How This “Bridge” Between
Blockchains Can Turn $400 Into
$111,000
During the Great Blizzard of 1978, Ward
Christensen sat trapped in his Chicago home.
Stranded with little else but some imagination and
some electronics equipment ... he created what
many call the precursor to the modern internet.
Christensen called his invention an online bulletin board system
(BBS). BBS allowed early computer enthusiasts to share
information.
Computer users connected to the BBS with a phone modem. Then
they’d send a message from their computer across a landline to
the bulletin board.
The messages automatically posted to the board. Anyone who had
access to the BBS could read the messages and send a reply to
them on the bulletin board.
The concept isn’t that much different from church or school
bulletin boards.
How This “Bridge” Between
Blockchains Can Turn $400 Into
$111,000
By the late 1980s, users had created more than 8,000 of these
online “bulletin boards.” They were usually built around a topic like
travel, computer programming, games, etc.
Today, many people consider early BBSs a precursor to the
internet. But with a big difference ...
Why Should You Buy Now While
the Crypto Market Sells Off?
A couple of months ago, as the market was rallying and we
saw bitcoin get closer to $12,000 again, I said there was a
good chance we’re going to see a “W” bottom.
I sent out a video earlier this week explaining what a W
bottom is, and how we’re in one now.
I also shared with you what might be ahead over the short
term and the best way for you to handle it.
Whether you’re a seasoned crypto investor or just getting
started, you need to take some time and watch this update if
you haven’t already.
BBSs were not networks. They were standalone “silos” of
information. There was no common language to unite these 8,000
separate systems.
For instance, if you were on a BBS in Chicago and wanted to send a
message to a friend on a BBS in Boston ... you couldn’t.
Imagine 8,000 people in a room who all speak different languages.
That’s what the early bulletin boards were like.
Because there was no technology at the time to link them, BBSs
had little commercial value.
Fast forward six years ...
In 1984, two young lovers at Stanford University were frustrated.
They wanted to chat with each other over the university’s
computers, but they couldn’t.
They worked in separate departments on campus. But even
though their buildings were separated by only 500 yards, they
couldn’t email each other.
At the time, Stanford had thousands of computers running on
dozens of incompatible systems.
The couple, Sandy Lerner and Len Bosack realized they needed a
device that solved this problem.
By 1984, other developers had invented the TCP/IP protocols.
These protocols created the “language” for cross-device
communication.
But there was still a major problem ... There was no hardware
device available to enforce the protocols. If computers didn’t follow
them, they couldn’t connect to different networks.
What networks needed was a “traffic cop” that could organize, sort,
and route all machine-to-machine talk.
That’s where Lerner and Bosack came in. They’re credited with
creating the first network router.
The invention of routers can’t be underestimated.
Routers are at the heart of what makes the internet work. They
sort, organize, and direct internet traffic across thousands of
networks, computers, and programming languages.
They are the “rails” that unify and connect the world’s data.
An Historic Case of
Interoperability
The early U.S. railroad system faced a similar
“interconnectivity” problem in the 1850s.
Back then, railroads were the most important network in the
nation. But different rail companies used different track
widths.
At one point, there were 60 different track widths across the
country.
That meant rail companies were stuck on their own networks.
For example, a company whose rail line went north to south
(say from Chicago to New Orleans) couldn’t connect to a rail
company whose line went east to west (say from Atlanta to
Dallas).
Like the early bulletin boards that trapped information on
incompatible computer networks, early train companies
trapped trade on incompatible rail networks.
By 1864, the entire nation finally moved to a uniform track
width of 4-feet 8.5-inches. According to a Harvard business
school paper, rail traffic shot up 250% in the following years.
The little company started by Lerner and Bosack was Cisco
Systems. Cisco launched its first successful core enterprise router
(7000 series) in 1993.
Once Cisco launched the 7000 series, website growth exploded.
• The number of websites boomed from 250 in 1993 to
30,000,000 in 2000
• Web traffic exploded 99.9% from 1993 to 2000
• The value of the internet sector went from $800 billion in
1993 to a peak value of $5 trillion in 2000–a 525% increase.
Meanwhile ...
• Cisco’s sales went from $650 million in 1993 to $18.9 billion
in 2000
• Cisco grew its IPO value of $224 million in 1990 to a peak
value of $515 billion in 2000. That was more than 10% of
the entire internet ecosystem at the time.
Why was Lerner and Bosack’s invention able to unlock so much
value and Christensen’s wasn’t?
It has to do with something called Metcalfe’s Law.
Metcalfe’s Law states that the value of a network is the square of
the number of users. That means as more people join a network,
the network becomes more valuable.
In this month’s issue, I’ll share with you the company I believe is
best positioned to use Metcalfe’s Law to become the “Cisco” of
blockchain. This team is creating an elegant solution that will unify
every important public and private blockchain in the world.
The coin has a $230 million market cap (that’s around the same
market cap Cisco had when it went public in 1990). I think it will
easily 10x this year just on a recovery in the broad crypto market.
Over the next two years, I expect this coin to become a popular
solution for connecting with the world’s most used blockchains. If
I’m right, this coin will rise by a factor of at least 20.
Within five years, this coin could become the most widely used
method of linking public and private blockchains. If that happens, I
expect the value of the coin to mimic Cisco’s in the late 1990s.
That means I think this coin could end up being worth as much as
10% of the entire cryptocurrency market.
If we use today’s crypto ecosystem value of $330 billion as a
baseline, that would peg the potential value of this project at $33
billion.
That’s enough to turn a $400 investment into $11,000.
At Palm Beach Confidential, this is exactly the type of risk/reward
investment we focus on. We call these “asymmetric” trades. That
means we risk trivial sums of money for a chance to make life-
changing gains.
Before I get to this month’s pick, let me show you how Metcalfe’s
Law creates a profitable network effect.
The Network Effect
Metcalfe’s Law is a theory of network effects. It states that the
bigger the network of users, the greater the value of the network.
Think about fax machines. If one person owns a fax machine, it
doesn’t have any value. But if millions of people own fax machines,
now they have much more value. You have a network of users that
can send and receive documents.
Networks tend to be self-fulfilling prophecies. That means as more
people use them, they attract even more users.
Facebook is another example.
Ten years ago, my 75-year-old friend would have called it a stupid
waste of time. Today, he’s all over Facebook because all his friends
are on Facebook.
Metcalfe’s Law is why Facebook, Google, and Alibaba are worth
$500 billion, $689 billion and $450 billion, respectively. Each of
those companies have billions of users.
The reason BBSs were little more than a historical oddity is
because they couldn’t “talk” to each other.
No network means no network effect ... And that means no
Metcalfe’s Law.
But once Lerner and Bosack made it easy for different networks to
“talk” using routers, it unleashed Metcalfe’s Law. This created an
explosion of value that led to the $5 trillion dot-com boom.
This same “network effect” is about to sweep across the
blockchain. And this month’s pick is the company that will make
that happen. I’ll tell you all about it in just a second.
Metcalfe’s Law Unleashes Explosive
Growth
People who don’t understand the network effect will continue to
question crypto assets’ valuation, just like they did with Facebook,
Alibaba, and Google.
But if you had the courage to defy the naysayers and just pick up a
small position of $500 in each when they went public, you’d be
sitting on $341,274 today.
To see how powerful the network effect is, just take a look at
Cisco’s valuation in 2000.
At its peak valuation, Cisco was worth 10% of the value of the
entire public market value of the internet sector. At the time, the
value of the entire internet ecosystem was $5 trillion ... Cisco’s
value: $515 billion.
From 1990-2000, Cisco stock grew at a compound rate of 100% per
year for 10 years. $10,000 invested in CISCO in 1990 would have
been worth $9,474,587 at Cisco’s peak valuation.
Even today—more than 30 years after its founding—Cisco
dominates the router market with a global market share of 51%
and annual revenues of $48 billion.
It’s no exaggeration to say that Lerner and Bosack created the key
piece of technology that unleashed the $5 trillion dot-com boom.
And it all had to do with harnessing the “network effect.”
Today’s Blockchains Are Like Early
Bulletin Boards
Today, the blockchain faces the same problem that limited the
growth of early BBSs.
There are hundreds of new blockchain networks popping up
solving all types of problems. But they’re all incompatible.
In the past, I’ve called this “the problem of interoperability.”
For instance, if you have data on the Ethereum blockchain ... you
can’t move it to the NEO blockchain. And vice versa.
The internet solved this problem with routers and TCP/IP. That’s
why when you click on a Facebook or Wikipedia link from a Google
search page, you arrive on their respective websites.
Even though Google, Facebook, and Wikipedia use different
computer systems, they all use the unifying language of TCP/IP,
and they obey the rules of Cisco’s routers.
The protocols funnel that traffic via routers and serve them up on
any connected device ... regardless of what system software it
uses.
This month’s project will do the same for the blockchain.
Introducing the “Cisco” of the
Blockchain Era
Aion (AION) is the project we believe will become the leader in
blockchain interoperability.
We added Aion to our short-term portfolio on January 2. Based on
its outlook, we believe it’s time to add it to the long-term portfolio.
Aion is an early-stage project that will enable all blockchains to
communicate with one another.
The leader of the project is Matt Spoke. He started in crypto in
January 2015 at global accounting firm Deloitte. While there, he
acted as an adviser to blockchain companies.
Two years ago, he left Deloitte and started his own blockchain
development company, Nuco. At Nuco, his team focused on
building blockchains for large enterprises.
I recently spoke to Matt, and he told me he quickly realized that
without interoperability, the blockchains Nuco was building would
have limited use.
That’s when he pivoted and decided to throw all his resources into
creating blockchain interoperability. Here’s why we need to take
Matt Spoke seriously...
Matt is a well-respected guy in the crypto space.
He’s a founding member of the Ethereum Alliance and counts
Ethereum founder Vitalik Buterin among his friends. Vitalik is also a
formal adviser to Nuco. (To be clear, Vitalik is NOT an adviser to
Aion.)
The team is composed of a dozen developers and 23 team
members. Notable advisers include Anthony Di Iorio, a co-founder
of Ethereum and the CEO of Jaxx; Michael Terpin, the founder of
Market Wire and Transform Group; and John Lee, managing
director at TMX Group, home of the Toronto Stock Exchange and
TSX Venture Exchange.
This is a rock-solid team solving one of the biggest problems in
crypto.
Here’s how they are doing it ...
The Bridge Between Blockchains
On December 5, wildly popular trading game CryptoKitties created
so much traffic, it brought the Ethereum network to a virtual
standstill. Transaction fees ballooned by 500%.
It got so bad, many blockchain projects had to postpone their
initial coin offerings (ICOs).
CryptoKitties highlighted two major problems with Ethereum: low
speed and high cost.
That’s not a huge problem yet because most of the projects
launching are still in startup mode. Outside of speculation, their
tokens are used for little else.
But what happens when a project takes off and requires scale and
speed?
The project will have to leave Ethereum and move to a different
blockchain with faster confirmation times and lower costs. Some
projects have already started to make the move.
• Kik, the mobile messaging platform, recently shifted its KIN
token network from Ethereum to Stellar.
• Mobius, a universal protocol suite for blockchain
ecosystems, also chose to hold its ICO on Stellar over
Ethereum.
• Irene Energy, a blockchain project for sustainable green
energy, also moved from the Ethereum blockchain to
Stellar.
A Moving Example
Shifting from one blockchain to another isn’t an easy process.
We are dealing with that problem with our EOS.IO (EOS)
position.
EOS makes software for decentralized applications. The
current EOS tokens are ERC20 tokens that were issued on the
Ethereum blockchain.
The new EOS platform is scheduled to go live on June 1. When
the EOS blockchain goes live, it will run on new EOS tokens.
Since the tokens can’t cross from one chain to another, users
must “map” their coins from the old blockchain to the new
blockchain. Essentially, mapping cancels the old coins and
replaces them with new coins issued on the new blockchain.
This is the functional equivalent of going to your bank to
exchange dollars for euros ... and the bank burns your dollars
before giving you the euros. Ridiculous, right?
This is one of the many problems that Aion solves.
By using its “bridging” technology tokens can move
seamlessly from one blockchain to another. (I’ll explain more
in a moment.)
For Ethereum, this functionality can’t happen soon enough.
Many projects I talk to are complaining that Ethereum is too slow
and expensive. But projects continue to use Ethereum for
fundraising because it has an easy-to-use and well-accepted
infrastructure.
With Aion’s solution, projects will be able to launch on Ethereum
and then offload expensive and resource-intensive aspects of their
businesses to cheaper blockchains. It’s a marriage made in heaven.
It’s the equivalent of Nike selling shoes in America but outsourcing
the labor to Bangladesh.
And that’s the beauty of Aion’s “bridge” technology.
Projects won’t be tied to just one blockchain. They can use multiple
blockchains to handle different aspects of their business ... Just like
how Apple hires programmers in California, accountants in Ireland,
and labor in China.
With Aion, a project could raise money on Ethereum and use
Stellar to handle the payments. Or it could use Factom to handle
part of its document security and STORJ for its distributed storage
needs.
Once blockchains can seamlessly interact with each other,
Metcalfe’s Law will kick in.
The successful launch of Aion’s interoperability solutions will lead
to an explosion in entrepreneurial creativity. This will unleash a
torrent of new of multibillion-dollar applications.
Here’s All You Need to Know to
Understand Aion
Imagine you’re in 1990 and I was explaining router technology to
you. Would you really need to know every technical aspect to
understand its value?
No, you wouldn’t.
All you’d need to know is what the router accomplishes for users ...
why people would buy it ... and whether the company had the right
group of folks to get the job done.
That’s why rather than doing a deep dive on the minutiae of each
of Aion’s features, I’m going to give you a broad overview of how
the solution works.
(For those who are more technically inclined, Aion has five white
papers on its site you can read at your leisure.)
There are essentially two critical pieces to the Aion solution.
They’re called interchain transaction protocol (ICT) and bridges.
Think of ICT as the common language blockchains will use to
communicate with each other. The concept is similar to TCP/IP.
TCP stands for transmission control protocol. This is a set of rules
that governs the exchange of packets of data over the internet.
IP stands for internet protocol. This is a set of rules that governs
sending and receiving data at the internet-address level.
IP by itself is something like the postal system. It allows you to
address a package and drop it in the system, but there’s no direct
link between you and the recipient. TCP/IP, on the other hand,
establishes a connection between two hosts, so they can send
messages back and forth for a period of time.
Just like TCP/IP, ICT standardizes how blockchains communicate
with each other.
A “bridge” is exactly what it sounds like. It’s a connection built from
the Aion blockchain to another blockchain. To create a bridge, a
user will have to stake (commit) a certain number of AION tokens.
Developers who build bridges can collect fees from all the traffic
that crosses the bridge.
Anyone can create a bridge. Aion expects fierce competition
among bridge builders to the most popular blockchains. This
competition will keep fees reasonable.
To create trust in these bridges, there are third-party “validators.”
The validators provide an oversight function. 75% of the validators
must agree before a transaction can cross a bridge. The validators
share the fees collected from crossing the bridge.
Like bridge operators, validators must stake a certain amount of
AION coins. That stake incentivizes everyone to act ethically. If
you’re a dishonest validator or bridge operator, you risk losing your
staked coins.
There are many other aspects of the Aion solution that I have not
gone into. They include proof-of-work mining, an Aion virtual
machine, and an Aion development platform to build your own
blockchain.
Although these aspects are important, you don’t need to
understand them to realize the value Aion provides. The
fundamental keys to Aion’s value are its ICT and bridge solutions.
What Does This All Mean to You as
a Token Holder?
Aion has done a great job of harnessing token economics to create
incentives for miners, bridge builders, and validators to all work
together.
What that means for you is there will be ongoing demand for AION
tokens. That’s because you must spend AION tokens to use
everything on the Aion network.
Always remember, usage drives value. At Palm Beach Confidential,
our research efforts are always focused on usage. It’s our North
Star metric.
Again and again, we’ve found the more a token is used, the more
valuable it becomes.
Our biggest winners have come from buying tokens right before
usage exploded.
Here’s the key takeaway: Blockchains desperately need
interoperability. Once that interoperability solution is available,
demand will be insatiable.
That’s why the launch of Aion’s bridge and ICT technology will
ignite a massive boom in demand for AION tokens.
It’s this demand spike—not unlike what we saw with Ethereum a
year ago—that will propel AION’s value significantly higher.
What About Competition?
Let me be clear ... There are many competitors in this space.
Each has its own unique take on how interoperability should work.
I have analyzed many of these proposed solutions.
Generally speaking, the solutions I’ve reviewed are either too
complex, too far away from a launch date, or have major security
concerns.
I’m sure I will receive many emails from subscribers upset that I
haven’t chosen their pet interoperability project.
So, let me explain why I’ve chosen Aion over the others.
I think it’s a mistake to try and find the “perfect” interoperability
solution. In technology, it’s rarely the “perfect” tech that ends up
winning.
Betamax was a far superior technology to VHS, yet VHS still
became the winner of the VCR wars.
In the 1990s, Apple’s desktop operating system was worlds ahead
of Microsoft’s Windows. Yet Microsoft dominated the desktop
space ... not Apple.
The same is true here.
There are other solutions that on paper may be more “elegant”
and perhaps “better” than Aion’s. But what’s more important to me
than having the “best” solution is having a solution that works and
can get to market quickly.
My other concern with the alternative solutions has to do with
their engineer teams.
Some of the most promising projects I’ve looked at depend too
heavily on engineers to make business decisions ... such as when
to launch.
This is a problem because engineers are notorious for never being
satisfied with their work. They always want to tinker a little bit
more. I think this will result in many competitors missing their
release dates.
Here’s what I like about Aion: It has a strong engineering team
headed bystrong business leader.
Matt Spoke understands the importance of getting a solution to
the market.
Now please don’t misunderstand me. I am not suggesting he’s
going to launch a subpar solution. Not at all.
What I’m suggesting is that Matt’s understanding of both the
business and engineering sides is the right mix to get a solution to
market in a timely fashion.
Connecting to One of the World’s
Most Popular Blockchains
Aion’s first bridge will be with the Ethereum blockchain. We think
this is very smart.
Ethereum is one of the most active blockchains in the world. In
fact, 76% of all ICOs launch on its blockchain.
This is critically important because to win the interoperability
game, you don’t have to be first to connect to all blockchains. You
just have to be first to connect the most popular blockchains.
This will kickstart Metcalfe’s Law for Aion.
By focusing on building bridging technology to Ethereum first, Aion
positions itself to dominate the space.
Aion will automatically attract a host of developers who want to
build bridges between their projects and Ethereum.
By connecting to Ethereum via Aion, a project can access all the
users on one of the world’s most popular blockchains.
It’s like building a rail line between a small town and a major city.
As soon as the line is operational, the land in the small town
immediately becomes more valuable.
In the same way, building a cross-chain bridge to Ethereum will
automatically make the other blockchain more valuable.
This is the power of interoperability at work.
Just as Cisco routers increased the value of all websites (because
people could seamlessly move between different sites), Aion will
increase the value of the entire blockchain ecosystem.
Developers on other blockchains will immediately realize that to
grow their projects, they’ll have to connect with Ethereum.
It will be a self-reinforcing effect that we believe will make Aion the
leader in cross-chain communications.
What Is B.I.T.S. Saying?
B.I.T.S. is designed to automatically alert us to ideas when
investor sentiment is low. We call this buying at the bottom of
the fear curve. You can read how the system works here.
B (Business Value Ratio): The business value ratio measures
the daily dollar value of all transactions compared to the total
value of the cryptocurrency. When the business value ratio
dips below its average, it’s a sign the crypto token is cheap.
The Aion business value indicator dropped over the past
month due to falling prices and declining volume. That’s good
news because it puts AION in the buy zone.
I (Insiders): When the business value ratio is flashing, I go to
my insiders.
Aion’s advisory board reads like a who’s who of blockchain. As
I mentioned above, it includes Ethereum co-founder Anthony
Di Iorio .... John Lee, vice president of Enterprise Delivery at
the Toronto Stock Exchange .... and Salim Ismail, the former
vice president of Yahoo.
As well as Jeff Pulver, co-founder of Vonage, and Peter
Vessenes, co-founder of the Bitcoin Foundation and
managing director of ICO advisory, New Alchemy. Aion is
made up of a team that has the respect of both me and my
network of insiders.
T (Technicals): We use technical analysis to tell us when the
selling is over. The Relative Strength Index (RSI) measures
how strong a cryptocurrency is based on its previous trading
history. If today’s price is higher, the RSI moves up. If today’s
price is lower, the RSI moves down.
The RSI is showing us indecision between buyers and sellers
as it is not trending strongly in either direction. As the current
sell-off dissipates, we expect more buyers to come back into
the market and for Aion’s RSI to trend higher.
S (Social Media): Our research has shown that before a
cryptocurrency takes off, we always see a surge in “chatter”
on our social media tracker.
As you can see from the chart below, after spending nearly
two months in a downtrend, the social media sentiment of
Aion recently broke out to a new high. It’s a good sign for
higher prices ahead.
What’s It Worth?
In the 1980s, if I asked you how much TCP/IP is worth, you’d look at
the number of potential devices that could be connected ... and
probably reply “not much.”
It was easy to say the same thing about Ethereum two years ago.
The question then was what’s the worth of a decentralized protocol
that can build blockchain applications?
At the time, there was very little blockchain development taking
place. So, the majority of investors thought Ethereum was wildly
overvalued at $1 billion. Two years after I recommended it, its
value would hit a high of $140 billion.
When I wrote my initial report on Ethereum, I called for a $30
billion valuation within two years. I can’t print the names people
called me for making that prediction. I’m prepared to face the
same type of scorn when it comes to Aion.
At a current market value of $230 million, I think relative to its
potential, Aion represents a phenomenal opportunity to take a
trivial amount of money and turn it into an enormous amount of
money.
By the first half of this year, Aion will have a functioning token
bridge and interchain communication with Ethereum. This
successful launch of a functioning cross-chain platform will be
huge market news.
We expect sentiment in the broad market to be much improved by
Q2. As such, the successful launch of Aion’s first working bridge
could easily 10x the token price. That will take the coin from $2.50
to $25.
Over the next two years, if we see the kind of rapid adoption I
believe we will see, then Aion will move up by at least 20x. That
puts the price closer to $50.
Over the next five years, if Aion can cement itself as the most
popular solution for connecting blockchains, then I think its value
will mimic Cisco’s in the late ‘90s.
At its peak, Cisco had a value of $515 billion. That was equal to 10%
of the entire $5 trillion internet sector.
As I wrote earlier, if we use today’s crypto ecosystem value of $330
billion as a baseline, that would peg the potential value of this
project at $33 billion.
Based on the current amount of tokens outstanding, that’s enough
to turn a $400 investment into $111,000.
Today we can buy it for about $2.50.
Bringing It All Together
Creating a bridge that allows the free movement of value and
information across platforms is the technological leap that will
explode the growth and value of the entire crypto market.
We believe Aion will make this happen.
I understand that’s a bold prediction. I’ll probably take more grief
and hate mail for writing this issue than when I wrote about
Ethereum. I’m willing to take that risk because the potential for
outsized gains with Aion is so great.
But I am sure many of you are asking: What if I’m wrong and Aion
fails to become the leader of interoperability?
This is where our position sizing and portfolio approach comes into
play.
The potential upside of Aion is so vast that you can risk a sum as
small as $400 and still make as much as $111,000.
If I’m wrong on Aion, your risk is the cost of four fancy dinners. But
if I’m right, your payoff is a lifetime of dinners, vacations, and
financial security.
I’ll take odds like those any day of the week.
Currency Pick: Buy Aion (AION)
Buy-up-to Price: $10
Stop Loss: None
Buy It On: Binance
Store It On: MyEtherWallet
As always, place no more than $200–400 for smaller accounts and
$500–1,000 for larger accounts into this trade.
Important note: Immediately after our buy recommendations, we
often see an initial price spike. We understand that this can be
frustrating. But don’t worry. This is par for the course in the
cryptocurrency space. Most of the time, the recommendation falls
back below our buy-up-to price. Use a limit order. And just be
patient and let the price come to you.