Why the 'Digital Dollar' Will Ensure a Crypto Boom

The 'digital dollar' is coming... The demand for privacy is growing... Why the Federal Reserve is a catalyst for a crypto boom... Solving the 'millionaire problem'... The technologies of our financial future... Get all of the details...

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It was our most unusual booking ever...

Back in 2013, my (Eric Wade's) family owned a music venue in Hollywood. It was very small and hard to find, but major labels began using it to launch their up-and-coming talent.

Intimate and unique, it was the perfect place for musicians to connect with fans. And because the entrance was in an alley off the Melrose Boulevard, it was often compared to the Cavern Club of Beatles fame. Bands whose fanbases were too large for the tiny venue would have "secret shows" there.

One band only offered tickets to fans who bought a vinyl album from a specific record store. Other bands performed under fake names so they could control the number of people who showed up.

But for one of our bookings, the folks making the reservation didn't want to reveal the band they were renting the venue for.

They wanted the band to prepare for the show and have their first gig outside of the public eye. And by keeping their identity completely unknown... it couldn't get leaked.

It was the first time I'd ever done business with someone I couldn't name. They were booked as "Pop The Culture," but they turned out to be a band now known as Smallpools, signed to RCA. They have gone on to really make it as an indie band... so much so that we still remember them years after our venue closed.

As I'll explain in today's Digest, this sort of deal is going to become a lot more common. It's thanks to a technology that I cover in my Crypto Capital newsletter... blockchains and cryptocurrency. 

And, perhaps counterintuitively, the U.S. Federal Reserve may have something to do with it.

There's a growing privacy trend in the cryptocurrency world...

If you've been following cryptos and blockchains for a while, you've likely heard the blockchain described as a public ledger...

Every transaction on a given blockchain is recorded and accessible to every user. For example, every time someone buys or sells bitcoin, its blockchain records that purchase and sale automatically. No one can edit that ledger or fudge any data about that purchase or sale, and everyone can see that the transaction occurred.

For bitcoin, that's a valuable protection. But the crypto world goes far beyond bitcoin. And now, there's a growing trend toward private blockchain information.

As I see it, this shift could have far-reaching consequences, including potentially radically changing the way companies interact with data.

Skeptics might immediately evoke the opportunity of blockchain privacy as a tool for scammers and black markets. But there are many legitimate reasons why some data should be hidden from the public.

Think of the personnel files in an HR office... company trade secrets... or alimony payments. These are all legitimate reasons to want secrecy. And secrecy is becoming increasingly important as hackers target our personal information.

Here's where the Fed comes in...

In the next few weeks, the U.S. central bank will accelerate its plans to "digitize" the U.S. dollar.

You see, most people are so used to their PayPal and Venmo apps for moving money in a few seconds that they've forgotten that banks take days to actually clear the funds.

Sure, those apps may feel instant. But what's really going on is that banks are covering the transfers out of their own pockets while they wait for your money to move from one account to another. That shields users from inconvenient delays, but it puts them at the mercy of big corporations with control over our transactions.

On July 1, the Fed will release a new instant-money platform called FedNow, and it will affect every American with a bank account.

The U.S. Treasury and Social Security Administration will begin using it... and 120 banks have already signed up to do the same. And it could spell the end of centralized money-transfer apps like PayPal and Venmo.

Soon after the launch of FedNow, we expect to see an increase in all online and digital transactions... And the government's digital dollar will bring with it more influence on our lives than most people can imagine.

In time, blockchain and digital wallets will become the only technology capable of protecting everyone's digital dollars while we enjoy instant transactions 24 hours a day, seven days a week.

Now, you may think a digital dollar will inevitably lead to less privacy for everyday people... and that this is another example of government overreach. But let me explain today why the launch of FedNow actually could represent an opportunity for more privacy... and a drive a boost in demand for cryptocurrencies and the technology that underpins them...

This in turn opens up an investment opportunity for folks who understand this story.

First off, blockchains are desperate for privacy...

One of crypto's most promising growth areas is decentralized finance ("DeFi"), meaning computer programs that execute "smart contracts" without human involvement.

As an example, let's say a farmer buys a crop insurance policy that says he'll receive a payout in the event of a drought. The insurance company sets up a smart contract that automatically monitors the weather at the farm. If weather data show rainfall failing to hit a specific level over the growing season, the farmer's payout is automatically sent.

If you're wondering how a smart contract knows about the weather, that's the functionality ChainLink (LINK) and other cryptos like it, known as "oracles," provide. LINK could be used to connect a meteorological database to an application running on the blockchain.

But while this process sounds straightforward, it does have some problems.

Today, for example, everything that happens on most blockchain networks can be viewed by anyone else using a tool called a blockchain explorer. Explorers don't tell you everything about a transaction, but no company wants even portions of its information and transactions available for all to see.

Many companies that use the Ethereum (ETH) cryptocurrency solve this problem by storing data on their computers and only publishing financial transactions on the Ethereum blockchain. But, as we know, information on company computers is prone to hacking, loss, or misuse.

In 2017, hackers stole the personal data for 143 million people from credit-monitoring service Equifax. The next year, they stole 338 million people's credit-card and passport information from hotel chain Marriott. Other companies have been accused of reselling consumers' personal information without their permission.

But protection from crime isn't the only reason for companies to want blockchain "privacy." Apple is famous for keeping its suppliers' identities secret. And what would Coca-Cola or KFC be if their famously secret formulas or recipes were leaked?

With digital U.S. dollars on the way, many businesses will need to use the blockchain for their customer transactions. And everyone from a tech startup to a medical office to a romantic hideaway will need their data and the personal information of their customers to remain private.

The blockchain industry is working on a number of solutions...

The goal is to be able to use crypto networks but make the data they share unreadable or invisible to anyone besides the parties who share it.

One method is being developed by Secret Network (SCRT), a name that is familiar to my Crypto Capital subscribers. I first recommended it back in 2019 and told subscribers to sell a partial position for a 1,500% gain in 2021... Those who took my advice are still sitting on nearly 120% gains on the rest.

Secret allows users to encrypt sensitive information and store it or send it as transactions on the Secret network, an independent blockchain. That data can then be accessed and used by the Secret network (and a growing list of compatible blockchains) without revealing the underlying information to anyone.

Secret isn't the only crypto to boast about privacy. But it goes further than Monero and most other privacy-focused coins. At Secret, developers have found a way for data to stay secret even to the computers that are performing calculations on that data.

That ability is revolutionary...

Just think about it...

In the past, you couldn't share data with an insurance company without losing control over it. The insurance company could have a data breach or even simply sell your data, and you'd probably never find out.

Secret gives individuals the ability to discreetly share information – without the risk of that information being shared.

A health insurer could run your data through its underwriting process and produce a quote for you without seeing your specific medical history.

Lenders could assess your credit risk without seeing your bills, income, or bank statements.

And you could vote in an election without the risk of someone seeing how you voted.

If those examples don't do it for you, imagine two millionaires at a cocktail party...

Both want to know who's richer, but neither is willing to share how much money they have. Computer scientists call this the millionaire problem.

Secret can come up with an answer without anyone finding out each person's net worth. It encrypts and splits up the information across several computers (via a process called "secure multi-party computations").

Throughout this process, no single computer knows all the information it's comparing. Then, the network of computers works together to solve the problem.

And thanks to an auditing process, the result can even be verified without disclosing the underlying information. The technology, if you're interested, is fascinating. Secret uses an "off-chain computation protocol" – a set of rules governing secret contracts – that allow "nodes" around the world to jointly compute over encrypted data.

A node is simply a computer or device that holds a full copy of the transaction history of a blockchain.

In a nutshell, if you want to send a transaction or run a smart contract on Secret Network, the nodes will break the data into pieces and multiple nodes will run calculations on the piece they hold. Then reassemble them for whoever is the recipient of the transaction. The nodes themselves never hold all of the information, so it can't be shared.

Secret handles all of this in about three seconds. It's a fast and low-cost blockchain to use, even though the math making it all work is pretty intensive.

As the Fed's digital dollars spread across America, Secret Network's privacy solution will grow in importance. And its method of protecting data isn't the only good idea crypto can offer to people worried about their digital-dollar data being leaked.

Here's another privacy technology you should know about...

Other chains are developing what are called zero-knowledge-powered smart contracts. This is a fascinating field that a lot of blockchain developers are working in because of the promise it holds.

Crypto Capital analyst Andrew McGuirk wrote to you about this technology back in April in an essay we republished in Sunday's Masters Series.

Generally speaking, "zero knowledge" refers to zk-SNARK technology, first used by the ZCash coin. The technology is now expanding to numerous other blockchains. Zk-SNARK stands for Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.

What's special about zk-SNARK is that it can prove a piece of information true or false without revealing that information, and even without the parties proving and verifying the information needing to have any interaction.

Think of a situation in the past where someone comes into your business and wants to pay for something with a check. You can take the risk that the check might bounce... or you can call their bank. Folks at the bank won't tell you how much money is in their account (or at least they shouldn't, if they're doing their job) but they can tell you the check will clear. In a sense, they've proven the check is good without sharing the details with you.

Numerous blockchains make it possible for developers to create zero-knowledge smart contracts ("zkApps"), which are essentially decentralized applications ("DApps") that are lightweight, easy to use, and powered by zk-SNARK technology.

The Ethereum Foundation says...

The possibilities of zkSNARKs are impressive, you can verify the correctness of computations without having to execute them and you will not even learn what was executed – just that it was done correctly.

The main difference between zkApps and DApps is that zkApps prioritize privacy and scalability innately. You see, zkApps are able to use private data that is verified to be true as proof but DApps can't.

For example, zkApps make it possible for you to verify that you own a specific crypto without giving out your address and your balance. You can verify that you've completed "know your customer" on one centralized exchange without giving up your identification documents again on a new one. Or you can log into a closed ecosystem, like Facebook, while remaining anonymous.

This is just the tip of the iceberg of the possibilities for zkApps...

Like our example of someone paying by check, you could accept digital dollars just like cash, with zk-SNARKS proving they're valid but your customer knowing you couldn't see their wallet balance.

We at Crypto Capital found a blockchain that has been adding ZK abilities and executes the technology in two seconds. That blockchain is Polygon (MATIC), one of the biggest and busiest cryptos there is. It's the 12th-largest crypto by market cap.

Polygon was built to work with Ethereum by handling transactions faster and cheaper than ETH does. Polygon just launched the beta version of its zero-knowledge Ethereum Virtual Machine compatible upgrade.

This upgrade could be the next seamless scaling solution, allowing Ethereum to handle more activity on the blockchain thanks to MATIC. It uses zero-knowledge proofs to validate massive amounts of transaction data.

And massive amounts of transactions are exactly what we expect to see when the digital dollar rolls out.

The technology I've described today could soon power many of the apps we use online, and relieve businesses of the burden of storing their customers' confidential information. And it could benefit data marketplaces, credit-scoring companies, and the Internet of Things... all industries with massive amounts of data worth protecting.

And the upcoming launch of the Fed's digital-dollar platform will be a catalyst for these technologies to take off in use and scale... and certain cryptocurrencies that already exist could skyrocket in value along the way...

To hear more details about that...

I recently went on camera to explain even more about this story... what I've learned after four years of investigation FedNow... why I believe it will do for the U.S. financial system what the Internet did to the U.S. economy beginning in the late 1990s... and how investors can best position themselves to profit from the biggest innovation of the dollar in 50 years.

During this entirely free video event, I also get into more about cryptos and blockchains and share a free recommendation that I believe could take off in value in response to the launch of FedNow. (It's not one of the cryptos I've named today.) You'll also hear me share some more detail about what we do in Crypto Capital.

If any of this sounds interesting to you at all, click here to watch or listen to this new presentation right now. Again, it's free. And to my existing Crypto Capital subscribers and Stansberry Alliance members, feel free to tune in, though you also already have access to all of this research here.

New 52-week highs (as of 6/26/23): Fortive (FTV), W.W. Grainger (GWW), iShares U.S. Home Construction Fund (ITB), Parker-Hannifin (PH), and Vericel (VCEL).

In today's mailbag, feedback on yesterday's Digest about the lack of volatility in the market right now... and a suggestion about our formatting... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I don't recall in which Digest it was, but it was back in mid-March before the Fed meeting (and GDP Projections) that Greg Diamond said that the outcome of that meeting would dictate the direction of the market. Either:

"1) The market will get spooked and panic about the ongoing interest rate hikes and go into a decline OR 2) Markets will not care about future hikes and will continue to rally.

"Well, so far, as Corey wrote in the Digest today, almost nothing is derailing the rally. Maybe Dave Lashmet's thesis of a black swan event will throw the markets into a loophole... we'll see. Excellent Digest today!" – Paid-up subscriber Jose T.

"The Stansberry Digest is a great read every day. Loaded with in-depth analysis. My only 'complaint' is it tends to be long, nothing wrong with that. However, the intro in bold text could be more focused on the ideas/conclusions in a bullet format. In other words, more concise and hard-hitting 'executive summary'. Once that is complete, I can then decide if I want to proceed for the more in-depth analysis, which is always excellent. I think it would make this a better product rather than the 'teaser' snippets that are currently written. Thanks for all the great material." – Paid-up subscriber Brian N.

Corey McLaughlin comment: Thanks for the kind words and the suggestion, Brian. We'll take it under advisement. I'm curious what other subscribers may think about this topic as well – the content of the headers, as we call them, at the top of each issue. Let me know your thoughts.

Good investing,

Eric Wade
Los Angeles, California
June 27, 2023