combined with a large propane tank to fuel the generator is a great solution, and it can potentially provide a week’s worth of electricity.
As for communications access, if the wireless network went down and the internet service provider’s network went down (e.g. CATV lines or fiber lines were severed), there are always satellite-based solutions as a backup. If we have a backup generator, then having a satellite internet service is a great backup for internet access.
The latest player on the scene with the best performance is SpaceX’s Starlink service. For those who absolutely need to remain connected no matter what happens, this is a great solution.
There are also other interesting alternative communications networks being built. These are networks that do not require cellular towers, Wi-Fi, or satellite connections.
GoTenna’s “mesh” network is a good example. Without relying on satellites, GoTenna has created a people-powered, decentralized network. The mesh device generates a signal that connects with other units in range.
And there are already mesh “nodes” popping up around the country…
GoTenna Network Map
Signals hop, hop, hop until they hit a node that broadcasts transactions to a satellite. Once the transaction is logged, then a confirmation message is relayed back to the customer.
No internet, low power requirements, and a fully operable network… We can think of this as a way to crowdsource a communications network.
This technology was tested back in 2017 after Puerto Rico was hit by Hurricane Maria, a category 5 storm that knocked out 93% of the island’s telecommunications. These GoTenna devices made it possible for people to communicate as the normal infrastructure was being repaired or rebuilt.
In either case, a merchant with a simple USB device and some form of backup battery or solar cell would be perfectly capable of accepting digital payment even if the internet and power were down.
These are absolutely the questions we need to be asking as the world moves in this direction.
I’m a big believer in these kinds of decentralized, crowdsourced networks. They are important in emergency situations. And they’re a way for ‘we the people’ to fight back against the rampant censoring, de-platforming, banning, and removal of one of our most basic rights… the freedom of speech.
There will certainly be growing pains, but many of the best minds in the industry are currently looking for creative solutions to these kinds of problems.
This is definitely a major topic of interest, and we’ll be sure to keep you up to date here in The Bleeding Edge…
How to live in an automated world…
Let’s conclude with a question about automation and jobs:
Can you tell me your thoughts on how people will earn in the future and be an active part of society when the majority of jobs will be replaced by technology of one sort or another? For example, transport – taxis, buses, and trains – will go driverless. Shopping will become a contactless activity, as you pay on exiting the store without stopping at a checkout. And manufacturing has been automating for decades.
So where will people go and what will they do if they have not got a job to fund this?
– Richard R.
Hi there, Richard, and thanks for sending in your questions. This is a frequent point of contention when the topic of automation comes up, so I’m happy to address it.
Automation will definitely change the work landscape, and it will replace jobs. As you rightly pointed out, self-driving cars, contactless shopping, and factory robotics will impact the current job market.
That said, jobs won’t disappear, but they will change. These kinds of transitions have happened many times throughout history.
I like to compare the shift to automation to the Industrial Revolution. During that period, steam power and mechanization automated many of our repetitive, physical tasks. That led to a dramatic change in the workplace. Machines took over many of the grueling jobs humans weren’t well-suited for.
But rather than the doom and gloom of mass unemployment that many expected, the opposite happened. There was an explosion of productivity and economic growth that ultimately created far more jobs and opportunities than were lost.
I believe we’ll see a similar occurrence with this new “automation revolution.” We’ll need millions of people to construct bleeding-edge factories with this new technology… as well as others to service and maintain the equipment. This will require various skill sets, from construction workers to those with advanced degrees in robotics.
And a report by the World Economic Forum (WEF) at the end of last year showed that the adoption of robotics and automation correlates to higher wages. After all, implementing this kind of technology creates high-value jobs and boosts overall productivity. That positive economic activity ultimately results in rising pay.
We saw an example of this a year ago when FedEx announced it would begin installing AI-driven robots to automate 80% of its packaging processes. That’s creating higher-value jobs. In the case of FedEx, one human employee will be needed to manage every eight robotic arms working each night.
There will, however, be a part of the workforce that will simply refuse to change or upgrade their skills. In fact, we’re actually seeing some of that right now. The U.S. alone has millions more job openings than people willing to go back to work. I’ve heard this being referred to as the Great Resignation. Many are simply deciding that they just don’t want to go back to work.
The old days of going to school, studying one thing, and staying in that line of work for the rest of our lives is over. It’s the wrong mindset for success and resiliency.
It is important that we think about our education and skills as something that evolves and grows over time. It’s something that we have to proactively work at. We need to expand our skills, preferably into areas of the economy that are experiencing growth.
That requires hard work, effort, and our time. But in a world where the rate of technological development is accelerating, we’ll all need maintain a more flexible mindset about work and developing our skills throughout our careers.
We’re entering a world of abundance. With automation and robotics, we can avoid repetitive and physically demanding work.
With genetic editing, we now have the tools to cure all human disease of genetic origin.
And with technology like nuclear fusion, we will be able to produce limitless clean energy at a fraction of the cost of what electricity costs today.
And we’re going to need a lot of jobs to make all of this a reality. We have so much to look forward to.
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.
Have a good weekend.
Editor, The Bleeding Edge
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