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I have written about this topic a few times, but as time has gone on, I’ve seen more of it in the news. I think I wanted to weigh in here with some fresh takes on this, and combine it with my recent talk about gold-backed digital tokens I had on Rethinking The Dollar with Mike.

Before we get going – some disclaimers and backstory to setup this piece. I am a holder of KVT/KAG/KAU with Kinesis Money, and am not a paid writer or receive any compensation from Kinesis. I have openly said I’d love to work there someday, so IF my status changes, I’d change my disclaimers. My one master’s degree is in cybersecurity, and I have 28 years or so working at the highest levels of IT at the world’s largest IT shops, so while I am not a “crypto expert” when you start talking about blockchain – I understand the principles, the math, the concept, and understand management of all tech systems at the bit and byte level. So, if you want to go into the plumbing with ETH smart contracts, I understand what they do, but generally speaking, you are blinded by your investment in an empty parking spot and miss the bigger concepts of money and asset classes. So you will kill me on a plumbing argument. I will stipulate that for the defense. However, I’m going to talk much bigger picture here than your shitcoin, so keep that in mind.

I hear more rumblings about a CBDC to come, and you can even see the SEC now clearing a way ahead by pretty much smashing as many exchanges and on-ramps to crypto as possible. I think it’s very important for the delineation here between Asset-Backed Digital Currencies (ABDCs) and Non-Asset Backed digital currencies, because it’s going to be playing a big part in the rest of this discussion. I’m going to spend the first part of this trying to convey the big difference here between ABDCs and non-ABDCs for the express purpose of showing the inherent value in ABDCs that I believe will, in the long run, destroy CBDCs. Additionally, as more people start to wake up to what shitcoins are, the “ah ha!” moment will have them liquidating their profits to preserving the profits in gold. This will drive shotcoins down to the point where the only holders left will be massive bag holders with phenomenal losses, then the government will spend years tearing the on-off ramps apart and take the exhanges down one by one. Yes, you will have your shitcoins in a cold wallet that no one wants, cannot be spend anywhere, and cannot be redeemed for cash on any exchanges. There will be fights, and the weakest of the pack is the non-ABDCs which are going to get hammered worldwide.

So in ANY DISCUSSION of CBDC, you must understand what a CBDC is and the similarities it has to your favorite shitcoin. Hint. It’s the exact same, but one the governments run, and yours is run by a guy with shorts and Birkenstocks who issued himself 1m of his shitcoin, converted a lot of it to fiat, and now owns islands and Bentleys while you simp yourself online to try and hype it higher….”because ledger”.

100 years ago, you could see on a crisp new 20 dollar bill that this was “payable in gold”, and gold was $20 an ounce. The MONEY was the gold, and the CURRENCY was the piece of paper that gave you the title to that amount of gold. This is what Asset Backed Digital Currencies are today. They give you the right to the underlying asset. But rather than just $20 bills, the beauty of an ABDC is that you can salami slice the underlying asset trillions of times. So, it doesn’t matter if gold is $2,000 or $200,000 per oz, you can still spend your gold you own in a vault with this ABDC with a debit card at the grocery store, with the token being redeemed for just the amount of fiat needed at the point of sale (PoS).

In this reality, there is a public blockchain that anyone can see, including the government. They can see what you spend your money on. Whether it is groceries, bills, pornography, etc. Kind of. What you may see on the blockchain is user ABC12345 bought a loaf of bread. The KYC provider knows who user ABC12345 is, but the government does not. THIS is the problem that governments now have today with ABDCs. THEY WANT this power. In reality, this power SHOULD be granted, WITH A WARRANT for PROBABLE CAUSE. Exchanges that don’t want to play ball with the warrant stuff will be wiped out, eventually, as governments around the world will cut off all ability for them to on-ramp and off-ramp funds with the banking sector. Legitimate exchanges who do KYC SHOULD advocate for their customers’ privacy, but also need to understand how to play ball with warrants. While they can duke these things out in court, it’s important to note that warrants should be used as a check and balance to government power, not as a rubber stamp of power.

What you are seeing below is your favorite crypto, today.

It’s fancy. It’s shiny. There’s tech built into it. There’s big numbers to make you feel rich. But your favorite shit crypto is essentially trying to REPLACE this. Remember, in 1971, your paper money disassociated itself with an underlying asset. The $100 bill you see here is “backed by the full faith and credit of the United States”. Meaning, you have to trust their system. If people stop trusting the system because too much of this was printed, then this is the value of the underlying object – $0. The same can be said about your favorite shitcoin – in that it is a privatized fiat, backed by nothing, and with this, you have “full faith and credit” in that system that it holds that value. And, this value is only worth what the last person was willing to pay for it.

This is a better understanding of what your shitcoin is. It is a digital parking space (ledger entry) with no underlying asset.

Now, if you have worked in IT a little, or taken some classes, I’m going to show you what this looks like at the bit/byte level. Say you are “sending” shitcoin to someone else…

Or perhaps you are “storing” your wealth on a blockchain with no assets – only your name there. This is what that looks like if it were a hard drive. Your ownership is in green.

Now, memory gets a little more crazy as its been two and a half decades since I took C and C++ and sucked at it, but the “storage” above with hard drives shows a good representation of your wealth. Consider that “hard drive” is the total shitcoin ABC in the system, your space is in green. Of the total system, you have a decent amount of it. But…what do you own? You own an address. You own property to a virtual beach front property. Someday, perhaps your shitcoin will be used for international commerce…because…ledger. I don’t know. I doubt it, primarily because your competition with this is….every government. So, in a sense, a CBDC is almost a guarantee to smother out shitcons.

Whoever SOLD you this parking space hinted that this was what you were getting…”because…networking”. You were promised the below, because the pictures they used had gold on it, and they would call it “digital gold” to entice you.

In reality, this is what you ACTUALLY got.

The difference is, one is printed by a government, the other is “mined” using stupid amounts of electricity and mining rigs.

In reality, ASSET-BACKED digital currencies are this…

Or, take my analogy above….

An ABDC takes that spot stored, and provides you title to gold in the vaults of that system.

Furthermore, the “ledger” people may have taken 8 seconds in accounting, but never really dug much deeper. Here’s an example of a ledger transaction.

In the above, you can see debits and credits. Payment went came in from Fabrikam of $5,000 and you shipped out $5,000 in goods (or services). It was something of value that was handed back to them. In your reality, someone is going to eventually give you USD for your empty parking space – which only has a $1m value because someone else says it will have a $1m value. In reality, this is an empty parking space with no tangible value. The parking space was generated using electricity to show “proof of work”. In reality, it was a waste of energy to generate nothing of value.

It is a ledger entry with a debit/credit of assets. Meaning, the ledger space with your name has title to an underlying asset. In THIS piece, I’m talking about gold. However, there are also other items out there that use this for houses, or perhaps other commodities.

I feel as time goes on, A LOT of the people who ran to shit coins to get out of the banking system will come to realize what they have is worthless, and move en masse to an ABDC.

Meaning, in an ABDC the tokens themselves are only “created” when an asset is brought into the system. If you bring gold into the system, the tokens “minted” at that time literally take no energy to create, and there is no inherent value in the token. Only the underlying asset.

This is the mind….blown moment that many crypto folks need to understand.

Regulation

My background, as I mentioned, is with managing extremely large IT shops at the “enterprise level”. I had been an enterprise architect back in the day over 42,000 or so systems at the highest levels. I worked on the design of patching and hardening systems for 125,000 machines. My book education with a lot of this also gave me insight into things like – technology is much, much faster than the law. Meaning, PCs were in homes here in this country for years before the 1986 Computer Fraud and Abuse Act was passed. File sharing and all kinds of craziness with copyright infringement was going on for years prior to the Digital Milennium Copyright Act came into effect.

What I had seen with cryptos was the Wild West, and those who were visionaries in the 20-teens were literally creating tech and ideas where laws did not exist, yet. Many of these creators “acted in good faith” and tried to do the best they could to navigate waters. Bankers had no idea about the tech. Governments couldn’t control it, so they wanted to smash it, but no framework or laws were on the books.

What many of you have seen over the past few years is the moon shot of crypto-everything as Tulip Mania has subsided, and the TitsCoins of the world have probably seen their tops. Exchanges are now being exposed as having problems with design – fractional reserve issues, mark to market with “paper”, and just lack of accounting at exchanges like FTX. This puts a target on all exchanges. However, over time, I believe those who are honest and forthcoming will survive and thrive.

I believe what is happening, as we see it, is that the “best actors” with the “best business models” are rising to the top. I still think there are death traps, especially with Tether and Tether Gold, that have yet to be popped. However, I believe in the coming years that these spec items with lack of audit/accounting will go down like the Hindenberg, so the froth in these systems are not done correcting themselves yet. When Tether and Tether Gold take a double tap in the head, I believe that is going to be the exit out of the high risk stuff.

How CBDCs could be done right

In IT, there’s a concept called “Federated systems”. In one of my certs, the MCSE, you learn some high level concepts with it. Federated systems allow you to participate in another systems’ transactions, without being an insider.

Imagine you work at ABC tech, and you and all of your competitors buy equipment on a portal to XYZ shipping. You go on to their website, place orders, and they are shipped to you. You do not work at XYZ shipping.

The same concept CAN be done with CBDCs. For example, large banks today can lend money into existence. Assume JPM is one of them. Then can loan you CBDCs. All of this CBDC has customer 10869qstoyr04506 as the customer ID to the “coins” issued by bank 001234. In this system, all of these banks issue these coins and each user has a unique ID. When you do a ledger transaction, an amount of this coin goes from one customer to the next. Period. The government would not know who those users are. However, if Bob and Steve are caught dealing drugs, and an app shows Bob sent Steve coins, warrants could then unmask Bob’s transaction history and reveal everyone he bought drugs from. Those people can be unmasked, with warrants.

The problem is, in this type of scenario, the unmasking can be relatively endless. You would have to narrow it down to only the transaction where the crime was committed. However, with terrorism and the Patriot Act, we all know this can be an endless search. Users will be unmasked by the dozen, then the government could build a database of who these people are. Meaning, if someone bought a taco from your stand who bought drugs last night, your identity and all of your transactions are looked at due to one innocent transaction of someone else.

But how they could be done right is if the banks fought for the customer’s KYC privacy. The problem is, no one feels this will be the case. The ONLY way you could do this is by having a “digital privacy” agency created that is headed by a nominee of the opposition party of the President. Meaning, this entity will fight on behalf of the privacy of everyone, and ensure that the majority cannot oppress the minority. THIS entity would have the power to grant warrants, with judges appointed by the head of this agency.

The dangers of CBDCs

Now, I mentioned how it could be done right – using privacy, KYC, and warrants under the protection of opposing parties. Why? Let’s take two separate scenarios here. One for each major party.

Assume you are a Democrat. A republican won the presidency and swept the congress. You FEAR all kinds of healthcare services will be removed from your “rights”. You fear that somehow they will revert gay marriage. You fear all kinds of your freedoms will be trampled on. In this scenario, a Republican may not be able to ban abortion, but they could enact a policy through the Treasury that any medical entity in the United States that provides abortion services will have their wallets frozen. Any pharm company or pharmacy that sells birth control will have their wallets frozen. IF you protest these measures, your wallets will be frozen. If you become a bad actor on social media and “spread disinformation” they will not allow your wallet to work more than 5 miles from your home location and not permit you to buy tickets to buses, rail, airplane, or taxi/uber services. Compliance is mandated.

Assume you are a Republican, and a Dem sweeps all. They have tried to make guns illegal, and cannot – but they tell the banks through the Treasury that while guns are not illegal, if you sell guns it makes you a “gun runner” and thus your wallets are turned off. Major stores will immediately stop selling guns. Same with ammunition. While guns are protected by the second amendment, bullets are not. They can literally stop the sales of bullets by threatening to turn off your wallets. If you protest, they will turn off your wallets. If you say something disparaging regarding trans rights and Title 9 on soocial media and “spread disinformation” they will not allow your wallet to work more than 5 miles from your home location and not permit you to buy tickets to buses, rail, airplane, or taxi/uber services. Compliance is mandated.

The problem here, as we have seen with the COVID measures, is once you had given them authoritarian rule “temporarily”, no one wanted to give up that power. It really revealed to me, for the first time in my life, the type of controls I heard about in the Soviet Union and China growing up. It was a running joke in the 1980s about “state run television” in these countries that would just be muppets for propaganda. Today, it is really not hard to make that argument here for many of our new agencies. Once money took over news here, if you could not generate revenues, you went extinct. This led our news agencies to be simps for corporations and only report news favorable to them. Likewise, you now have almost complete leftist control of our media here, and there is no discussion or dialogue in this country anymore – if you are a dissenter, they move heaven and earth to dox you, cancel you, and ruin your life. Now imaging giving these people the keys to your banking and wealth. Imagine that day when someone seizes half of your wealth because of the privilege you had.

The problems with CBDCs are just starting, and I have just scratched the surface with hundreds of variations about how this is bad for freedoms.

It’s sort of funny how I’m seeing our country evolve. It seems that when you cannot make the better argument now, you have to club someone over the head and beat them into submission with an alternate reality. This was warned about by Orwell in 1984 with the famous line of 2+2 = 5. We know certain things to be true, yet they are forcing things upon us we all know not to be true, and to speak up means you are cancelled. While many hate Trump, he was not elected because he was a nice guy. He represented those of us who kept repeated “2+2 = 4”. And now they are trying to put him in prison for his attorney paying off a porn star who was trying to shake him down via blackmail. And many are celebrating this as some sort of win.

Gold it is folks. Silver too. Why? Because someday, people may try to force this CBDC on you, and until whatever is left of Libertarianism and traditional liberals fight this system using the Constitution, we are on our own. The fun thing is that while this will be an amazing tax generating instrument for them, it is not realized by many that they can no longer cut taxes and spending. They HAVE to keep increasing spending, and with this, get their beaks more wet on every transaction to keep the system going. This system is going to not succeed, as everyone will find ways around this and vote in opposition who wishes to smite the CBDC. Ultimately, spending will be stopped – but not because someone volunteered it. Gold internationally is about to cut up our credit card. This is where the puck is going and only the few of you who read this far are those skating to where it’s going.

When you invest in Kinesis, Cache, Lode, PaxGold, Glint – and several others, you are storing your financial energy in gold. What you are doing, in a sense, is what a lot of super wealthy people are doing by converting fiat to gold. The difference is – that this time the people can be part of this wealth transfer, where historically over generations, only the super wealthy could do this. When your financial energy is stored in PMs, a 5,000 year store of wealth, it will survive longer than any fiat currency experiment. With the Petro Dollar dying and decaying at an ever more rapid pace, calls by the tyrants to introduce CBDCs will be the next fight. I will vote with the candidate who disagrees with CBDCs, period.

You want my ONE ISSUE in 2024 that I will vote for? No CBDC gets my vote. That doesn’t mean the dollar gets healthier. It just only means that the dollar can co-exist as a daily currency in the existence of an ABDC. You can STORE your wealth in an ABDC, and at POS (point of sale) you can convert it to any fiat currency. This will continue to allow accounting systems in countries to continue to work flawlessly – but also will have you no longer needing your regional bank to hold fiat for you. As these banks fail as more fiat is being drained from them, this will lead to more pulling out to put into larger banks and PMs.

Regional banks had the grenade pin pulled. It’s just a matter of time now. This may leave “super regional” banks as a step below the major 10 or so as the major operators for local business. So expect a lot more turmoil in the banking system as more and more people pull deposits out of their local banks.

Let’s zoom in…

This is about a trillion dollars pulled out of the banking system the last year. To go where? Stocks? Nope

US 10 year? Nope. Higher rates means lots of selling and the values are lower.

What about real estate? Nope

Bitcoin and cryptos? Nope.

Gold? Yup. Skate to where the puck is going.