From climate tech to gig work, midterm races up and down the ticket stand to impact the tech industry.
Ballot measures will determine the future of everything from EV funding to how gig work works.
Photo: Scott Eisen/Getty Images
Kwasi Gyamfi Asiedu
Kwasi (kway-see) is a fellow at Protocol with an interest in tech policy and climate. Previously, he covered global religion news at the Associated Press in New York. Before that, he was a freelance journalist based out of Accra, Ghana, covering social justice, health, and environment stories. His reporting has been published in The New York Times, Quartz, CNN, The Guardian, and Public Radio International. He can be reached at firstname.lastname@example.org.
October 21, 2022
As the midterms draw closer, some of the tech industry's most urgent issues and opportunities are also on the ballot. At the national level, anti-Big Tech crusaders — who just happen to be backed by Big Tech money — have made cracking down on the likes of Meta and Google key planks of their campaigns.
Meanwhile, in states across the country, ballot measures will determine the future of everything from EV funding to how gig work works, with some policies kicking in as soon as next January if they receive approval from voters.
While all eyes will be on Washington, here are some issues that smart tech leaders should be watching.
California, Proposition 30
What it does: Proposition 30 will impose a new tax on the state's ultra-wealthy to finance climate initiatives. If approved by voters, it will impose an additional 1.75% tax on Californians whose annual incomes are more than $2 million. The tax will be in place beginning next January and will come to an end in 2043; it could end sooner if the state is able to cut its emissions to 80% of 1990 levels.
Why it matters to tech: The tax is expected to generate up to $5 billion annually , with the majority of the funds going toward California’s ambitious electric vehicle plans. About 45% of the tax dollars will be spent on rebates for people, businesses, and local governments that buy electric vehicles, and 35% will be spent on expanding the EV charging network in the state. California is the leader in terms of EV adoption in the United States.
Tech executives could be among the prime targets of the tax: 44% of billionaires in California made their money from tech.
Who’s backing it: The measure is supported by the California Democratic Party, environmentalists, and, because some of the money will fund wildfire prevention, the state’s firefighter association. But its biggest backer is Lyft, which has bankrolled the yes vote, contributing $45 million out of the $47 million made to the supporting committee, according to state filings. Last month, Lyft CEO Logan Green said the tax was needed “to help turn back the clock on this existential threat,” referring to the climate crisis.
But Lyft’s support is one reason why Gov. Gavin Newsom has broken from his party in opposing Prop. 30. In a TV ad opposing the ballot measure, Newsom described Prop 30. as a “Trojan horse” initiative. “Prop. 30 has been advertised as a climate initiative. But in reality, it was devised by a single corporation to funnel state income taxes to benefit their company,” he said.
Illinois, Amendment 1
What it does: In Illinois, voters will decide on a measure that would amend the state’s constitution to include an explicit provision that employees have the right to organize and collectively bargain over wages, hours, and working conditions.
Why it matters to tech: It comes at a time when workers in companies including Amazon and Apple have started unionizing to advocate for wage increases and other improved working conditions. In April, Staten Island warehouse workers became Amazon's first unionized employees, sparking a union drive across the country . Earlier this month, workers at an Amazon warehouse in a Chicago suburb staged a walkout on Prime Day , when the ecommerce giant is especially busy.
Amendment 1 in Illinois will guarantee workers the right to organize, even as Big Tech has resorted to well-known union-busting strategies . That may be particularly important in Chicago, a city where the tech industry employs nearly a fifth of the city’s overall workforce.
Who’s backing it: The amendment is backed by many workers’ rights organizations, unions in Illinois, and the state’s Democratic Gov. J.B. Pritzker. “Worker safety and economic security is a fundamental right of all workers, from domestic workers to Ph.D.s,” Tim Drea, chapter president of the Illinois AFL-CIO, told a local news station. “Everybody deserves a safe workplace and economic security.”
However, local business groups warn it could make the state uncompetitive compared to its neighbors. “There’s so much going on that says we’re not business-friendly,” Todd Maisch, president of the Illinois Chamber of Commerce, told local station WGEM . “It sends a signal that we are not serious about becoming a pro-business state.”
New York, Proposal 1
What it does: Proposal 1 is a ballot measure that will allow the state to borrow $4.2 billion to fund climate initiatives. A $3 billion bond was initially proposed by Gov. Andrew Cuomo, but it was increased under Gov. Kathy Hochul .
Why it matters to tech: If approved by voters, it could be a major opportunity for the climate tech sector. Some $1.5 billion will be used for climate change mitigation, and $1.1 billion will go to flood risk reduction. The rest will be used for land conservation and water-quality projects. The proposal will fund the upgrade of cooling centers, projects aimed at making public universities and other state-owned buildings energy efficient, and zero-emission school buses.
According to the legislation that produced the measure , “disadvantaged communities shall receive no less than thirty-five percent of the benefit of the funds.”
Who’s backing it: The “yes” campaign has received endorsements from a wide range of local climate and conservation groups including the New York Botanical Garden and Central Park Conservancy.
Washington state, Advisory 40
What it does: Voters will partake in a nonbinding advisory vote on a bill that has already been passed by the state legislature. That bill, HB 2076 , set a per-trip pay floor for Uber and Lyft drivers, gave drivers paid sick leave, and prohibited surge pricing during the first seven days of an emergency declared by the governor or the president.
Why it matters to tech: Technically, HB 2076 has already passed. But because the bill levies a premium on rides in Washington, state law also requires that voters get a chance to have their say. Their vote won’t definitively determine the fate of the legislation, but will act as guidance to the legislature as to whether it should repeal or uphold the law. The outcome of the advisory vote could also be an important measure of public support, which other states may find interesting.
The legislation stands to have a big impact on the ride-hailing industry in Washington. While it stops short of classifying the drivers as full employees and will restrict local governments from formulating their own policies, the expanded rights represent a big win for advocates of ride-hail drivers.
Aside from paid sick leave, the bill sets out processes for how platforms can deactivate drivers. It also will divert 15 cents per trip to a nonprofit that will fight for the rights of drivers in disputes with the platforms. Those fees will begin in July 2024.
Who’s backing it: When the state House was debating the bill, it received support from both Uber and Lyft . Local Democrats hailed it as the “best in the nation” package for app drivers. But it was opposed by the National Employment Law Project, which said the bill did not do enough to protect the rights of drivers.
Montana, Constitutional Amendment 48
What it does: C-48 will amend Montana’s constitution to explicitly require law enforcement agencies to secure a search warrant before accessing people’s electronic data. The amendment would update the state’s constitution, which already contains protections for physical items such as paper documents and homes.
Why it matters to tech: The bill’s proponents say it will bring Montana’s statutes into the 21st century, as everyday life revolves around electronic communication. “A majority of everything we do now is electronic — our finances, our medical information, our conversations — and this amendment makes it explicit that our electronic data and communications are protected from unreasonable search and seizures from the government,” Republican state Sen. Ken Bogner, who sponsored the amendment, told NBC Montana.
Who’s backing it: The amendment has support from conservative groups like Americans for Prosperity Montana. There are no active campaigns to oppose the ballot measure, but the Senate bill that produced the measure was voted against by some Montana House Democrats. The Montana Association of Chiefs of Police also opposed it, but is not campaigning to stop it. “When it comes to handcuffing us to the point we can’t do our job and we can’t hold people accountable for their actions against people, then I have an issue with it,” Wade Nash, head of the police association, said .
Without any opposition, Montana is set to join Missouri and Michigan, which added electronic data protections to their own constitutions in 2014 and 2020, respectively .
The Arizona Senate race
Why it matters to tech: With an equal split in the Senate, Republicans are hoping to wrestle back control with the help of two tech entrepreneurs. In Arizona, Blake Masters is challenging incumbent Democrat Mark Kelly. Masters has made criticism of tech companies, especially social media platforms, a central part of his campaign right from its inception.
“The internet, which was supposed to give us an awesome future, is instead being used to shut us up,” he said in his first campaign video . “America’s future will be determined by how Congress chooses to regulate Big Tech in the coming decade,” he later wrote in a Wall Street Journal op-ed . “We must resist the domination of a corporate technocracy and chart a new course.”
Kelly has, meanwhile, his own tech bona fides, including his successful negotiation of the Chips Act, which was passed by Congress. Early signs show that the bill’s passage has led to billions in chip-related investment across the country.
Who’s backing it: Masters has received significant backing from his billionaire ally, PayPal co-founder Peter Thiel . Despite Thiel’s deep pockets, Kelly has raised eight times more money for his campaign than Masters and is projected to win.
The Ohio Senate race
Why it matters to tech: Just like Masters, J.D. Vance has been vocal about his criticism of social media content-moderation policies, despite his tech ties. “I know the technology industry well. I’ve worked in it and invested in it, and I’m sick of politicians who talk big about Big Tech but do nothing about it,” he wrote on his campaign website . The solution is simple: “We need to break up the big tech companies, to reduce their power in our economy and our politics.”
A Vance campaign press account was suspended by Twitter in September 2021, drawing ire from the candidate. “This is what happens when we allow five companies to control what we’re allowed to say,” he tweeted. Twitter later said the suspension, based on suspected impersonation, was an error . Vance is running against incumbent Tim Ryan and is projected to be ahead. Ryan, has in turn, branded Vance as a “Silicon Valley elitist,” referring to his opponent’s ties to Big Tech .
Who’s backing it: Vance has also received significant support from Thiel. Since Vance now looks poised to win, Thiel is reportedly redirecting his efforts to support Masters in Arizona, where he is trailing. If both or even one of Thiel’s candidates is successful in helping the GOP flip the Senate, they could add to the growing list of Big Tech’s Republican adversaries in Washington.
The Texas governor race
Why it matters to tech: The race between Beto O’Rourke and Gov. Greg Abbott is especially important because of new laws passed in Texas with Abbott’s blessing, including a wide-ranging social media content-moderation law . The law prohibits social media platforms from discriminating on the basis of viewpoint, a law that platforms argue curtails their First Amendment rights and is currently being debated in the courts.
That’s not to say O’Rourke will go easy on tech giants. During his bid for the presidency in 2019, O’Rourke said , “I think the best way to approach the fact that people have become the products on these platforms — that our privacy has been violated, that we’re confronted with 37-page user agreements — is to regulate them more seriously, and perhaps to treat them a little bit more like a utility.”
Despite his anti-Big Tech position, Abbott has also courted companies including Meta to come to Texas, which is quickly becoming a major tech hub.
Who’s backing it: Because of Abbott’s policies, it is perhaps no surprise that O’Rourke has received significant contributions from Big Tech . While the post-pandemic work environment has lured many Silicon Valley workers to move to Texas, that has not translated to support for Abbott. “It’s not surprising they do not support Gov. Abbott,” Heidi Welsh, the founding executive director of Sustainable Investments Institute told Bloomberg in March, “because they’re moving to Texas for the job, not the politics.”
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David Silverberg is a Toronto-based freelance journalist, editor and writing coach. He writes for The Washington Post, BBC News, Business Insider, The Toronto Star, New Scientist, Fodor's, and several alumni magazines. He also writes for brands such as 23andme, Shopify and Bold Commerce. He has served as editor of B2B News Network, Canada's only B2B news magazine, and Digital Journal, a leading pioneer in citizen journalism. Find more about him at www.davidsilverberg.ca
October 2, 2022
Today, companies across the world are facing unprecedented uncertainty. Consequences of the global pandemic, ongoing trade concerns and political conflicts have disrupted business operations, which has, in turn, exacerbated existing workforce issues, created supply shortages, and made demand forecasting and customer engagements more complex. How are businesses expected to thrive in this world order? According to a new report, the answer lies in the power of automation to stabilize workforces, drive economic growth, and build business resilience. Introducing the Automation Economy.
The Automation Economy—the focus this week at Imagine , and in response to Automation Anywhere’s third edition of the Automation Now & Next report —will accelerate how businesses scale automation and sustain performance. Of the 1,000 global organizations surveyed in the report, more than a third indicated automation will lead them out of global crises.
“Today’s business leaders must look beyond their current business processes and imagine how automation can enable them, and others, to make bolder moves and reimagine work,” says Mihir Shukla, CEO and co-founder of Automation Anywhere. “The reality is we just don’t have enough knowledge workers to do the work, and there’s much more work to be done. It doesn’t matter what you produce, but more importantly, how you are going to get the work completed and deliver the product to your customers?”
A fireside chat with Automation Anywhere
Ryan Deffenbaugh is a reporter at Protocol focused on fintech. Before joining Protocol, he reported on New York's technology industry for Crain's New York Business. He is based in New York and can be reached at email@example.com.
October 20, 2022
A federal appeals court struck a major blow against the Consumer Financial Protection Bureau with a finding that its funding mechanism is unconstitutional.
The decision is likely to be challenged, setting up a major fight for the future of the top U.S. consumer-finance watchdog. That battle could introduce significant uncertainty for the many fintech businesses that fall under the agency’s purview.
A three-judge panel of the New Orleans-based 5th Circuit Court of Appeals found Wednesday that the CFPB’s funding structure violated the Constitution’s separation of powers doctrine.
As set up under the 2010 Dodd-Frank Act, the CFPB is funded by the Federal Reserve rather than congressional appropriations. That way, in the Obama administration’s view , the agency could avoid political influence and be funded similarly to other banking regulators. But Republicans have chafed at what they view as anti-business practices and a lack of oversight .
The structure has been the target of legal challenges before . In this decision, the court ruled in favor of a lawsuit from two trade groups seeking to overturn the CFPB’s 2017 payday lending rule . Because the CFPB’s funding is unconstitutional, the decision said, the rule itself is invalid.
Other courts have found the CFPB’s funding to be constitutional , a point the Wednesday ruling acknowledged. But the panel of Trump-appointed judges said the CFPB’s setup is different from other self-funded agencies.
"Congress did not merely cede direct control over the Bureau’s budget by insulating it from annual or other time-limited appropriations," the panel wrote. "It also ceded indirect control by providing that the Bureau’s self-determined funding be drawn from a source that is itself outside the appropriations process — a double insulation from Congress’s purse strings that is 'unprecedented' across the government."
Democratic Sen. Elizabeth Warren, who oversaw the CFPB's creation , responded to the ruling on Twitter, writing that "extreme right-wing judges are throwing into question every rule the CFPB enforces to protect consumers and businesses alike."
Republican Sen. Cynthia Lummis, meanwhile, said the CFPB "needs the same Congressional oversight as every other government agency."
The CFPB is expected to challenge the ruling, though it has yet to confirm that. It could request what’s known as an en banc review from all judges on the 5th Circuit or push the issue to the Supreme Court.
A CFPB spokesperson said “there is nothing novel or unusual about Congress’ decision to fund the CFPB outside of annual spending bills” and that the agency "will continue to carry out its vital work enforcing the laws of the nation and protecting American consumers.”
To that point, the CFPB issued new guidance to credit-reporting agencies Thursday about omitting what it called "junk data" from credit reports.
The CFPB has faced several challenges to its existence over its 11 years in business. In 2020, the Supreme Court ruled that restrictions on when its leader can be removed were unconstitutional, but rejected a plea to strike down the agency as a whole .
An analysis from the law firm Ballard Spahr noted that the 5th Circuit’s decision applies only to federal district courts in Texas, Louisiana, and Mississippi. But “because it is an appellate court ruling, it might be given weight by district courts outside of the Fifth Circuit considering challenges to CFPB enforcement actions.”
That means the impact could spread far beyond the agency’s payday lending rule.
"The holding will call into question many other regulations that protect consumers with respect to credit cards, bank accounts, mortgage loans, debt collection, credit reports, and identity theft," tweeted Chris Peterson, a former enforcement attorney at the CFPB who is now a law professor at the University of Utah.
The most significant fear from progressive lawmakers and consumer groups is that the CFPB could see its resources chopped if left to the whims of Congress.
"Making the CFPB the only banking regulator subject to Congressional appropriations would put the most pro-consumer federal agency at risk of being starved of the funding it needs to protect consumers,” said Mike Litt , the consumer campaign director for the U.S. Public Interest Research Group.
The new court decision comes as the CFPB, under Biden-appointed director Rohit Chopra , has taken a more aggressive stance toward the financial industry than his Trump administration predecessors. That includes a growing focus on fintech products such as algorithmic lending and “ buy now, pay later ” arrangements. Chopra has also promised scrutiny over the way large technology companies are expanding into financial services.
But the agency is also taking up initiatives with fintech industry support, including finally setting up open-banking rules to guide data-sharing between financial institutions and tech companies.
What the ruling means for the fintech industry remains to be seen. Should it hold up long term, a lack of resources could hamper the CFPB’s pledge to supervise a broader group of fintech businesses.
“Supervisory programs are really resource-intensive,” said Patrick Haggerty, a director at advisory firm Klaros Group. “If the agency is relying on appropriations, you might decide to keep the team more lean and mean and targeted for specific issues.”
While regulators and companies can occasionally come into conflict, the agencies also serve an important role in providing rules of the road and certainty for business models. If the decision casts further uncertainty around CFPB’s existing regulation, that’s probably bad for business.
“If you don’t know what the rules are, it is hard to innovate,” said Melissa Baal Guidorizzi, a partner with the law firm Orrick and former senior CFPB enforcement attorney. “Legal uncertainty can cause considerable friction, particularly for innovators.”
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Crypto winter had just started when software engineer Molly White launched her blog, Web3 is going just great. She’s now one of the most influential blockchain skeptics.
Molly White spoke with Protocol about her blog and her thoughts as a crypto skeptic.
Photo: Molly White
Benjamin Pimentel ( @benpimentel ) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at firstname.lastname@example.org or via Google Voice at (925) 307-9342.
October 20, 2022
Crypto was wrapping up a go-go year when Molly White launched her blog, Web3 is going just great.
Things weren’t exactly going great for crypto in December 2021. There were signs then that an impressive upsurge had come to an end and was on the precipice of a stunning crash: a crypto winter.
White created the blog precisely to turn the spotlight on the even more serious havoc that she feared crypto was going to wreak — not just on the startups and investors rushing into the field, but also people betting their life savings on tokens they’d barely researched after hearing about them online.
“It felt like suddenly people were marketing crypto to the average person,” she told Protocol. “People were getting sucked into these schemes that they really did not know much about or understand properly.”
Web3 is going just great rapidly attracted an audience, and now gets 60,000 to 100,000 visitors a month, White said. Its Twitter account already has 114,000 followers . She only started the account in January.
White, 29, was a teenager when bitcoin launched in 2009. She is part of a generation of software engineers who entered the tech industry in the past decade when the crypto revolution was underway. Many of her peers ended up joining the crypto wave. White went the other way, emerging as one of crypto’s leading critics.
In an interview with Protocol, White, an affiliate of the Berkman Klein Center for Internet and Society at Harvard University, talked about her journey as a young technologist and why she became a crypto contrarian.
This conversation was edited for clarity and brevity.
Your blog is called “Web3 is going just great.” You clearly have a specific view of Web3 and crypto. Do you think it’s all a scam, as some critics have argued?
I wouldn't say it's all a scam. I feel that implies that every person running one of these projects is intentionally trying to take advantage of people, which I don't think is true. I do think the technology as a whole and a lot of the promise of it has been really overblown. But I wouldn't say that it’s all a scam, per se.
You told the Financial Stability Oversight Council that you are “cautiously optimistic about some digital asset use cases, specifically the introduction of non-crypto-based digital cash.” Can you elaborate a little bit on that?
There have been some ideas of introducing other forms of digital cash which don't actually require a blockchain to implement. We use what some could argue is digital currency already today when we transfer money electronically.
I think it would be really valuable for there to be more of a cash equivalent to something like that where you actually get the same privacy and surveillance expectations of cash with a digital currency. It’s not being traced as closely as digital transactions are. You're allowed to make small transactions very privately.
I think that would be really beneficial for society to have something like that. But I think as soon as you start looking at crypto and blockchains, you end up with a more speculative asset that has a lot of inherent flaws and tends to not work so well as currency. I remain hopeful that there might be some sort of digital cash in our future but I don't necessarily expect that it will look like a cryptocurrency.
You were studying computer science in college when bitcoin and the crypto realm were getting started. How were you introduced to crypto and what was your reaction?
I was actually a little younger than that when bitcoin first emerged. I was aware of it pretty early. I have been involved with the Wikimedia communities for a long time, which has a really strong overlap with free software communities and people who are really interested in freedom from surveillance and online privacy. I ran into it in those circles first. I thought it was interesting as a concept, but not something I necessarily had a use for.
Back then, I mostly knew of bitcoin as a way to buy drugs online, which is kind of what it was for at first. Or at least that was the biggest use case for it. And I was not doing that. It was like, “OK, I guess people can go do that,” but it's not really something I was interested in.
The other use case was the people who thought that it was going to become much more valuable in the future. So they were putting money into it for speculative purposes. Well, I was in either late high school or college, and I didn't have a ton of money just kicking around that I was trying to speculate with. It was something that I knew about but wasn't particularly interested in.
I thought some of the aspects of it around censorship-resistant financial transactions was really interesting and the potential for it to be used to fund people who are not necessarily in the good graces of an authoritarian state, I thought there was promise in that. But as time went on, I watched what it became, which was largely quite different from the original principles of it.
Was there an incident or a development or maybe a conversation you had that made you become concerned about the rise of crypto?
I grew increasingly concerned as the years went on. I was vaguely aware of what was happening in the 2017-ish era when ICOs were really big and a lot of people were using those to skirt regulations on securities offerings.
I really started to become concerned in the summer of 2021. It felt like suddenly people were marketing crypto to the average person. Anyone watching a sports game on TV or riding public transit in some places were getting bombarded with this idea that crypto was a good idea for someone to potentially make money off of, as though it was an investment or something that everyone should be trying out.
Then we started to see the narrative that crypto was going to be the future of the web with Web3. Every new project online was going to be using blockchains in some way. That's when I really started to get concerned and to pay attention. I was really worried that people were getting sucked into these schemes that they really did not know much about or understand properly. There was this magical, “Well, it's computers, so it will work” feeling around it, which is obviously never true on its own. And I was also really concerned about the idea that this is how the web should be going forward.
I've always been someone who cares a lot about the web. I think it is quite amazing. I really like to see projects on the web that are benefiting humanity and moving in a good direction. The idea that everything should start incorporating blockchain, I was like, “Should it?” So I started doing some more research around that.
You’re part of the generation of software engineers who joined the tech industry in the early 2010s, many of whom became excited about and even became part of the crypto industry. But you went the other way.
It's interesting because I actually don't feel like software engineers in general have been overwhelmingly positive about it. A lot of the software engineers I know actually were very skeptical of it, especially when we started seeing things like NFTs and some of these schemes that were more plainly get-rich-quick schemes.
I remain hopeful that there might be some sort of digital cash in our future but I don't necessarily expect that it will look like a cryptocurrency.
I think a lot of people actually took a look at the technology behind it [and said]: “Why is this the future of the web? I don't understand how this is such an improvement.” I've actually spoken to quite a lot of software engineers in my generation and other generations who were actually very skeptical of it.
But there are definitely software engineers and other people who are very positive about it as well. Some people are actually very open about the fact that they don't see much promise in the technology, but they realize they can make a lot of money. That's been a fairly common thing I've run into.
So it’s like saying, “We’ll stick with this because there’s VC money flowing into this, and when it’s clearly not working we’ll get out?”
Yeah, that's sort of the idea. Sometimes it's not necessarily people who are starting companies. It’s like, “I'm going to go work for a crypto company because the salaries are incredible,” even though they don't necessarily believe in the product that they're working on. It's just a great paycheck.
Tell me about the idea to start the blog. How did you come up with the name?
I launched it in mid-December . I was seeing two really different stories. I was seeing in both mainstream media and in tech media this narrative that crypto is making all these people rich. You can get such good returns if you start putting money into crypto. Look at all these people who have brought themselves out of poverty because they started a crypto project or they started selling NFTs.
Then on the other hand, I was seeing this stream of news stories that was like, “Oh, another project got hacked” or “Oh no, someone lost all their NFTs because someone got their wallet address or their wallet keys.”
It felt like I was seeing a lot of the first story in mainstream media. But the second one was going unreported.
So I started, on my own, keeping a list of examples of how often this was happening, scams were being run, hacks were happening. It began to become clear to me that it might be useful to illustrate this in one place instead of people just having to see a tweet or a news story or a one-off post or whatever.
That was the idea behind the project. As for the name, I just have a sarcastic, dry sense of humor. It felt like every time I was like, “How's this whole Web3 going?” I would just find myself thinking, “Wow, it seems like it's going just great.”
What have been the most troubling reactions?
Sometimes people get really mad at me personally for writing these things, especially if they have some stake in a project or they are personally involved with a project in some way. They see what I am doing as basically drawing attention to the negatives of their project, and that threatens their bottom line.
Sometimes people get pretty aggressive with me. In general, there's people in the crypto community who are just hostile to any negative reaction or negative coverage of the space because they see it as threatening to crypto as a whole.
You told the FSOC that concerns about crypto regulations stifling innovation are “overblown” and that “the most impressive innovation we have seen with crypto has been in separating average people from their money.” That's a pretty sweeping statement. What reactions have you gotten when you raise that argument?
People will just deny it. They'll say, “Oh, crypto has been so revolutionary. It's changed people's lives.” And you press on that question and people tend to say, “Well, it's made some people very wealthy,” which is true. But you could say the same thing about a Ponzi scheme or pyramid scheme.
It makes some people really wealthy and isn't necessarily a revolutionary idea. Most people are really excited about what they think crypto might be able to do in the future rather than what it is doing today. And I think that's a problem. I don't think it's reasonable to regulate or legislate around what something might possibly do in the future, especially when there isn't that much evidence that we can really get from where we are today with crypto to this utopian future where crypto is perfect and there aren't all of these issues with it that are actually very fundamental to the technology.
It's almost as if someone said, “You shouldn't ban fossil fuels because when we figure out how to burn coal without creating any emissions, you're gonna be stifling the electricity industry.” You have to look at these things and say, “Well, is that actually possible? Should we be making decisions based on what might possibly happen at some point?”
Crypto has also been compared to the dot-com era when people were also skeptical about a new technology called the web, which eventually grew and thrived. Some argue the same could happen with crypto.
There's two things there. The first thing is I think people actually overstate to some extent how skeptical people were of the early web. I think people had some questions around: Can the internet ever support something like streaming video? Or how it might actually be able to evolve. But I think people got the idea why the internet might be useful, why email might be useful, why these websites are useful in ways that I think don't quite correlate to crypto.
I also think that it's a bold statement to compare something like crypto or Web3 to the internet. The internet was a revolutionary technology, and by all real accounts, enormously successful. It’s become enormously popular. Pretty much everyone uses it to some extent.
I feel that you need to make the argument for why your technology is like the internet versus something more akin to, say, 3D TV. People were really excited about it at one point, but it never really took off the way that some people imagined. You can say that any technology is like the internet and you should just stop being skeptical of it, and everyone should get on board and you don't want to be laughed at in the future for saying it has no promise. But you have to make the argument that the technology is actually more akin to the internet than some other examples of technologies that people had been excited about but have not actually lived up to their promises.
Crypto proponents also argue that blockchain could address the problem related to the concentration and abuse of data, which has become a serious issue, especially with social media and other platforms. How do you respond to those arguments?
It's one of those things where people will make these bold statements like that. And other people will see that and be like, “Wow, that sounds great.” And suddenly it becomes a part of the narrative that blockchains are more secure, your data belongs to you, these companies aren't going to be monetizing your data in the way that they are today.
But if you actually push back on those claims a little bit and say, “Wait a second, how is it any different if Facebook has your data stored on a blockchain? Or how is it actually better that all of this data is stored on a public ledger rather than a private database?”
The claims start to fall apart a little bit. I think we really just in general need to stop taking claims like that at face value, and try to understand how your project is actually going to try to be more secure than, name your big tech company …
Yeah, exactly. How is that actually going to happen? We’ve looked at examples of crypto projects that have been running today and we've seen projects that absolutely are not more secure. And they are not more decentralized.
A lot of crypto is actually very centralized in very similar ways as today's web. In fact, there are actually a lot of the same venture capitalists trying to get a stranglehold on Web3, the same people who have had a stranglehold on the current web. It really is important to question those base claims because they don't really stand up to scrutiny.
What do you think of the current push to regulate crypto?
It is important that regulators get involved to some extent, because to date, they've been very slow to act, and I think the industry has really developed into this world of scams and grifts thanks to the lack of action from regulators. I'm glad to see that some regulators are beginning to pay a little more attention to it. But I'm also very worried about the regulatory capture that's been happening and the amount of lobbying that has been coming from crypto groups.
I don't think it's reasonable to regulate or legislate around what something might possibly do in the future.
I've spoken to a fair number of legislators and regulators who are saying that basically they're having a really hard time separating the truth from the marketing because they're basically talking to mostly pro-crypto lobbyists. There aren't that many people out there who can give a more neutral stance on it because no one's paying lobbyists to lobby against crypto. That doesn't really exist, right? There isn't that much of a financial incentive to do that.
I really worry about how well-informed legislators and regulators are. There are certainly some who are quite knowledgeable about the industry, [SEC chair] Gary Gensler being one of them. But I think in general the level of understanding is actually quite low. I think the legislators are prone to accepting those statements that I referenced before that have become repeated as though they are inherently true. I'm worried that regulators are going to begin accepting those as truth and believe this whole idea that you can't stifle innovation and you can't put regulations in place or else all of this wonderful innovation won't be able to happen.
I think that's pretty absurd. There are a lot of regulated industries out there that innovate constantly. I don't think having a complete free-for-all where people are able to run total scams is actually going to be good either for the crypto industry or for the general public. So it really worries me when I start hearing policymakers actually repeating those claims as well.
There was an uproar from the industry over a tax-reporting provision in the infrastructure bill that could impact developers and node operators, and regulators who argue that many crypto tokens are securities because there is a group of people in the middle who determine the way they develop. How do you react to these?
I think it's complicated. I think that there are a lot of cryptocurrencies out there that are very clearly securities and that are very tightly controlled by the developing team or the group that has created it. I think a lot of those projects are hoping that they can claim to be decentralized or not controlled by a small entity in order to skirt securities regulations. I hope that the SEC actually starts taking a little more action against those groups because there are some where it is very clear that it is a security.
But I think it's a complicated question. There are definitely arguments to be made that some of the cryptocurrencies that are popular today, like bitcoin and ether, are commodities or something more like a commodity than a security.
I don't have a super strong opinion on that just because that is not my background. I'm not a securities lawyer by any stretch.
But I think a lot of it really does come down to the fact that the crypto industry would really like to be regulated by someone like the CFTC, which has a lot less resources and has generally been a lot more light-handed on the crypto industry than the SEC. I think a lot of the arguments have basically been made solely in pursuit of that goal.
What are your thoughts on the debate over Tornado Cash?
Boy, what a mess that was. I think it's pretty clear that Tornado Cash was really enabling quite a lot of crime, including state-backed hacking groups out of North Korea and various other entities. That's pretty hard to deny.
But the way that the government has gone about cracking down on that particular issue is a little bit concerning to me, partly in the sense that the individuals who have interacted with Tornado Cash since the sanctions were placed are now facing a pretty labor-intensive process of having to report their sanctions transaction with a sanction entity, potentially in perpetuity, like, forever.
In some cases, it is people who are sent money from Tornado Cash not necessarily out of their own choice. You know, people were “dusted” with funds from Tornado Cash to prove a point.
I do think it does prove the point that the way that this enforcement is being handled is very broad-strokes and threatens to catch a lot of really innocent people in the net.
I also think that for people who want to use cryptocurrency and who want to maintain some semblance of privacy on the chain, they don't have a ton of options aside from using something like Tornado Cash, because in order to have any privacy in cryptocurrency you basically have to learn how to launder your own money. And Tornado Cash is a way of doing that. It's forcing some people to choose between privacy and not risking interacting with a sanctioned entity.
Then there's the question of the Tornado Cash developer who was arrested in the Netherlands. I think there's a lot of questions there. It's not clear exactly what he did, if it was that he just wrote the code or if it was because he was running a relay or what. I think the whole thing has been a bit of a disaster.
You mentioned in your blog letters sent by consumers to the judge handling the Voyager and Celsius bankruptcy cases. I wonder if there are specific letters or stories that really stand out for you and had an impact on you personally?
Those letters were really helpful in exposing the fact that not all of the people who are losing money in crypto are the stereotypical crypto investor. I think a lot of people picture a young male investor who has extra money kicking around and wants to gamble it on cryptocurrency. And if they lose it, it's really not the end of the world. Maybe they shouldn't have made that decision, but they're still going to be able to pay their rent.
I think the Voyager and Celsius letters really show that it can be a very different type of person. A lot of those letters came from people who are elderly, or who had families relying on them. There were single moms, single dads. There were pensioners. It was a mix of people. They were not necessarily people who were making what they thought was a risky investment. A lot of them thought they were putting their money someplace that was similarly reliable or trustworthy as a bank.
That's what really struck me about those letters. In some of these projects that were really marketing themselves as a safe option, there were a lot of really average people losing a ton of money and getting swept up into these schemes that they don't fully understand.
One person was begging the judge to just release some of the money that he had in a Celsius account because he couldn't afford to pay his mom's medical bills . That one really stuck out to me. One woman attached an ultrasound photo of her baby and said, “I really need this money because I can't pay for the things that my baby is going to need when it's born in a couple of months.” Those really stuck out to me because that's not the 22-year-old crypto bro who's just wildly speculating. Those are real people with money they really couldn't afford to lose on this kind of a bankruptcy.
You clearly have a following and are known as one of the prominent critics of the crypto industry. What’s your plan, and how do you see your role going forward?
I'm hoping to keep doing what I'm doing. I feel like the site has been pretty successful in tempering some people's expectations. The goal of the site is not really to change the minds of the bitcoin maximalists and crypto evangelists who are pretty sold on crypto, but to encourage average people who are seeing the advertisements and seeing the stories about people becoming millionaires overnight to just take a second look at it and consider that maybe they're not seeing the whole picture.
I’m just trying to make as much impact as I can as far as where this industry might go, how unregulated it might be allowed to continue to be. My goal is to just try to make a difference in what I see as a concerning direction of both the web and technology in general.
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Connecting crypto wallets is scary. Plaid wants to change that.
Plaid is trying to bring more safety and security to the chaotic world of crypto wallets, drawing on its expertise connecting fintech apps to banks.
Plaid’s Wallet Onboard has integrated with more than 300 wallets, including MetaMask, Coinbase Wallet, Trust Wallet, and Ledger.
Tomio Geron ( @tomiogeron ) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. He was also as a staff writer at Forbes covering social media and venture capital, and edited the Midas List of top tech investors. He can be reached at email@example.com or firstname.lastname@example.org.
October 20, 2022
More and more fintech app users have gotten used to seeing Plaid’s logo pop up when they try to connect their bank accounts. Now Plaid is trying to play a similar role for crypto applications. The company is releasing a product for crypto developers Thursday that makes it easier for them to connect consumers’ crypto wallets to their apps.
Security is an ongoing challenge for crypto, and crypto wallets in particular are a vector of attack. A number of hacking and social engineering attacks have occurred that find various ways to connect to the wallets of unsuspecting users and drain their tokens. Plaid’s new product is a way to address those fears, but it also feeds into an ongoing debate over just how decentralized crypto can be while addressing consumers’ needs for secure, easy-to-use apps.
When consumers who want to use an NFT marketplace, blockchain game, or DeFi app click on a button to “connect wallet,” they will see a screen from Plaid pop up offering to connect their wallet of choice. Today coders have to custom-build wallet integrations for their own apps, which adds to the cost of development and introduces potential security risks.
Plaid’s Wallet Onboard has integrated with more than 300 wallets, including MetaMask, Coinbase Wallet, Trust Wallet, and Ledger, so consumers can choose almost any wallet they might want to use.
This makes it easier for developers since they will only have to integrate one time instead with multiple wallets. In addition, consumers using many different kinds of wallets, which can range from mobile apps and browser plugins to hardware wallets, will all see one way to connect.
Plaid is trying to address the security concerns around wallets by having any developer who wants to use its product go through its existing traditional compliance and risk checks, says Alain Meier, head of identity and fraud.
Plaid isn’t getting involved in any transactions between the apps and wallets it connects, and can’t see those transactions, Meier said.
Most wallets also ask for confirmation before proceeding, a step meant to prevent tricks designed to drain people’s wallets or keep people from connecting with a deceptive app. Plaid also plans to add more educational information for consumers about what they’re connecting to. Right now, by design in crypto, there is really no trusted intermediary to inform consumers about who they’re transacting with.
“Are you using a smart contract that’s been audited? Is the source code uploaded? We want to build all those things … to also make it even safer and more trustworthy for consumers,” said Clay Allsopp, crypto product lead at Plaid.
There is also the risk of giving too much information that consumers don’t want. “We could give them a lot of information but the question is, do consumers know how to interpret that information?” Allsopp said. “And then we could, on the other end of the spectrum, [add] a red screen that says, ‘Hey, this just looks suspicious.’ But I think what we're still trying to figure out is, what should our role be in that? What kinds of recommendations do we want to make?”
That’s one of the striking things about Plaid’s crypto offering. It’s bringing a centralized third-party authority to crypto in an area where that’s lacking. For many who are new to crypto or want the familiar feeling of the safety of a traditional finance application, they may welcome and trust Plaid’s involvement.
That’s one of the things Plaid is counting on: its brand recognition, since it already helps crypto exchanges such as Binance.US and Gemini with things like bank connections or sharing crypto data.
Crypto is touted by enthusiasts for its ability to be trustless and conduct transactions without intermediaries. Some may see this as more encroachment of traditional finance in crypto. But others could see this as an inevitable maturing of the industry.
That’s what’s different about Plaid’s expansion into crypto wallets. The company is not simply connecting consumers’ accounts at established banks with new fintech apps to transfer data. Instead Plaid is connecting relatively new technologies, which may have numerous risks involved.
Plaid is looking to move further into crypto, especially with its identity verification products for traditional finance. These include a new behavioral analytics tool that can predict whether you are entering your own social security number or a fraudulent one based on the way you put it into a form. Another autofill tool can use a person’s phone number and date of birth to verify identity.
The company is also working on a way of verifying identity without sending data to an app, a feature that may appeal to more privacy-conscious crypto users. For example, if a product is age-restricted to 18- or 21-year-olds, Plaid could just pass on that verification without sharing a user’s birth date.
Since Plaid sits at the middle of a range of this data, this type of identity tool is a logical next step. As it gets further into crypto, though, it may find a challenge persuading the more hardcore blockchain developers and savvy customers that trusted is better than trustless.
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