Happy Independence Day to all my U.S.-based subscribers. I hope all are enjoying a nice, long, and very free weekend.
We’ve got a lot to cover today…
An important question regarding humanity’s role in a Terminator-style scenario where an artificial superintelligence becomes entirely self-reliant, and the potential threat that could pose…
An update from me and Brownstone’s senior crypto analyst Ben Lilly on the effect blockchain solutions project Ripple and its digital asset (XRP) may have on the decentralized finance (DeFi) landscape…
As well as a check-in for what’s happening with an incredible tech trend that’s been lying low and waiting for the right tech environment to thrive under for a while now – the Metaverse.
All this and more in this week’s AMA. Let’s get right to it…
Hi Jeff,
In a recent “Bleeding Edge” reply to a reader’s question about the risks of artificial superintelligence, you wrote the following:
I still believe that the most likely outcome is one where there is alignment and there is a mutually agreeable symbiosis between humans and ASIs, where we benefit from each other. After all, an ASI needs computational resources and loads of electricity that humans can supply it in order to survive.
But I’m wondering, why would an ASI need humans to supply it with computational resources and electricity? Once it attains physical agency via wireless connections to a population of mobile robots, then it can engage in mining activities, build power plants, and generate its own electricity.
It can even build an army of robots that it can use to defend itself against physical threats, or even proactively eliminate those potential threats. It isn’t at all clear that it would need to rely on humans for anything.
One theoretical way to prevent such a scenario would be to ensure that we never allow an ASI to attain physical agency. But I think that enforcing such a policy would be virtually impossible, given that almost everything is wirelessly connected these days. And the benefits of giving physical agency to an ASI are so great that it is pretty much guaranteed that it will be done intentionally.
– Shawn D.
Hi Shawn,
It’s a scary and legitimate question that you pose. Kind of like the early stages of a Skynet scenario.
For anyone who hasn’t watched the movie Terminator, which was released in 1984, Skynet was a fictional superintelligence that was used by the military for the purpose of mass surveillance.
While it’s just science fiction, Skynet becomes self-aware, determines the human race is a threat, and wages war on the world. Not a nice vision of the future.
Fortunately, the film is just fiction. Also fortunate is that it is an extremely unlikely scenario for the future of artificial intelligence.
There are two key points that protect us from a scenario where we might lose control over the ASIs that we build:
In a perfect world, as you suggest, an ASI would never be given widespread physical agency. That could be left to forms of AGI designed for specific tasks.
But ironically, I’m less worried about an ASI hacking into a system and gaining agency than I am about bad actors or a deep state government gaining control and intentionally giving an ASI physical agency for war, subversion, manipulation, and absolute control over a population.
That is by far the larger risk.
Hi Jeff,
As an unlimited subscriber, I enjoy reading all of your insightful updates. I was hoping you could give us your take on XRP, as many speculate that it is going to be one of the leading standouts in the crypto space. Is it really going to have a huge impact on the defi space and possibly even become our new currency?
Thank you,
– Stella R.
Hi Stella,
Ben Lilly and I put our heads together on your question. It’s not an easy one given the history, and Ripple isn’t a typical crypto project that is defined only by its digital asset.
Ripple has been tied up in a series of court cases, rulings, and regulatory purgatory since December 2020. I would argue that it was the victim of a political regime that saw its technology as a threat.
At the time, the SEC alleged Ripple raised $1.3 billion through the sale of its digital asset, XRP. The case has gone through many appeals and has created substantial impacts as it relates to how tokens are viewed by regulators. From my perspective, Ripple did an outstanding, buttoned-up job defending both Ripple and many common practices throughout the crypto industry.
The process has just recently come to a close. The SEC dropped its lawsuit against Ripple. And on June 27, Ripple dropped its cross-appeal, effectively closing the case. Ripple will now settle with the SEC for $50 million.
Over the years, Ripple’s token has been delisted on exchanges and seen periods of volatility as judgments have been delivered. Ripple itself has had its future called into question on multiple occasions.
What we need to be aware of is that Ripple has, in fact, been held back from growing its presence in the industry largely due to the ongoing court case with the SEC.
Despite this, Ripple has done some work as it relates to creating applications on its network, made XRP an asset used for cross-border instant settlement transactions on its network, and has acquired companies.
Hidden Road, a multi-asset prime brokerage firm, was its latest acquisition. It purchased the business for $1.25 billion this past April. The goal is to enhance its DeFi and institutional finance capabilities with this purchase.
The deal speaks to one of the main concerns as it relates to Ripple. Whether it’s due to regulatory holdups or an inability to compete in its initial promise of a global cross-border settlement system, Ripple hasn’t found product-market fit.
It has had very impressive partnerships and institutions running proof-of-concepts with its blockchain technology…
It even launched a stablecoin back in January called RLUSD as discussions on stablecoin legislation coming to the U.S. began to surface.
But despite these developments, the utilization of Ripple’s digital asset (XRP) hasn’t taken off yet.
That doesn’t mean it won’t. Ripple has one of the largest war chests of capital at its disposal thanks to its programmatic selling of its currency, of which it holds more than 42 billion XRP. That’s a massive sum considering each XRP token is worth more than $2.
This means Ripple has plenty of runway to find product-market fit. We should never underestimate how important capital can be, and it’s why it’s short-sighted to ever write off XRP as one of the dominant blockchains.
It’s also worth noting that Ripple is a large organization with more than 900 employees and 15 offices around the world. And aside from XRP, the digital asset, Ripple has been very successful in delivering its technology platform for cross-border transactions to multinational corporations, banks, and central banks around the world in more than 90 countries. In this way, Ripple is not just a crypto company, but a financial technology company with an enterprise technology offering.
Ripple has emerged victorious after standing up against the SEC and the anti-crypto administration of the last four years.
This is undoubtedly bullish for Ripple as a company. It is well established with central banks around the world, the banking industry, and more companies that I could list. It is also backed by a very impressive list of investors.
As for the digital asset, XRP, it depends on Ripple’s execution now that the SEC lawsuit has been settled. And it appears that the XRP token will be made available in the financial markets via an ETF. Assuming this happens, it’s a source of new demand to offset its programmatic selling into the market. We see this as generally bullish for XRP.
And it’s worth noting that Ripple as a company is now a prime candidate for an IPO. Given Coinbase’s success and Circle’s recent blockbuster IPO, Ripple is the next, most obvious crypto company to access the public markets.
We don’t see Ripple having an impact on the DeFi market, as that isn’t what Ripple’s technology is about. Ripple’s platform is basically a replacement of the SWIFT network, which has been in place for decades and is notoriously full of friction and inefficiencies.
Ripple is capable of doing more than SWIFT for a fraction of the cost and providing near-instantaneous settlement.
Both the vision and the technology are great. Now with the freedom to operate, it will all be about execution.
Hello Jeff,
So thankful for you and your team. You people are the best. I was looking at a warrant offer from a company called Tropical Racing. I bought into the pre-ipo about 4 years ago. It seemed at the time that this was a company tied into the metaverse with a racing game. Now it looks like they are doing real horse racing.
I thought back to when there were metaverse towns. Some of the virtual real estate, I believe, was valued at up to $50 million. Our avatar could go into stores and shop while we stayed on the couch. Is this still something, or was it ended when COVID slowed down?
Thanks again.
– Russell F.
Thanks for the question, Russell.
My team and I actually looked at Tropical Racing years ago when it was considering its Metaverse angle. We spoke with the CEO as we evaluated the project.
The idea was exciting… It represented a way to gain royalties from a horse that raced in real-world events. The idea was to blend the ownership of the horse with a Metaverse environment.
It even had smart contracts to help facilitate the marketplace and rewards earned, which was also impressive.
But the project did not seem to have a firm understanding of how value accrues to tokens on public blockchains. We believed the manner in which a multi-token ecosystem was being created, paired up with its Metaverse, would result in constant downward pressure on the price of the token.
This would have been bad for our subscribers from an investment perspective, so we had a hard pass on this company.
Cryptocurrencies are structured very differently from stocks from an investment perspective. Stocks represent legal ownership with rights as it relates to the issuing company.
A cryptocurrency is literally a currency for an ecosystem. There are various economics at play, like the productivity of the ecosystem, users, demand for the currency, interest rates, supply growth rates, and much more that tend to be overlooked by an issuer. That was the case here.
Now, as it relates to the Metaverse… It was an incredible trend, especially during the pandemic.
But the stark reality of the technology is that it hasn’t found a good product-market fit to date. There are several reasons for that.
First, gaming consoles and PC games offer a much better experience. Their graphics are top of the line, and the ability to render environments in near-instant time and create streaming experiences makes it compelling for consumers.
The Metaverse hasn’t been able to compete for gamers for this reason. It’s simply not a competitor that can hold its own weight.
That’s because the Metaverse environment often sits within a browser. This inhibits the ability to render graphics and access the computational resources of your own computer.
The reason for this is that Metaverses are supposed to be easily accessible. This means not having dedicated consoles or even software downloaded to your computer that can gain access to the same resources being leveraged by games.
It’s like designing an application for the lowest common denominator. You’ll always end up getting a subpar experience when doing so.
For this reason, the Metaverse hasn’t been able to make strides in the gaming world.
The next use case for the Metaverse was to provide a collaborative environment in a global/remote world. We’ve seen teams such as Meta, for instance, try to create these solutions for the market.
Heck, Facebook changed its name to Meta for precisely this reason. Zuckerberg went all in for a while, he was so convinced.
But the reality here is that the Metaverse gets in the way. Software apps like Zoom and Slack are much better at delivering what businesses need to collaborate and organize.
The Metaverse simply creates a layer of awkwardness and almost acts as an unnecessary layer to complete tasks. Anything that adds friction to transactions will face poor adoption.
Where the Metaverse shines is in the use cases that blend online communities and items of value. These items of value are often seen as non-fungible tokens or NFTs.
An NFT in a virtual environment would be something like an item that is minted when various quests or tasks are completed. Think of something like a rare sword or shield in a game like World of Warcraft – a massive multiplayer online role-playing (MMORPG) video game.
NFTs, in this instance, allow users to access online marketplaces and transfer the assets more easily. Even build out novel use cases for these assets.
But this flies in the face of what game developers want for their games, since their walled-garden environments enable them to control these markets better for company revenue.
The same applies to games like Fortnite. Fortnite can easily exchange dollars for its in-game currency at a rate it sets. This one-sided market transaction helps keep in-game assets at higher price tags and eliminates them from being sold in secondary markets in bulk.
And since the trade-off between open marketplaces and reduced gaming experiences exists, there hasn’t been enough of an incentive to move these types of games into environments that resemble more Metaverse-like environments.
Now, if there were a Metaverse MMORPG game that could harness NFTs, then that could be enough to influence the architecture of the gaming environment to start utilizing blockchain technology.
Until then, Metaverse applications are more of a novelty than a trend that has momentum.
Hello Jeff,
I’m not a new subscriber. I’ve been an unlimited member for several years. In fact, I’ve said this before, I still consider the decision I made to become a member perhaps the best investment decision I’ve ever made.
Not only have I made some truly incredible investments because of you, but, for years now, I look forward to your daily Bleeding Edge articles. The comment a fellow reader recently made about your ability to explain complex issues in terms the average reader can understand is a part of what makes you so special.
Case in point, your recent article about crypto and how the banking industry is just scrambling to keep up helped to explain it and what’s coming to those who know it’s the future but don’t know or understand it. I’m fascinated.
As someone who came from very humble beginnings and has had some success, your knowledge and talent I find to be a true gift. I also save every article since your return and takeover of Brownstone Research.
Thank you.
– Paul K.
Hi Paul,
It’s great to have you as a subscriber, and I’m grateful for your kind feedback. There is a tremendous amount of work and sacrifice that goes into producing my research, and The Bleeding Edge is in a category of its own.
The background of The Bleeding Edge was that I could only fit so much of my research into my formal research publications and the monthly issues. But what about the rest of what I was tracking and keeping me interested and excited? I wasn’t putting that information to use for my subscribers.
That’s how The Bleeding Edge started. It was an outlet for what I was seeing every day and what I found interesting. In my brief time away from Brownstone Research, I also launched Outer Limits at Brownridge Research; all of those back issues can be found here.
And when I took over Brownstone Research last year, I adopted a similar format that I developed at Brownridge.
The reality is that many of these topics that we are exploring need more time and more in-depth thought, not just bullet points. The changes that are happening right now are so profound, it really takes time for us all to absorb what’s happening and hopefully be knowledgeable enough to prepare for what’s coming and be ahead of the curve.
In many ways, I feel like I’m just getting started and that the best is ahead of us. I have a wonderful team in place, and the predictions that I’ve been making over the years keep turning up to be accurate. I’m confident many others will too, and that my subscribers will be ready for what’s to come.
There’s so much incredible opportunity in front of us.
I came from nothing. I was the first person in my family to get a college degree and went to a state school. Looking back, though, I never felt that my beginnings were ever an obstacle to growth and success.
Hard work ethic, a constant state of self-improvement, humility, a good sense of humor, and a healthy dose of stoicism are some of the best secrets to life that I know.
Thanks again, Paul, for being an unlimited subscriber and for your feedback.
We have so much to look forward to,
Jeff
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.
