The Prof G Pod with Scott Galloway - The Bear Case for Crypto — with Molly White

Episode Date: July 14, 2022

Molly White, a software engineer, and a leading cryptocurrency critic, joins Scott to discuss why she’s been an overall skeptic when it comes to Web3. Follow Molly on Twitter, @@molly0xFFF. Scott opens with his thoughts on what’s to come with the Elon Musk and Twitter legal battle.  Algebra of Happiness: mind the gap. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Episode 177. Fleetwood Mac released rumors in 1977 true story sometimes when listening to rumors on Sirius Radio and having the GPS on at the same time the GPS tells me to go my own way

isn't that cute go go go welcome to the 177th episode of the PropGPod. In today's episode, we speak with Molly White, a software engineer and leading cryptocurrency critic. We discuss with Molly the bear case for crypto and the pitfalls of Web3. Okay, before we bust into what's happening, we have some PropG Media news to share. What a thrill. Alert the media. Okay, before we bust into what's happening, we have some PropG Media news to share. What a thrill.

Alert the media. We here at PropG Media are innovating. We're launching a new episode of the PropG Pod and moving some things around. Every Monday, beginning July 18th, we are coming to you with a 20-minute episode focused on the capital markets. You'll get our team's perspective and insights on the top stories and markets

and predictions for the week ahead. We're trying to, one, I'm fascinated by the markets and also like to think that we can give you a no mercy, no malice view of what is actually going on, or at least speculate in the boardroom and behind the scenes, having spent a ton of time on boards, raising money, advising hedge funds, kind of a big deal that's now hosting a podcast. What happened? Anyways, our officeours episodes are moving to Wednesdays. And as a reminder, you can ask questions by visiting officehours.profgmedia.com. Again, that's officehours.profgmedia.com. That is by far my favorite part of all of this is the Office Hours.

I really enjoy hearing people. And I'm also surprised and, I don't know, move sounds a little bit corny, but I am moved by how transparent and authentic people are in their questions. Our No Mercy, No Malice audio edition, where we do a voiceover on our Friday newsletter of the same name that now has a quarter of a million subscribers, started with 70. Go figure. Anyways, our No Mercy, No Malice audio edition read by the inimitable George Han hits the feed every Saturday. I love George Han. It helps that he's an actor and has a dreamy voice. But George Han is my Twitter friend. I generally try and avoid anybody that wants to get together with me, A, because I don't enjoy people, but B, I just assume everyone on the internet is either weird

or not who they say they are. But George Han is my Twitter friend. I started seeing all his hilarious videos during COVID and I actually DM'd him and said, love your stuff. We started a dialogue and now we're offline friends. So that's my one Twitter friend. By the way, this is not an invitation to reach out to me and ask to be friends. And what a thrill. You still get our conversations with Blue Flame Thinkers every Thursday. Okay. What's going on? So megalomaniac Elon Musk has decided to back out of the deal to acquire Twitter. You may have heard. What a shocker. By the way, in bigger news, he also blocked the dog on the social platform, right? So I wanted to figure out what he'd said about bots. So I went to his out what he'd said about bots.

So I went to his account on Twitter and it says, you have been blocked. And here's the thing, I was never following him. I don't really care that much about what he says or does. Who do I follow on Twitter? Stuff that makes, I think it's funny or economists or interesting thought leaders. My Twitter feed, I think most people

would find pretty boring. But anyways, he had proactively blocked me. And let's be honest, that's nothing but trying to get my attention. The sexual tension here is palpable. So I say I kind of like it when he blocks me. What I say is, bitch, block me harder. Anyway, most reporting says that Twitter has the upper hand since the firm has a specific performance clause that requires Elon to close the deal as long as he has the debt financing in place,

which he does. We'd like to think that Twitter will come out on top here, but we aren't dealing with someone who likes to play by the rules. And in addition, Twitter is still an operating business that has employees and shareholders to worry about. So a lengthy legal battle isn't what they want to endure. That's the narrative out there right now, and I think that is total bullshit, and people are getting it wrong. As someone who has been a shareholder of Twitter a couple times, I think every shareholder here is entitled to $54.20.

Why? Because the company has endured a tremendous amount of damage and distraction, whether it's advertisers losing faith in the platform, whether it's management and the board being wildly distracted, whether it's a decrease in morale among employees, many of whom have likely left. This company has been significantly damaged by Elon Musk. Now, why did they incur that bullshit, that brain damage, that sort of abuse? Because he signed an agreement saying that on closing, he would show up and give every shareholder $54.20 per share. Twitter has lived up to their end of the agreement. They have done everything he has asked. And now he owes every shareholder $54.20.

So what do I think is going to happen here? And now he owes every shareholder $54.20. So what do I think is going to happen here? I think the board understands this. And I think the media has it wrong. They keep saying, well, Twitter doesn't want to endure discovery. Twitter doesn't want to endure discovery. This is an individual that last year decided to have a baby with his girlfriend. Good for him.

But at the same time, had a subordinate carrying twins that no one knew about. And they didn't disclose till six months after he'd given birth to the other kid. By the way, do we realize that approximately the same time the company had paid hush money to someone accusing him of sexual misconduct? Let's pick another really popular person. What if Tom Brady in the same month, quarter year had said, oh, I'm having a baby through surrogate with my partner. Oh, by the way, by the way, someone in the franchise who I have power over, who reports into me, is also carrying children and twins. And oh, the Patriots had to pay off somebody for hush money. I don't think it'd be on the Patriots. As a matter of fact, I think it would have been kicked out of the league. Our idolatry of innovators here has to stop.

And where does it stop? In my opinion, in the Chancery Court. What is the Chancery Court? It's a court set up to deal with corporate disputes. It does not have juries. They have a lot of discretion here. It's usually over economic settlements that require a decent amount of nuance here.

And this is simple. For an economy to work, you have to have agreements that people, when they sign and review these agreements, live up to. What happens when nobody feels a need because house and you show up and you sell your own house and the seller says, you know what, the market's gone up. I'm not going to sell you my house. You're shit out of luck. What happens when you sign adoption papers? If we don't have a rule of law here or we have rule of law for everyone else except for billionaires and specifically billionaire and tech innovators, the economy doesn't work. Emerging from Silicon Valley over the last decade has been a culture

that has been very damaging to capitalism. One, the way you make a lot of money is to exploit your users, to radicalize them, to play on their depression, to play on their need for addiction. And two, that management can act like total fucking assholes and have no decorum and believe that the law does not apply to them. This needs to stop. He signed a contract. He's a big boy. He has the money. Twitter shareholders are entitled to $54.20 per share.

Elon, pay the fuck up. We'll be right back for our conversation with Molly White. The Capital Ideas Podcast now features a series hosted by Capital Group CEO, Mike Gitlin. Through the words and experiences of investment professionals, you'll discover what differentiates their investment approach, Thank you. Published by Capital Cleson, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life. So, tune into AI Basics, How and When to Use White, a software engineer and leading cryptocurrency critic. All right, let's buzz right into it. Molly, walk us through the state of play in the crypto space right now as you see it. It seems that things are, it's a volatile market. How would you describe the state of play? Recently, we've definitely seen a decline in the price of most crypto assets

pretty severely. I mean, you know, people are referring to it as a crash. People are saying the bubble has popped. To some extent, that seems to be true. Things are not going so well in the crypto world right now. Well, not to state the obvious, but that seems pretty obvious. Any thoughts on why this is happening? It seems to be a combination of a lot of things. I mean, the traditional financial markets are down. And I think despite what a lot of crypto proponents might have you believe, they are fairly closely, they track each other fairly closely. And so downturns in traditional finance seem to be affecting crypto. I think also there's just been a large number of sort of cascading failures in

the crypto world where there have been, you know, crypto hedge funds and exchanges that have been taking far too much risk that have been causing just, you know, issues throughout the ecosystem, failures of projects like Terra, things like that. Yeah, it does seem, supposedly one of the benefits of crypto or tokens was they were supposed to be a hedge against other assets. And it looks that as the market matures, they're increasingly correlated with other assets. When the market goes down, so does Bitcoin. Tell us more about hedge funds or funds that have invested in crypto. Do you expect to see a lot of these go out of business? I would imagine it's chaos at a lot

of these funds who borrowed money against their holdings such that they can make more investments. It seems like the de-levering here, I don't know, for a quarter of the way done, halfway done, 90% of the way done. Can you speak at all to the investors and what's going on in the crypto fund space? Yeah, I think chaos is probably a good word for it. I mean, there have been a lot of funds like that that have been heavily loaning money from other funds. And then when one fund can't meet their obligations, things begin to really fall apart. And I really feel for the retail investors who were putting money into exchanges that had exposure to these things because they're starting to see the real fallout from that where multiple exchanges have either frozen withdrawals or even announced that they are considering bankruptcy as a result of these highly risky loans that I think a lot of customers didn't realize they were even exposed to.

Where do you think we are in the process? Do you think it gets a lot worse? Do you think that Bitcoin and some of these assets have found a floor? I heard that Three Arrow or whatever it's called, the headquarters in Singapore, they showed up and that the founders have fled. I mean, this just is all starting to sound really, really sketchy. And what are, do you know the biggest kind of sole purpose crypto funds in the United States and how they're doing? I don't even know them by name. Yeah, I don't know off the top of my head, but, you know, it's hard to say where we are in the process. You know, I don't try to predict the price of Bitcoin or what will happen because this always end up being so much weirder than you could ever expect.

But I think, you know, that some of these processes will take time around people trying to see if they can recoup any funds from things like, you know, groups like Three Arrows Capital who are, you know, at this point, who knows what's happening there. They can't find the founders at this stage. And so, you know, I think there's a lot more uncertainty ahead regardless of, you know, what happens with the price of Bitcoin. You've been a big critic of all things Web3, whether it's crypto or NFTs or the blockchain itself. What's the source or the fire, if you will, kind of driving this skepticism? I became really concerned with crypto somewhere towards the end of last year when it was kind of on a bull run and I was seeing some of the hype beginning to become extreme. I mean, people were really pushing crypto to the average person, you know, advertisements from influencers and celebrities, people saying that anyone should be putting money into these cryptocurrencies, whether it's Bitcoin or some sort of altcoin.

And there was very little skepticism being applied, which I think is always a bad thing, regardless of how good or bad the actual topic might be. And that was when I sort of started to become involved. And I started to see in what, in my opinion, there was very little behind this whole thing besides the hype. Are there certain aspects of Web3, whether it's the tokens or NFTs or DAOs that you're less or more skeptical of? I'm generally skeptical of the idea that blockchains are a good technology to power the future of the web or future of society, some people will say. They are good for a small number of use cases, because that's what interests venture capitalists, for example, we start to see people doing really risky things, storing content to the blockchain that really ought not to be stored in such a database, exposing their users to highly

risky financial investments. Those are the types of things that really worry me about this idea that the web as a whole is going to start moving towards, you know, this financialized blockchain model. And you keep a running total of the amount of money lost to Web3 grifts and scams on your site. You call it the grift counter, and it's currently more than $10 billion. Why is this such an incredibly ripe sector for fraud and scams on your site. You called the Griff Counter, and it's currently more than $10 billion. Why is this such an incredibly ripe sector for fraud and scams? Well, there's been pretty poor enforcement of regulations in this space so far. So people have been able to get away with Ponzi schemes and outright financial fraud that is typically shut down fairly quickly in more traditional markets.

There's also some element of anonymity that is just accepted in the space. So people will trust their funds to completely anonymous people. And then if those people run off with them, there's very little that they can do. There's also some aspects of cryptocurrencies that are just particularly well-suited to financial fraud. You know, it's very difficult, for example, to reverse a transaction if you put money into a cryptocurrency and then send it somewhere that you didn't intend to or that, you know, you were tricked into sending it. You can't call up your credit card company and ask them to reverse the transaction. And so, you know, it's been an absolute blessing for financial fraudsters and scammers because it enables them to take money from a lot of sort of unsuspecting people, people who have been sold this dream that if they take these huge risks, they might make big returns.

And have you seen, my understanding is that someone did the analysis and said that all the money that everyone made from the meme movement, they've given all of it back. Do you have any sense for what the losses are like? And are there specific groups that have been hit harder than others? I know it over-indexes on young people, but who's really taking the brunt of these losses here? Inevitably, it's the retail investors who are getting hit the hardest. They might not be losing the largest sums of money because they didn't have that kind of money to invest in the first place. into crypto and then crypto crashes, they're the ones who can't pay their rent or, you know, meet their student loan payments or, you know, pay for their everyday needs. So, you know, it's not the venture capitalists that I worry about or the multimillionaire, you know, hedge fund companies

that I worry about. I really worry about the people who are being sold this dream, you know, in October or November of last year. And you signed a letter to Congress along with 25 other technologists and crypto critics calling on them to treat the Web3 space with more skepticism and move towards regulation. What tangible steps would you like to see Congress take to regulate the space? I think they really need to clarify some of the governing bodies in the space so far. You know, there's been a lot of people have been falling back on the fact that there has been little clarity around whether or not cryptocurrencies are securities or commodities or some other asset class. And they've been sort of, I think, taking advantage of that lack of clarity to, you know, run unregistered security schemes. And I think,

you know, taking steps to address that will be useful. Taking steps to address money laundering and wire fraud, taking steps to handle the risks associated with stable coins. You know, I think there's kind of any number of things that could be done to apply strong regulation to this space. I am more skeptical of whether or not there is a political will to actually do so. We'll be right back. What software do you use at work? The answer to that question is probably more complicated than you want it to be. The average U.S. company deploys more than 100 apps, and ideas about the work we do can be radically changed by the tools we use to do it.

So what is enterprise software anyway? What is productivity software? How will AI affect both? And how are these tools changing the way we use our computers to make stuff, communicate, and plan for the future? In this three-part special series, Thank you. but opportunities. As artificial intelligence powers pivotal moments of change, Alex Partners is the consulting firm chief executives can rely on. Alex Partners is dedicated to making sure your company knows what really matters when it comes to AI. As part of their 2024 tech sector report, Alex Partners spoke with nearly 350 tech executives

from across North America and Europe to dig deeper into how tech companies are responding to these changing headwinds. And in their 2024 Digital Disruption Report, Alex Partners found that 88% of executives report seeing potential for growth from digital disruption, with 37% seeing significant or even extremely high positive impact on revenue growth. You can read both reports and learn how to convert digital disruption into revenue growth at www.alexpartners.com. That's www.alexpartners.com. In the face of disruption, businesses trust Alex Partners to get straight to the point and deliver results when it really matters. And do you see a lot of crypto bulls? We compare this to 2000 where there's a fallout, but then Yahoo, Amazon, eBay will emerge. Do you see any enduring technologies or companies here? If you had to bet on a technology or a token or a platform, is there anything that you think is going to make it out

the other end? I mean, so I don't put any money into this stuff. I personally don't feel that there is anything worth investing in. I think, honestly, the most promising companies that have come out of this are companies like Chainalysis, who are being used to basically address the problems that the widespread adoption of cryptocurrency and blockchains have introduced. So Chainalysis, for example, allows or helps law enforcement to track money laundering that's happening with crypto. If someone steals a whole bunch of money and then they launder it, Chainalysis tries to help law enforcement unline that. And so, you know, they've created a market for themselves largely. So, you know, they're doing pretty well, I would guess. So whenever I try to have a balanced discussion around crypto,

and that is highlight some of the things that sound, you know, that, okay, Solana is not going to replace the dollar, or I don't understand how different wallets can bid up the price on an NFT and that's not fraud. Whenever I attempt to have a reasonable discussion here, there is no reasonable discussion. People either believe it's a scam or that you are a terrible person if you dare question how everything's not going to be run

off the blockchain globally. I can't imagine, or I'm speculating, I would think you would get a tremendous amount of grief, borderline, you know, online harassment. I'm curious if that's the case and B, how you deal with it. It is to some extent. I mean, people really do not like the people who push back against crypto because, you know, I think largely it threatens the bottom line. There's a tendency, I think, among journalists and others in media to sort of present the bulls and then the bears and, you know, say, all right, and now figure it out yourself with very little sort of questioning around some of the claims that are being made,

fact checking, you know, questioning around some of the, you are being made, fact-checking, you know, questioning around some of the, you know, whether or not it's responsible for some of the bulls to be making statements like they are. And so I really worry that the media landscape is actually contributing in large part to some of the harms that we're seeing. So I'll make the bull case for Bitcoin or a sophomore bull case for Bitcoin. And I'm like you, I'm a no-coiner. I'm an investor in a company called Ledger that makes a cold storage hardware wallet because I think people don't want hot storage because of all the scams you referenced. They want to have it on their own, you know, under their control and not connected or susceptible

to hacks. But other than that, I've never owned a coin. I do find the methodology or the protocol behind Bitcoin, I think there is a certain genius to it. That because of the strategy around having to throw multiple numbers at an equation or a problem that gets increasingly complex, that requires supercomputers, massive power consumption. And then every time a new coin is minted, it gets a little bit harder. And I think they've established what I'll call scarcity credibility, which is the key to any fiat currency that people believe at 21 million coins, they're going to stop minting. I think there's more scarcity credibility around Bitcoin right now

than there is around certain fiat currencies. And as a result, it has become a legitimate store of value with a lot of big players, credible players who are treating it as such. Do you not see a role for Bitcoin post this? Do you think it's going to go the same way as all these other shit coins? I think that the value of, you know, a deflationary currency or a limited, you know, scarce currency basically has been overstated by a lot of the crypto bulls. You know, there's sort of that gold standard ideology that's being returned to a lot of these, you know, concepts. But, you know, I don't think that actually really holds up to scrutiny. You know, things actually didn't go so great when the U.S. was on the gold standard. There are major issues that come out of, you know, relying on

these digitally scarce assets. And you still have to trust that, you know, Bitcoin will actually uphold its promises of only having that number of coins in the end, which, you know, I think is probably likely, but who's to say? You know, it doesn't seem like a reasonable store of value to me. And I think that it has not served as one so far. You know, people who have put money into Bitcoin are not enjoying a stable, you know, store of value at this stage. Molly White is a software engineer and cryptocurrency critic. In addition to her longer form critical writing about the topic, she maintains the website Web3isgoinggreat.com, although I think that's very creative, where she catalogs disasters in cryptocurrency, decentralized finance,

NFTs, and other blockchain-based projects. She joins us from—Molly, where are you? I'm in Maine right now. You're in Maine. Good for you. Is that a new thing, or are you from Maine? I'm originally from Maine, and I'm visiting family here. Good for you. Well that a new thing or are you from Maine? I'm originally from Maine and I'm visiting family here. Good for you. Well, enjoy a Maine-like summer.

We appreciate your time, Molly. Thanks for having me. Algebra of happiness. We've spoken about the importance of not having a scorecard. I think that a signal of a weak relationship is when one or both parties keep score. And that is, oh, your parents were in town last weekend and I spent time with them. My parents are coming, which means you have to spend time with them. Or I did this for you, or I took the kids to school, which means you have to pick them up. I think a healthier approach to a relationship

is to decide what kind of friend, what kind of partner, what kind of spouse, what kind of father, what kind of brother you want to be, and just attempt to be that person and not keep score. Also to decide if you want to be generous. The problem with successful people or an externality of being successful, at least it has been for me, is that you start believing that everything like business is a transaction. And if you aren't getting a good deal in that transaction, it's a bad deal.

Well, okay, keep in mind the following. It's natural instinct to inflate your contribution of the relationship and diminish theirs. And you're constantly or often going to feel like things are out of whack and you're getting a worse part of the deal. I'm not suggesting that you subject yourself to abuse. I think at some point, if you're constantly in the minus column in a relationship, you may want to decide, A, let that person know that, and B, if it continues, exit the relationship. But there's something liberating around deciding

that I'm just going to be a generous boyfriend. This is the kind of son I want to be to my father and not keep score. And it also results in much healthier relationships. Now, oftentimes, you're going to find yourself in a situation where someone you work with, a friend, a spouse, is contributing more than you are. That's not necessarily a bad thing. It shouldn't last for a long time. But how do you close that gap? I have a lot of people in my life that could just contribute more

to the relationship than I do. I have people I work with that are more thoughtful about the business and spend more time trying to make my content sing or try and make me successful than the reverse. And I have people in my personal life who, for extended periods of time, are just better to me than I am to them. And I'm not proud to say that, but that's the reality. It doesn't close the delta, but it really helps to acknowledge it. I realize I've been focused on work. I realize I haven't been present with the kids. I realize you've had to pick up a lot of slack here.

I acknowledge it. I understand it. And I really do appreciate it. And I find that goes such a long way. I think most people in your life don't mind picking up the slack every once in a while. But they need to know that you know. And they need to know that you appreciate it. Close the gap.

Mind the gap. Don't keep score. Our producers are Caroline Chagrin and Drew Burrows. Claire Miller is our associate producer. If you like what you heard, please follow, download, and subscribe. Thank you for listening to the PropGPod from the Vox Media Podcast Network. We will catch you next week. I can't see anyone's reaction. I feel very lonely. I feel alone. That was kind of a dad joke. No, not very good. Okay, let me keep looking.

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