SEC Comes For Coinbase, Hindenberg Comes For Block, Congress Comes For TikTok

Eric Newcomer is the founder and author of Newcomer. Louise Matsakis is the tech and China reporter for Semafor. Both join Big Technology podcast to break down the week's news. We cover: 1) The SEC's notice to Coinbase that enforcement action might be coming. 2) Hindenberg Research targeting Block. 3) Character AI raising $150 million at a $1 billion valuation with no revenue. 4) Tiktok's day before congress 5) TikTok's future in the U. S. 6) Cow and Zebra escapes this week. ---- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ Questions? Feedback? Write to: [email protected] Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Kantrowitz?

  This episode is brought to you by Genesis. What does it actually take to put Agentic AI to work across an entire enterprise? I recently spoke with Genesis chairman and CEO Tony Bates about why orchestration is emerging as a competitive advantage in customer experience, and what companies need to get right in the AI era. Then, I sat down with Adam Mitchell, head of enterprise business solutions at Voya Financial, to go inside a large-scale Agentic CX transformation, including the business decisions, trade-offs, and lessons along the way. You can watch both conversations now on my YouTube channel today. It's never been more challenging to get frontier compute. How do you know where to look, who to trust, or how much to pay? Akash is an open cloud that provides easy access,

• 0:45Alex Kantrowitz?

  flexibility, and peace of mind. That's how companies like Razer were able to cut their inference cost by 15 times. Visit akash.network/alex for free consultation. That's akash.network/alex for free consultation.

• 1:11Alex Kantrowitz?

  Welcome to Big Technology Podcast Friday Edition, where we break down the week's news in our typical cool-headed and nuanced manner. We are going to talk about a lot this week. There's been big news going on in the world of Coinbase, Block, so much fintech happening. We have a new unicorn, it's called Character AI, raised $150 million with no revenue, but Andreessen Horowitz leading. Are we back in the good old times? And of course, TikTok's CEO testified before Congress, and it was a mess. Ron John Wright is off today. Joining us today, we have two great guests. We have Eric Newcomer with us. He is the author and founder of Newcomer. Welcome, Eric. Thanks for having me. And Louise Matsakis is here. She's Seven Force Tech and China reporter. Louise, welcome back to the show. Welcome, welcome back, both of you, actually.

• 1:56Speaker 01

  Thanks Alex, we're happy to be here.

• 1:58Alex Kantrowitz?

  Let's start with Coinbase. You have the SEC that sent Coinbase a Wells notice, which seems to indicate that there's going to be enforcement coming through. And there are some opinions out there that hold that this might be the end for Coinbase. I mean, it's extreme, but if you think about the secure Coinbase as an exchange for crypto tokens, the SEC seems to think that crypto tokens are securities. Is Coinbase going to survive this?

• 2:25Speaker 02

  Yeah, the real question right now is just the scope of what this sort of civil action might cover, right? If it's sort of side parts of Coinbase's business, then it can find it out and it's fine. But if it's at the core of just, you know, every crypto is a security, then that will be devastating, right? I think from Coinbase's perspective, they're like, "We went public, we filed, there was a filing, you guys said, you know, the SEC said we could go public. Why the crackdown now?" That would be sort of the argument for this being sort of a more narrow problem. Because if it's like everything, why ever let Coinbase go out?

• 3:06Speaker 02

  On the other hand, I think there have been enforcement actions where, you know, I think, wasn't it somebody at Coinbase was accused of insider trading? So there, and if you're insider trading, that suggests that you're dealing in securities, which means that you could be violating securities, you know? So there are lots, there's lots of signals here, but we don't, we don't know exactly what's going to happen.

• 3:28Alex Kantrowitz?

  What's your hunch?

• 3:29Speaker 02

  If it goes after everything, I mean, it's going to devastate the whole crypto world. So I guess my hunch would be that it's, it's about some other, you know, like side, side product of theirs. And that's what Coinbase said, right? They thought it would be sort of some of the segments, but we'll have to see.

• 3:46Alex Kantrowitz?

  Because what's your take? I mean, some people are saying now the government is coming after crypto and trying to destroy it.

• 3:51Speaker 01

  I don't know about trying to destroy it, but I do think post FTX meltdown, there's been a lot of appetite among regulators, right? We saw like a couple of indictments, including the co-founder of Terra Labs, who just got arrested in Montenegro earlier this week. I can't wait for the movie. I think he was caught with both Costa Rican papers and Belgian papers that were both fake.

• 4:12Alex Kantrowitz?

  Nothing to hide here. Just let me go by with my fake passport.

• 4:17Speaker 02

  What a wonderful place to get arrested. Like, man, that's where I want to get arrested.

• 4:21Alex Kantrowitz?

  Well, hiding out in the Balkans, right?

• 4:23Speaker 01

  I thought it was shocking that he, you know, dare kind of go to Europe because last we heard, authorities were looking for him in Siberia, which seemed like a great place to hide. So I don't know why, maybe he got a little chilly. But I think about some of the things that Coinbase, I don't know if they still do this, but some of the things they used to do that I could see the SEC sort of taking question with. For example, they used to let crypto companies pay to promote within their app. And you would basically like watch a slideshow and then get paid in that cryptocurrency. So, you know, you were distributing the cryptocurrency via like, you know, it was like, you know, a reward for watching a slideshow, basically. And I think that those sorts of things could sort of artificially boost the price of those coins, right?

• 5:07Speaker 01

  Like, so I think that there were just sort of some maybe like crypto normal things that Coinbase was doing that I could sort of see the SEC taking issue with. But I totally agree with Eric that they were kind of the good player and the above board player. And I think that this suggests that doing everything above board is not good enough anymore if you are a crypto firm.

• 5:28Alex Kantrowitz?

  Is that fair?

• 5:30Speaker 01

  I mean, it's sort of hard to say. I think that we saw what happened when this market was really deregulated, right? And I think a lot of sort of innocent people lost a lot of money. And it has a bad reputation now, for better or for worse. But I think people should be allowed to sort of buy and trade the big coins. And, you know, I think it's fine. It's sort of a marginal part of our financial system. But I understand where regulators are coming from with some of this.

• 6:00Speaker 02

  I mean, the government needs to decide at some point officially whether it's okay with crypto or not, right? And it seemed like it was getting comfortable with that. Uh, but then FTX happened, like you mentioned, and then it's like, oh my God, this was supposed to be the one that was cozying up to us and that we sort of liked and was a good Democrat. And then, you know, that all sort of unwound and I imagine that's giving everybody a lot of pause. Um, you know, but if regulators do really give Coinbase ever or the crypto world a full blessing, then you could see, you know, instead of IPOs, people are like, we're back to sort of the ICO type mania. So they've sort of benef- the regulators have benefited from this sort of like middle ground where it seems okay, but it's like a big risk factor for your company,

• 6:45Speaker 02

  which stops, you know, other companies that don't want to take that kind of risk from, you know, embracing sort of the Wild West. So this, this sort of, it's sort of okay world seems like it can't last much longer.

• 6:58Alex Kantrowitz?

  It's been just a rough week for fintech companies overall. I mean, you look at Coinbase, their stock is down 11% this week. Well, that was something that Block would have wished for because Block is now down 17% this week after Hindenburg Research out a report talking about the fact that Block, which is formerly Square, run by Jack Dorsey, Hindenburg says, which is a short seller, says they ignored user concerns even as alleged criminal activity and fraud ran rampant, basically saying, listen, Square is trying to help the unbanked, quote unquote, but actually facilitated crime there and hurt the people they were trying to help. Now, I'm curious how

• 7:40Alex Kantrowitz?

  bad this is potentially going to get for a company like Block and, and how bad is a punch, how bad is it to take a punch from Hindenburg Research? Eric, what do you think about that?

• 7:53Speaker 02

  Yeah, I mean Hindenburg obviously can move, move stocks. I mean, I think Block has been down just overall, you know, some of the hike hype around fintechs have come out already. I mean, it felt like a lot of the critique was against sort of the, the cash app type product and that's, that's like important to the future of Block. But you know, obviously sort of the core business has always been sort of the registers and small businesses paying through Square. So it doesn't cut against sort of the big, big core business. And I think they're always, Cash App is hard because it's sort of a low margin. You know, you're sort of like Venmo-ing people money. It's sort of a hard business. Obviously, if

• 8:38Speaker 02

  it turns out to be the case that there was just an extreme amount of, you know, criminal activity flowing over Cash App and that they made it extremely easy to sort of dodge their, like know your customer type protections, then, then there could be regulatory problems and you know, and that's what a lot of these short sellers are doing, right? They're, they're trying to, to tee up a regulatory problem. And then if they, if they can convince regulators, regulators that there is something, then, then their short basically wins. So it'll really depend on, on the rules around, I think, Cash App stuff.

• 9:13Speaker 01

  Yeah, one thing I was thinking about is like, over the years, there are always these stories about Venmo where it's like, oh, I like Venmoed my friend for like our plane tickets to Cuba and like Venmo blocked the transaction, right? And there, and, and a lot of times I think that Venmo sort of overreached, right? Like there was a bunch of stories. I, I wrote one when the latest, or you know, maybe two, two times ago when violence erupted in Palestine, you know, people were donating to aid groups there and anything that had Palestinian in the note section was getting blocked, right? Which is definitely not right. But I think it showed that Venmo has really strict know your customer regulations and they, you know, take it really seriously. Whereas I can't really remember a story like that about Cash App. And I remember

• 9:56Speaker 01

  looking at the stats and at one point, they had, you know, somewhat comparable, comparable market share in the US. I think that's gone down and then Venmo has sort of eaten their lunch. But sort of you have to wonder like, what were they doing? And it, it doesn't seem implausible to me. And I think that it's not implausible that Jack Dorsey is like, you know, not the most. You know, with it, CEO. Yeah. He's meditating in Myanmar, you know, like he's busy. I just don't know if like know your customer is like on his mind.

• 10:27Speaker 02

  Take some time out of the ice bath, you know, and get to.

• 10:31Alex Kantrowitz?

  Casey Newton this week was like on Mastodon. He's like, what are the chances that both of Jack Dorsey's companies were not run well? Who's to say?

• 10:39Alex Kantrowitz?

  But yeah, it does look like Coinbase Coinbase this week actually emailed me and told me to re-upload my license. And it's like, oh, thinking about those know your customer rules there. They obviously think something is coming. So here I'm going to put like some tinfoil hat on like we'd like to do on the Friday show and and ask a question that I don't know. I'm curious what you both think, but is it a coincidence that we're seeing these crackdowns on fintech apps? When we've we're seeing, you know, obviously the decline of Silicon Valley Bank and all these little regionals start to fail. Like, is the fact that, you know, both that fintech is now getting the screws put to it? And the fact that we're seeing such struggles with the regional banks, is that at all linked?

• 11:19Speaker 02

  I think in the broadest sense, it is not a coincidence. Short sellers obviously are much more likely to make money when markets are struggling and when sectors are struggling. So going after, you know, a block now is like a good time to do it because sort of worried investors are already inclined to to believe you, whereas in a bear market, you might just like, you know, totally get run over by the overall enthusiasm. And I think similarly, you know, regulators, they're cowards sometimes and they don't want to like destroy a good business. So when things are really roaring, they don't want to be blamed for totally derailing a great company.

• 11:58Speaker 02

  But then when things are failing, it's easier to point blame because, you know, investors are mad that Coinbase is losing them money. You know, Bitcoin prices are down. There's just less of a, you know, constituency. And so I think for both short sellers and regulators, when things are going poorly, it's it's a time to move. And so I think to me, that's just sort of the conspiracy of what happens in a in a down market environment.

• 12:25Alex Kantrowitz?

  Do you think that thing spiral then from here? I mean, we're seeing, I thought we were almost done with what was happening at the regional banks, but they're continuing to get hammered this week. Like, does this end up in a place where we just consolidate in the big banks?

• 12:39Speaker 02

  I mean, the banking piece of it, you know, I don't know. It's some, some of it is just reading how much like people keep being afraid and pulling their money, which has been very hard to know, right? I mean, I think in a lot of ways, First Republic, which was sort of, you know, in the crosshairs of fear, should have been fine. But, you know, people's paranoia is like a hard one to predict, which is what's made this, the banking crisis specifically, so tough to game out.

• 13:07Alex Kantrowitz?

  Yeah, and let me ask this one more ques- one last question about this, which is about one of the main characters here, Hindenburg Research. They have taken down a very powerful company in, in India. They're obviously a, a short seller with some heft and people listen to them. But I did find it astonishing that, you know, they were able to move blocks down, blocks stock down as much as they were, right? About a fifth overnight effectively is what they, they helped cancel out. Who are they?

• 13:36Speaker 01

  I don't really know much about their background, to be honest. I was looking at some stats, though, and like six months from when a report comes out from them, like, you know, it seems like they can push down a stock like forty to like seventy percent. So they, they seem to have a lot of, um, weight. And, but I don't know like about their, their credentials. I was looking at some of the companies that they have investigated in the past, and it seems like, um,

• 14:00Speaker 01

  you know, they've gone after sort of shady startups, companies that I, I, I think were good targets in a lot of ways, but I don't know if they've had a big miss before. So I don't know how worried we should be.

• 14:09Alex Kantrowitz?

  Eric, do you know much about them?

• 14:11Speaker 02

  They've been, I mean, fairly recent, I think it's 2017. I'm just looking through the, they were big against Nikola. I think they went after Clover Health, which was Chamal's.

• 14:24Alex Kantrowitz?

  They helped get them. Yeah, go ahead.

• 14:26Speaker 02

  And then you reference Adenai, which is like, I think that one really like has landed with a, I mean, a huge thud would be the wrong word. No, it's like been extremely successful, you know, like going after one of the richest men in India and seeing his fortune really tumble. I mean, yeah, so I think after, coming off of something like that and then going after Square, you know, Like, you know, short sellers live on credibility, right? You need to get these things right enough that the, the sort of case sticks so that people um want to, want to go with you. So

• 15:01Alex Kantrowitz?

  Right.

• 15:02Speaker 02

  Reputation is essential and they're building a strong one.

• 15:04Alex Kantrowitz?

  Does it? I wonder if, this is just me kind of speculating here, but I wonder if Jack Dorsey's legacy, which for a moment there seemed like, okay, he built Twitter, he built Square, two big, powerful companies. Now with the sale of Twitter to Elon Musk and potentially what's coming for, for Block, whether his legacy is at stake?

• 15:26Speaker 02

  I don't think this, I think Block, I don't think Block is undone by this. I mean, I think there could be problems, but Cash App, you know, I, like I said, I don't think that's like the whole business and there's a lot of future to it. Um, the bra, the, the bigger sort of turn against fintech broadly to me is the issue. But yeah, I mean, he had these two great ideas and neither feels like he's executed them to, you know, like he better, better like creator than.

• 15:58Alex Kantrowitz?

  Less of an operator.

• 15:59Speaker 01

  I, I think like he just sort of ends up in this uh group of founders from the early aughts who like didn't really carry on to the next generation, like Ev Williams comes to mind, right? Like, I think who had some good ideas, but like, I don't know, we're sort of like part of that hippie, far out, ice bath situation and, and I just don't know if that is the type of vision that gets you like a super compliant fintech company or like the most efficient social media network, right? Like, I think that that's probably a reasonable criticism.

• 16:32Alex Kantrowitz?

  That's right. Well, the ice bath, I think the ice path probably helped, but the other stuff maybe not. Let's.

• 16:37Speaker 01

  Are you ice bathing, Alex?

• 16:39Alex Kantrowitz?

  So I did listen to Andrew Huberman's Cold Immersion podcast and I started doing it. Now, I'm not in the baths, but I'm doing the cold showers and I like that.

• 16:48Speaker 01

  You like it? Do you feel like it wakes you up?

• 16:50Alex Kantrowitz?

  I think it just invigorates you. I mean, I, I don't, I was doing some cold showers before I listened to the Huberman podcast. I just think that they are just, yeah, it's, swimming in cold water is awesome. It's super refreshing. So, but uh.

• 17:04Speaker 02

  Every day or?

• 17:07Alex Kantrowitz?

  I think I do maybe like not fully cold, but at least, you know, four, four days a week, at least a minute in the cold water for sure. You could do like four minutes, hot water, one minute cold shower, well, one minute cold at the end and you get the benefits. So, okay, let's, let's talk about, uh, let's talk about something.

• 17:26Speaker 02

  I like good experiences, the warm comfort of hot water in the shower. I, I generally chart, chart out my day looking for positive, happy experiences.

• 17:35Alex Kantrowitz?

  I'm, I'm saying you, you might have a much, you might have a much better day if you, if you do the cold shower. I'm just saying, have you tried it before? Have either of you tried it before?

• 17:43Speaker 01

  I have, yeah. I, I agree with you. The one minute is the way to go though. Like not the, not the full.

• 17:49Alex Kantrowitz?

  No, I'm not getting in one of those tanks or did you see they're selling it for like a thousand dollars a barrel? Anyway, Character AI is raising a hundred fifty million dollars at a one billion dollar valuation with no revenue. Eric, you've broken some news on this. I thought we were past the days of companies raising a hundred and fifty million at a billion dollar valuation and not making any money. And the company just doesn't seem very impressive to me. I mean, I've used the product. You can talk to like historical figures, but it doesn't seem to me like it's a billion dollar company. Am I wrong?

• 18:24Speaker 02

  The, uh, in these days, if you worked at OpenAI or Google, uh, your, the company and you, uh, put AI on it, uh, the company can have any value, you know, I, I think this is, I, if I remember correctly, I had Noam Chomsky, uh, I think I'm pronouncing that correctly. I mean, I think he was involved in some of the key papers and work on AI techniques at Google. So, so you know, I mean, Character is an interesting case where it has like this app, you know, where it's like, I mean, what percentage of them are like sex bot type things, but like characters you can interact with Alex. I guess you've, you're, you're spending a lot of time on that app, you know?

• 19:06Alex Kantrowitz?

  Not a tremendous, but you know, I, I like was talking with George Washington about his background. It was interesting.

• 19:13Speaker 02

  Um, but I mean, they're building sort of large language models underpinning it, right? So I think there are these companies that are trying to do the big foundation models. And then there are companies that are trying to do sort of products that are often, you know, wrappers on top of something like ChatGPT. I think people are excited about Character because it's a company that has the capacity to do both. That that's that's sort of the bull case. But I mean, clearly, you know, I mean, anthropics, stabilities out there raising like, you know, if you are a key player in this sort of foundation models in terms of large language models, uh, yeah, you can raise it billion dollar valuations with without very much

• 19:59Speaker 02

  revenue. Um, that's, that's just the world we're in right now. Feels like the good old days.

• 20:04Speaker 01

  I hope they have a good lawyer. Like the, the thing about Character's sort of main product that I don't understand is it just seems like a walking, talking, I guess not walking, but talking copyright violation. And I, and I just don't know how they're going to sort of solve that problem.

• 20:17Speaker 02

  How's that?

• 20:18Speaker 01

  Like probably George Washington is fine, but a lot of the types of characters that,

• 20:24Speaker 02

  The Melvin Vernon Legal Defense Fund or whatever.

• 20:27Speaker 01

  I think people want to talk to like characters from IP'd works, right? Like, you know, like Marvel movies or like the Mickey Mouses of the world, right? And I, I just don't know like sort of how they're going to account for that. Like, I think the tech reporters are going to talk to George Washington, but like the average person, right? And I think, uh, you know, the sex bots thing is easy to joke about, but I actually do believe that that's going to be a big market, especially for.

• 20:53Speaker 02

  Yeah.

• 20:53Speaker 01

  Yeah. And I think the first company that is like, we're not afraid to sort of take this seriously and we're going to be really deliberate about it and we're not going to walk away, uh, is probably going to make a lot of money and stands to be like the next MindGeek, right? Like the next.

• 21:06Speaker 02

  Replica was letting it happen and then backed away. I, I can't.

• 21:10Speaker 01

  Yeah, they backed away from it. I don't know exactly why, if they were worried about, you know, advertisers or sort of some sort of like, you know, content issue. And it's, it's fair, right? Whenever you deal with this kind of stuff, there are, you know, really serious content moderation concerns. But I think if you lean into it, you know, there's a lot of money to be made and I just worry if Character AI is betting on the like. Character side, right? Like when we think of characters, they're copyrighted often. You know, they're someone's IP. So I just, I wonder about that. But I think you make a good point about their capacity to sort of have the underlying model and maybe they can pivot away very easily, especially if they have a lot of capital. They realize like we've been sued by Disney, right?

• 21:48Alex Kantrowitz?

  Yeah. Ellen, you had had a great story about replica this week in Bloomberg, talking about how basically all the people whose hearts were broken. Once their sex bots were disabled by replica. It's very interesting. People can form very intimate connections with these bots. So well, you know, stay tuned because it's gonna be very weird.

• 22:06Speaker 02

  Chat GPT four, I like, you know, I, I had it play like a pen and paper role playing game with me and said, okay, in that game, I create a character, created a little character. I was like, okay, make that character like a persona outside of that game, called itself like cogent. We had the, you know, we had like inside jokes, you know, I was trying to build like sort of a shared history with it. And then, you know, at some point you hit the memory limits where it just can't recall things earlier in the conversation. And so then it would just like bullshit about what our inside joke was. And it was pretty frustrating. I was like, it's right. It's right in the chat. Like we have, we have shared experience now and you can't remember it. And there is a sort of emotional reaction there, even though, even when you really know it's sort of a game you're playing.

• 22:51Alex Kantrowitz?

  It's not very hard to trick people into thinking that the computers are talking to, even though their computers are people. And we're going to just see that more and more. And people will play into it, which is going to be interesting.

• 23:04Alex Kantrowitz?

  All right, we're here on Big Technology Podcast, Friday edition. We're talking about all the news of the week. We've hit a bunch of things already. We've hit the Coinbase news, the block news, character AI, the good times are back in venture capital. On the other side of this break, we're going to talk about TikTok and whether we think TikTok is going to get banned. Louise has been watching this very closely, especially after the hearing in Washington on Thursday. And we're going to break down what happened and talk about what comes next. So stay tuned. We'll be back right after this. This episode is brought to you by Avpoint. Everyone's racing to roll out AI right now. Copilots, chatbots, agents doing real work. But here's the part nobody loves talking about.

• 23:49Alex Kantrowitz?

  All that AI runs on your data. And most teams have no single way to see it, secure it, and prove it's under control. That's exactly what Avpoint does. For 25 years, they've been the trusted layer beneath the world's most demanding data, now extended across your entire AI estate. Your data, your cloud, and the agents acting on your behalf. It's how more than 28,000 organizations deploy AI with confidence. So innovation scales without scaling risk. Avpoint, the unifying trust layer for AI. Head to avpoint.com to see how enterprises deploy AI with confidence. Learn more at avpt.co/bigtechnologypodcast.

• 24:33Alex Kantrowitz?

  That's avpt.co/bigtechnologypodcast. Violent threats against executives are growing at an alarming rate. When a company experiences backlash, executives are the first people blamed. When their address and other personal details are sitting online, this backlash can lead right to their front door. The team at Ironwell knows this better than anyone. They've protected some of the most targeted executives and individuals on the planet for almost two decades. As a wide-glove enterprise security service, they protect your people with continuous personal data removal, proactive prevention tools, and human-led emergency support. So when someone goes looking for your executives, Ironwell ensures they hit a dead end. So here's what to do. Go to ironwell.com/bigtechnology,

• 25:18Alex Kantrowitz?

  fill in the quick form, and request your free risk assessment. Their team will show you just how exposed your executives are and how to lock it down before a threat reaches their front door. That's ironwell.com/bigtechnology. Learn how to stop online threats before they become real-world attacks. The link's in the show notes.

• 25:39Alex Kantrowitz?

  And we're back here on Big Technology Podcast with two great reporters. Eric Newcomer is the author and founder of Newcomer. Eric, you have a conference coming up. I know it's sold out, but I guess you can plug that.

• 25:51Speaker 02

  Oh, you're gonna let me shout out? Yeah, Cerebral Valley AI Summit. I am actually in Volli's offices, my friend's company that's co-hosting it with me right in the heart of Hayes Valley. Yes, do not reach out to me about tickets. They are sold out, but I am very excited. We're, we're gonna have the CEO of Stability AI. We're gonna have one of the co-founders of Anthropic, the CEO of Runway. I'm sure, yeah, Sequoia Benchmark, Co2 are all moderating panels. So it's gonna be a lot of fun.

• 26:22Alex Kantrowitz?

  Sweet. Yeah, you're inspiring me. I think we're gonna have to do a big technology event. So stay tuned. I'm gonna hit you up for some tips here. Louise Matsakis is here. She is Semaphore's tech and China reporter. Louise, do you have anything that you want to shout out? I think you have a, Ben Smith was on a couple of weeks ago talking a little bit about your newsletter, but I feel like it's worth telling people again about where to find it.

• 26:43Speaker 01

  Yeah, please go to Semaphore.com and on the right side, you can sign up for the technology newsletter that I write twice a week with my colleague, Reid Albergotti, who is a great reporter. And I think it's a really nice sort of balance of like international stories of like really what's happening in the heart of Silicon Valley. So please sign up.

• 27:02Alex Kantrowitz?

  Okay, I'm a fan of it. Good stuff. So let's talk about what's in your newsletter today, which is the aftermath of the testimony of the TikTok CEO, Xiaochu. And I thought that he just didn't, the core responsibility for him was to go to Congress and make clear that TikTok is independent and not.

• 27:31Alex Kantrowitz?

  Subservient completely to ByteDance, had at least some degree of independence. But almost at every point, it seemed like he was deferring to ByteDance. And he wouldn't make any proclamations, really like you would expect a CEO would make. So just for example, he didn't say definitively that TikTok wouldn't promote messages supporting Chinese hostilities towards Taiwan. He couldn't say that. He couldn't commit that TikTok wouldn't sell data. And he couldn't even answer who clearly who prepped him. He kept saying, I prepared with my team as when they kept asking him questions of, did you prepare with anybody else? I prepared with my team. Well, what are you leaving out there, Mr. Mr. Chu? So Louise, what was your perspective here?

• 28:13Alex Kantrowitz?

  Does this, did, let's just like look first at the link between TikTok and ByteDance. Am I right in thinking one of the main takeaways from this hearing was that we now see that TikTok and ByteDance are even more interlinked than they profess to be?

• 28:27Speaker 01

  Yeah, so I've been covering this company since 2018 and I've talked to many employees sort of across the spectrum from like, you know, low level staffers hired in Los Angeles to, you know, like middle level executives and high level executives. The fact of the matter is that it is a subsidiary of ByteDance and ByteDance is a Chinese company. And ByteDance is headquartered in Shanghai. That is just sort of like point blank period. And I think for a while, the debate was about US data and whether the app was being influenced by the Chinese government in some way. Right? So what TikTok did in response was come up with this very elaborate plan where, you know, every time there was a code update,

• 29:05Speaker 01

  those code updates were going to be reviewed by Oracle and outside, you know, auditors who are then going to hand that code to the App Store. All the data was going to be stored in the US or is going to be stored in the US. And they were going to have this separate, you know, subsidiary of like vetted US nationals or US citizens who are going to work there. And they were the only ones who were going to handle that data. Right? That was supposed to be sort of the problem, but I think the problem now is. Any sort of Chinese control or any sort of Chinese employees working on anything that has to do with the US and the way that ByteDance and TikTok are set up, that is what's happening right now, right? Like, I've talked to ByteDance employees who come here and work with teams in Los Angeles, where I live, and that's perfectly normal.

• 29:49Speaker 01

  And I don't think anything nefarious is necessarily going on there. But that is certainly the reality of the situation, and that is a reality that Shou Chu is deeply aware of. And I think you saw him sort of struggling to explain that because in most cases, that's how companies function, right? Like, of course, Meta might have an Indian subsidiary, but there are teams coming in from California, right? And they're working with those teams in India. And that's how it works. And that's completely accurate, I would say.

• 30:19Alex Kantrowitz?

  So why, so is there a problem here? I mean, that's sort of the thing is like, okay, so Congress brings him in front of this committee where in the US, there's a review of whether it can continue to operate here after the sale of Musically. There are no document, I don't think there are no documented problems of them, the Chinese government, for instance, accessing data. There are no documented problems of the Chinese government influencing pop culture in the US, which is another concern. What's the problem here?

• 30:49Speaker 01

  I think the problem is just that we are in a situation where it is politically untenable for one of the most popular media platforms in the country to be controlled by a Chinese company. It's unfortunate that that's the case. And I think that people like me and a lot of, you know, like, sort of idealists about the US-China relationship, maybe like five, seven years ago, would have said, you know, the principle of an open internet is that we allow companies from anywhere in the world that are following US laws to operate the same way that American companies do. And I would love to live in that world, but I think we are now in a situation with Where Xi Jinping's behavior, the behavior of the CCP and the current political situation

• 31:32Speaker 01

  in the US, I just think make that a nonstarter. And I don't think any of the solutions are ideal. And I think that no matter what we do, which either I think the two options now are force a sale or ban the app. I think both of those are really bad precedents for the US. I think banning is a worse precedent, probably. But I just don't see a situation in which the status quo continues indefinitely. And I think, just going back to what I said earlier, it's that point about like, I just think for lawmakers now, it's like, we don't want Chinese employees working on this app, period, even if there's nothing nefarious happening. I think that's what we heard. And that's not maybe what they will say out loud, but that's what it is, really.

• 32:13Alex Kantrowitz?

  And the concern is that they are subject to this Chinese law that will basically subject any Chinese company to work hand in hand with the Chinese Intelligence Department if they need to.

• 32:27Speaker 01

  I think that's sort of like the cartoon version, right? Is that like, is that like, you know, the state's security is going to like burst into ByteDance's office one day and say, give us the hard drives? I don't think that that's how this would go down. But, you know, the sort of parallel story that's happened over the last few years in China is that there has been a widespread crackdown on the private tech sector, right? Like, we saw Jack Ma effectively disappear. Zhang Yiming, who is the founder of ByteDance, stepped away and seems to be, you know, God knows where, and has sort of, you know, really taken a much more low profile and it's sort of, you know, is limiting his public appearances. So I think that's the concern. It's like, that's the environment that you're

• 33:08Speaker 01

  in, right? Like, we live in a country where Elon Musk can, you know, talk smack about Elizabeth Warren all day on Twitter, and nothing's going to happen to him. And that's just not the situation that these executives are in. And again, it is a risk. It's a theoretical risk. It's not something that we have evidence of. But, you know, and I've sort of changed my tune on this, to be really honest with you. I sort of felt that this was a really bad idea a few years ago. And then I've sort of watched the Chinese government take increasingly disturbing steps that sort of tell me that something has to be done here. I think it's just untenable.

• 33:45Alex Kantrowitz?

  Eric, what's your perspective? Are there any risks if we end up actually going through with the ban or something like that?

• 33:51Speaker 02

  I, I think I hold the sort of mainstream Silicon Valley perspective, which is the Chinese Communist Party controls China and businesses in China and has been escalating their control of businesses. It's absurd that Facebook and Google can't compete in China, but we let TikTok influence the minds of Americans. Like, I absolutely do not, as a TikTok addict myself, I do not think we should allow like the Chinese government to have a control over, over a key app reaching children and adults in the United States, especially if we're not allowed, if we're not allowed to do,

• 34:32Speaker 02

  do the same to them, you know, like, why are we, why are we competing like with an arm tied behind our back here? So just as like a free market competition, like if our businesses can't compete fairly, their, their businesses shouldn't be able to compete here in the same sectors. And then in terms of influence, if we can't influence them, they shouldn't be able to influence us. And then in particular, TikTok is such a black box, like the amount that you could influence TikTok without it being obvious to anyone is terrifying, right? At least with Twitter, it's like, oh, trending, you know, you can sort of see it, it's like which accounts are being, but with TikTok, it's such a black box that it feels like the psychological control there is much, much more potent.

• 35:15Speaker 02

  So I absolutely think if TikTok's going to continue to reach Americans, it needs to be under non-Chinese control very soon.

• 35:25Speaker 01

  I, I think it's worth saying though, I, I agree, and I think that it, it's just sort of this really big problem that doesn't have an easy answer. And it's just become increasingly clear that, you know, some sort of step is necessary and that a step like, you know, brokering a deal with CFIUS, which is the, uh, this, you know, body in the Commerce Department that is supposed to sort of like, you know, deal with these sorts of incidents when there's a potential security risk with a company operating in the US. You know, that's the way that this would have happened like 10 years ago, right? But I think that that's now, you know, an untenable solution. But what I will say, like watching the hearing yesterday, it just made it so clear to me that there was something.

• 36:06Speaker 01

  It's just become so muddled. Like, basically, I would say half or more of the questions from lawmakers were about child safety, were about, you know, the sort of ills of social media. And I think that that's what makes the conversation about TikTok really difficult to have, because you're often not having, you know, Chinese security experts or people who really know China's tech ecosystem inside and out, having these conversations. You have people who are like, "My kid is sad because he spends five hours a day on TikTok."

• 36:32Speaker 02

  Right. Well, if I were dictator of the world and passing laws, you know, I would say the United States should pass laws regulating social media, forget antitrust, and just say, "You can't, like, after a certain number of hours, try to keep engaging people. You should be trying to push them off the app if they spend too much time, you know. Children can't see XYZ." Like, have a lot of principles that have nothing to do with US-China relations that should regulate both Facebook and TikTok to solve some of those problems. And then totally independent of that, we have the China issue, which is just, we have sort of a free competition problem and sort of national security problem with China, and we need to take it out of their hands. I think those are two totally separate issues, but like you're saying, these members of Congress

• 37:17Speaker 02

  have no idea how to regulate social media, barely understand it, and instead are just like leaning on antitrust to solve a problem that it doesn't solve what they want. So, I don't know. That's my view on that.

• 37:28Alex Kantrowitz?

  Louise, you wrote something very interesting in your newsletter, talking about how lawmakers were asking why there's still dangerous and harmful content on TikTok, where ByteDance's app in China, Douyin, is sanitized and safe for children. And that Douyin is actually more PG-friendly because of China's censorship, and that's not what we want here in the United States. And it was interesting, because Chu was like, getting ready to, he felt, it seemed like he felt ready to just burst out and say, "Don't you understand, like, the freedom that you have in this country? That's what causes some of the problems." But of course, he couldn't say that, because of who really owns the app. So, do you want to expand on that a little bit?

• 38:06Speaker 01

  Yeah. So, I think, so one thing that's worth noting is that the Chinese government has had a lot of the same concerns about child safety, about kids being addicted, about kids, like, you know, going inside and spending all their time on these short video apps instead of, you know, going and hanging out with their friends. And they have sort of cracked down on them and passed some of the sorts of regulations that Eric is talking about. So, that's another reason that the situation is different, and that totally just seems to fly over their heads, right? They're like, Oh, you know, ByteDance is nicer to the Chinese consumers than they are to us and they're poisoning kids' brains. And it's like, no, they want to make as much money as possible, but they are, you know, necessarily following the regulations in China so they can stay,

• 38:48Speaker 01

  you know, operational in their most important market. So I think that goes over people's heads. And also, I think it's worth saying that, sure, it's definitely more sanitized than the US version of the app because we have free speech, but there also is crazy shit on Douyin in China that, you know, China's vast censorship army is not able to crack down on quick enough. I think that's just sort of the nature of social media. But it's interesting to me that lawmakers have really, I don't know where they got it from, but they've really sort of latched on to this idea that in China, TikTok is this perfect app where there's only educational videos and kids love it and they just look at it for an hour a day. And in the US, you know, all the children are being poisoned. And I think that that is just such an unhelpful comparison.

• 39:31Alex Kantrowitz?

  That's a capitalism problem.

• 39:33Speaker 01

  Yeah. But it, but it's sort of, I think, brings home this, this sort of like really insidious part of the TikTok debate, which is that a lot of the things people are proposing are things that either China has done and we've condemned, or that China is trying to do. And it's just sort of scary when we're talking about banning apps, or we're talking about ensuring that social media is sanitized, right? It's, it's like, isn't the whole point that we don't want to be like this government that is so brutal and crackdown on speech?

• 40:00Alex Kantrowitz?

  One thing that I thought was so interesting was there was a number of Republicans in the hearing yesterday hitting TikTok for its poor content moderation policies. And it was just like, I thought that, okay, never mind. So the censorship debate was not exactly what we thought. What, what happens? Well, actually, I'm gonna, I want to ask what happens from here, but Louise, you did say something a bit earlier that has stuck with me and I wanted to just ask about it. You said you saw even more concerning things that made you change your tune. What were those concerning things?

• 40:28Speaker 01

  I think-

• 40:29Alex Kantrowitz?

  From the Chinese Communist Party?

• 40:31Speaker 01

  Yeah, I think watching the tech crackdown, you know, since kind of 2020, because I think that there sort of was this sense that, you know, since Deng Xiaoping, you know, took power, that China was sort of on this opening track where it was going to be capitalism with, you know, Chinese characteristics. And of course, it was never going to be a free and open society, but that- You know, one of the reasons I started covering China's tech ecosystem is because I was just so amazed by the incredible innovation. And I think it was really sort of sad to see, you know, Jack Ma have to go into hiding, to see these companies really get smashed, right?

• 41:13Speaker 01

  And to get their businesses, you know, incredibly impeded. You know, Didi, the ride hailing app, you know, just disappeared from app stores, you know, for almost three years, you know? And I think that watching, also, I think, just watching, and it really, it hit home for me in the fall when China had sort of their congress that happens every few years. And I just realized Xi Jinping is probably going to be in power for the rest of my career, you know, until I'm getting ready to retire. And that is the situation, and we have another Mao on our hands, and that's not going to change. And I think for me, just sort of realizing, like, okay, he's taken away the term limits,

• 41:55Speaker 01

  he's taken a third term, he's probably going to want a fourth term, he's consolidating his power. That is a different situation than we had, you know, five, seven, 10 years ago with China. And that is what I watched and saw, and it sort of changed my mind on this issue.

• 42:11Alex Kantrowitz?

  So let's just go quickly. What do you both think will happen next? What's most likely?

• 42:15Speaker 02

  You guys are more the expert on this. I mean, I do think, you know, the US moves in some fashion to say TikTok can't operate under its current control. I mean, it seems like there's such a clear, rare bipartisan consensus on this. So I don't know the exact mechanism. I would suspect they just say, you know, it's banned until you solve this problem, and then, and then see what happens. I don't know.

• 42:48Speaker 01

  I think the banning won't hold up, and I think that the Biden administration is worried about trying to issue a ban because Trump tried that, right? And it didn't work. It was struck down by two federal courts. I think one of the most likely things to happen is we'll see one of the various bills in Congress and the Senate get passed. One of the most promising right now is called the Restrict Act, and it's coming out of the Senate. And what the Restrict Act would do is sort of give the White House more levers that they can pull to sort of restrict companies from, you know, countries of concern, which is basically like Venezuela, China, Russia. It's really just aimed at China. That seems to be one of the most promising pieces of legislation that has sort of been carefully

• 43:33Speaker 01

  designed. But what is really scary about the Restrict Act is that the way it's written, it would basically prevent any Chinese tech company from trying to operate in the US. And that would put us on just a really new footing here in the US.

• 43:49Alex Kantrowitz?

  Yeah. And I'm also curious, as this debate plays out, like whether the journalists with big followings on TikTok will sort of come to TikTok's defense and be very loudly like in opposition to anyone trying to cover this, you know, with some objectivity.

• 44:02Speaker 02

  It is amazing how pro TikTok my TikTok feed obviously is. I guess it shouldn't be amazing, but definitely there are tons of creators who are just worried about being able to reach their following. And TikTok is far superior to Reels or YouTube or whatever in terms of what it delivers and surfaces. So definitely, you know, I think we want to see the technology maintained, but just under, under US control. Or China, China can let Facebook go compete in, in China, and then maybe we can think about it differently. You know, it isn't just, China could easily just open up. To Google and Facebook like it's easy to make this some sort of only American problem, but I feel like

• 44:47Alex Kantrowitz?

  It's gonna be really tough.

• 44:48Speaker 02

  Why doesn't China do that?

• 44:49Alex Kantrowitz?

  Yeah, it'd be tough for Mark Zuckerberg if that happens because he goes from almost letting Xi name his child to going on this big anti-Chin public relations campaign and now, you know, Facebook, Facebook's operating again. If Facebook operates in China, that would be very-

• 45:03Speaker 02

  It would be good for America to have Facebook in China.

• 45:05Alex Kantrowitz?

  I agree.

• 45:06Speaker 02

  It's not gonna happen. I mean, it's a total, but I'm just making the point that like, we're putting ourselves on the defensive here where it's like, well, China could easily make this a harder message for us if they opened up to American companies to reach their citizens.

• 45:21Alex Kantrowitz?

  Yep. Okay, we always like to end with a fun story here on the Friday show. So let's talk about two heroic escaped animals that left their pastures. So in Brooklyn this week, not far from where I am, there was a Canarsie cow, Black Angus calf, that escaped the Saba Live poultry house in Canarsie, Brooklyn, and ran through the streets and tried to, they tried to corral him and they, I don't know if they could get, get the cow under wraps for a while. And then in Korea, there was a zebra that escaped, a three-year-old zebra escaped the Seoul Children's Grand Park and went through the streets of Korea. Some,

• 46:03Alex Kantrowitz?

  someone said, it must be global warming. Now it's warm enough for zebras to run around Korea. Let me put my tinfoil hat in. Is there any coincidence here with all these animals escaping, Eric?

• 46:14Speaker 02

  Uh, you know, we're about to enter this world of artificial general intelligence and you know, that nature is trying to warn us about escapes and just to keep us on high alert about the potential for escapes. And so, yeah, I absolutely believe that the earth is warning us of a great, great threat coming with these animals on the loose.

• 46:35Alex Kantrowitz?

  Yeah, Louise, what's your reaction to this?

• 46:37Speaker 01

  Um, I really wish I saw videos of the zebra on TikTok and I'm sad that I didn't.

• 46:43Alex Kantrowitz?

  Yeah, it was pretty amazing. I mean, the zebra's just prancing through Korea. It's amazing.

• 46:47Speaker 01

  That's incredible. I would do, I would spend a lot of money to be in Seoul when that happened.

• 46:51Alex Kantrowitz?

  Uh, good news is that the escaped cow was on its way to the slaughterhouse. Wait, cow is a woman. So she, sorry, excuse me, I misgendered the cow. But she's on, now in a, um- In a nature reserve or some reserve in in upstate New York or New Jersey and is not going to be slaughtered. So I do feel I feel like that that yeah, that should be our lesson is that if if livestock is good enough to get away, then it just deserves a pass. Can't kill it.

• 47:19Speaker 01

  No, the takeaway is if you are brave enough to reach for freedom, you will get it.

• 47:26Alex Kantrowitz?

  A perfect bow on our episode. Thanks, Louise. Thank you, Eric. Great to have you both.

• 47:30Speaker 01

  Thanks for having us.

• 47:31Alex Kantrowitz?

  Thanks to everybody who's been listening. Thanks to everybody here on the feed. We will be back again Wednesday. I have an interview with Palmer Lucky, the founder of Oculus and the CEO of Anduril, which is an AI weapons company. At least that's the public perception. We're going to unpack all of that this coming Wednesday. So make sure to tune in for that. And then following this next Friday, Ron John still be off. Aaron Griffith from the New York Times is going to come in to break down the news. Thank you again to Eric Newcomer, author of Newcomer. You can get his newsletter on Substack and you can't get to his conference, but maybe the next one you'll be able to because it's sold out. Louise Matsakis of Semaphore. You can get her tech newsletter on semaphore.com. And and if this is your

• 48:16Alex Kantrowitz?

  first time here, please hit subscribe. If you've been here for a while, five star rating goes a long way. It helps us get great guests as they see that people are paying attention and enjoying the show. That'll do it for us here on Big Technology Podcast and we will see you next time.

• 48:43Speaker 03

  Now, more than ever, we need someone on our side. But Rob Whitman? Whitman's votes drove up costs, cut Medicaid and risked 350,000 Virginians healthcare to pay for tax breaks for himself and his donors. He's not on our side. Shannon Taylor will fight corruption, cut taxes and bring down costs. This November, vote for Shannon Taylor. She's for us. Paid for by HMP, the House Majority PAC dot com. Not authorized by any candidate or candidate's committee.

• 49:12Speaker 04

  In this life, you can't win.

• 49:14Speaker 05

  When the world gets you down.

• 49:15Speaker 04

  No!

• 49:16Speaker 05

  Escape to Pluto TV.

• 49:17Speaker 04

  This is objectively fantastic.

• 49:19Speaker 05

  Relax into the movies and shows you already know and love, all for free.

• 49:23Speaker 04

  Shwing!

• 49:24Speaker 05

  Even our news is uplifting.

• 49:25Alex Kantrowitz?

  You stay classy, San Diego.

• 49:27Speaker 05

  Watch School of Rock, Crazy Ex Girlfriend, Anchorman: The Legend of Ron Burgundy, The Ex Files, Wayne's World, and so much more.

• 49:33Speaker 04

  We're not worthy!

• 49:34Speaker 05

  The best things on TV really are free.

• 49:37Speaker 04

  You just have to know where to look.

• 49:38Speaker 05

  Escape to Pluto TV. Stream now, pay never.