Welcome to The Daily Cut Friday mailbag.
One topic stood out in the various Legacy Research inboxes this week… quantum computing.
Now, if you didn’t join us in person or online at the second annual Legacy Investment Summit, you may not know why. So let me catch you up quickly…
Toward the end of his presentation, our resident tech expert – Jeff Brown – stunned the crowd when he said, “Something happened in the last two days, and it made it into my presentation because it’s so significant that I think all of us are going to sit back and say, ‘I remember the day that happened.’”
Here’s what he revealed…
What happened was quantum supremacy. Something I wrote about early this year, and I actually predicted it would happen in 2019, and two days ago it happened.
[…]
Google’s 53-qubit quantum computer performed a calculation that would have taken 10,000 years on Summit, the most powerful computer on earth.
They did it in three minutes and 20 seconds. They made quick work of it.
Everything will change. The implications are, modern cryptography is obsolete as we sit here.
Within 12 months, we will have quantum computers that will hack and crack any military-grade encryption that exists on the planet today.
As the mainstream press caught on to the news, crypto enthusiasts everywhere went into panic mode… And concerned emails, like the ones below, started hitting our Legacy Research inboxes.
Reader question: Question for Teeka and/or Marco: What is going to happen to crypto in light of the news about quantum supremacy and Google? Does this change your approach? How are you planning to manage the risks?
– Brendan V. (Legacy Research member)
Reader question: I just saw an article that says practical quantum computing is already available in production, not just in a lab, and it does 2048 bits. The diagram in the article implies that they are already developing prototypes that can use several of these units in parallel, but given the way these things work, I have no idea what that even means.
I’ve read just enough about the subject to be completely confused (and I’m a programmer!) Given that what is announced publicly is usually far behind what is available in secret, what does this mean for the security of all current encryption, including that which forms the basis for all cryptocurrencies?
– Joseph P. (Legacy Research member)
Reader question: My daughter and I have been following Teeka, as Palm Beach Confidential subscribers, since May 2017. We love Teeka, have a great deal of trust in him, and recommend him and his newsletters highly. Also, we especially appreciate his many video updates – a true rare gift and breath of fresh air in the financial newsletter industry!
Please may we have his thoughts on how quantum computing might or might not affect the future of crypto security, how other investors view the future of crypto security, and whether or not the crypto market might sell off due to security fears, or if a part of the recent market sell off is related to investor fears about security relative to quantum computing?
We have tremendous trust and respect for Teeka. So, we turn to Big T for the real low down, especially because our tech knowledge is, well, not so much!
– Don B. (Legacy Research member)
There were plenty more, but you get the idea… This is a big concern for a lot of people.
So we reached out to our crypto experts – Marco Wutzer and Teeka Tiwari – for some answers.
Marco’s answer: As quantum computers get more complex, they become exponentially more powerful.
Quantum supremacy means that a quantum computer was able for the first time to complete a calculation that cannot be done with a normal, binary computer because it would basically take forever.
This is a threat not only to blockchain technology but to the entire internet and the global economy. Think about it, our financial system and any kind of confidential data or communication depends on encryption.
Simply put, quantum supremacy affects almost all digital technology.
However, encryption is done by software. In other words, it can easily be upgraded.
There are many proposals for quantum-resistant algorithms. It’s a rapidly developing niche in the field of cryptography.
What it boils down to is that we will see a big update cycle in the cryptography being used in all computer systems over the coming years.
Quantum computing is by no means a fatal blow to blockchains or the overall internet and financial system.
Teeka’s answer: Quantum computing is revolutionary and will change life as we know it… But here’s the thing: It’s still in its experimental stage.
Experts at Imperial College London and IBM, among others, have research showing current quantum computing power would need to increase 30 times or more to even come close to breaking the bitcoin blockchain.
And even if quantum computers do increase their capabilities, technology doesn’t stand still. The world’s computer scientists will create more robust encryption algorithms. Blockchains will add quantum resistance just like NEO and BlockDAG have already done.
Remember, the earliest days of encryption would be no match for today’s cyber threats. But new encryption methods have evolved to counter them. The same will be true in the blockchain space.
But consider this…
The world’s bond market is estimated at over $100 trillion. And global stock markets and fiat currencies account for about $80 trillion each. Combined, that’s over $260 trillion worth of assets. (That doesn’t include digitally stored property titles and other digitized assets.)
Meanwhile, the entire crypto network is worth about $220 billion.
So if you’re still worried, ask yourself this: If you had a master key to all the world’s riches, would you waste it on a child’s piggybank or go after a vault full of cash.
Because if quantum computers can break bitcoin… they can easily break the entire global financial system. And you should be far more concerned about the trillions of dollars in traditional assets stored on much less secure networks.
The bottom line: Bitcoin’s network is sufficiently safe from quantum attacks right now. There’s no reason to believe they’ll be a viable threat in the foreseeable future.
And for more insight from Jeff Brown on how quantum computing will effect blockchain technology, check out this issue of The Bleeding Edge.
Moving on… the next most popular topic in the Legacy inboxes this week was gold. And it’s easy to see why…
In our Thursday issue of The Daily Cut, editor Chris Lowe noted:
Right now, I count nine Legacy Research analysts who are bullish on gold.
Bill Bonner… Doug Casey… Teeka Tiwari… E.B. Tucker… Dave Forest… Dan Denning… Nick Giambruno… Jeff Clark… and Tom Dyson have all recommended gold… and gold-related investments… to their readers.
That prompted several of your fellow readers to write in, asking for more insight.
First up… a question for Tom Dyson, Palm Beach Research co-founder and editor of our newest daily letter – Postcards from the Fringe.
Reader question: Tom Dyson talks about going to gold, but what type of gold? Funds? Physical gold? GLD [a gold exchange-traded fund]? Please enlighten me.
Tom’s response: I bought the cheapest physical gold I could find. I looked at Krugerrands, Maple Leafs, even Chinese Pandas. I looked into buying gold bars. I called a handful of different dealers. And I calculated the price I was paying per ounce of actual gold. (Some coins aren’t pure gold.)
In the end, I found one-ounce American gold coins from the late 19th century and early 20th century were just about the cheapest way I could buy physical gold.
I was the type of kid who loved finding and collecting old pennies, so I went for the vintage coins over Maple Leafs, Gold Eagles, etc. But I wouldn’t have done this if they weren’t also the cheapest way of buying physical gold.
I also bought a basket of “blue chip” gold and silver mining stocks and a silver ETF.
But I like physical gold the best. This might sound silly, but the main reason I like physical gold is it’s inconvenient to sell. I can be a little impulsive. This has undone my investment success in the past when I’ve sold great investments too soon.
Now, another question about gold. And for an answer, we turn to one of the experts over at Casey Research – E.B. Tucker, editor of Strategic Trader and Strategic Investor.
Reader question: I agree with you on buying gold. My concern is how I would sell the gold or silver years from now.
Would the same companies who sold me the gold still be in business? No one knows. Would the gold price to me be fair? Have you sold any gold in the past in order to answer this question?
– Betsy B.
E.B.’s answer: Thanks for the question, Betsy.
I’m not sure it matters if your gold dealer stays in business. I don’t know of many times in the last 2,700 years since the Lydians coined gold that people have struggled to sell it.
As to would the price be fair, I’d hope you wouldn’t accept anything less.
With regards to selling, I’ve sold physical gold through the listed Sprott Physical Gold Trust. It was easy and took less than a minute.
Last up in today’s mailbag… a question about the US/China trade war for Jeff Brown…
Reader question: Hi, Jeff! Thanks for all your insight. I have been a subscriber for a couple of months now and am excited for the coming months. Here’s my question: Since tech stocks have been trounced the last couple weeks (presumably because of China), do you think it’s a good idea to take advantage of these low prices and add to positions?
– Travis T. (Legacy Research member)
Jeff’s answer: Travis, as you have probably seen, I’ve been following the developments in the trade negotiations very closely in The Bleeding Edge. These developments are tightly linked to the technology industry and directly impact our investment opportunities.
You’re correct that China is almost entirely responsible for the recent weakness we’ve been seeing in technology companies. The semiconductor and communications sectors have been particularly affected. The protracted negotiations have slowed down trade between the two countries, negatively impacted China’s economy, and directly impacted growth in the semiconductor industry. Additional concerns are that Chinese manufacturers may turn to Chinese suppliers for essential components and semiconductors.
And as I mentioned last week, the Institute for Supply Management showed that the nonmanufacturing index hit a three-year low. Job growth also slowed last month (but is still growing). Uncertainty around global growth has led to declines in the stock markets.
So what should we do as investors? For starters, we shouldn’t panic. This isn’t a sign of a looming bear market. This is simply a point in time, something that is most likely a short-term dynamic that we are working through.
And yes, these market dips do present great windows for investing in quality companies that have pulled back due to broad market uncertainty. And once a trade agreement is reached, I expect a tech-led market rally.
That’s all for this week’s edition of The Daily Cut mailbag. We’ll be back next Friday with more of your questions and our answers.
For now… have a nice weekend.
Regards,
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James Wells
Director