Tag: Pivot to AI

Crypto is going: Coinbase sues FDIC and SEC under FOIA, Epoch Times crypto money laundering, Consumers’ Research vs Tether, FTX/Salame, Terra settles with SEC

  • By Amy Castor and David Gerard

A ‘use case’ is a fix for a problem you wish people had — Stephen Farrugia

Amy and David have a new project: Pivot to AI. The elevator pitch is “Web 3 Is Going Great, but it’s AI.” (“oh good, maybe now people will stop asking me to do it lol” — Molly White.) Sign up to subscribe via email on the site!

Coinbase gets out the conspiracy board

Coinbase strikes a blow against “Operation Chokepoint 2.0.” They will crack this conspiracy by … suing the Federal Deposit Insurance Corporation under the Freedom of Information Act. [Complaint, PDF, archive]

The FDIC sent letters to various banks asking them to stop dealing in crypto. History Associates, representing Coinbase, filed FOIA requests for the letters. The FDIC rejected the requests. History Associates is now appealing the rejection.

The FDIC rejected History Associates’ FOIA claim based on Exemption 4 — trade secrets and confidential commercial information — and Exemption 8 — “contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions.”

Exemption 8 is very broad but has consistently been upheld. Courts have ruled that Congress wrote a broad exemption because they meant it as a broad exemption. [Justice Department]

The complaint contains some facts and a lot of conspiracy theorizing and table pounding: “The Pause Letters are part of a deliberate and concerted effort by the FDIC and other financial regulators to pressure financial institutions into cutting off digital-asset firms from the banking system.”

Given that all four US bank failures in 2023 were crypto-involved, we think: well done, FDIC.

Coinbase and History Associates are also suing the SEC under the FOIA for details of its internal deliberations on whether ETH is a security, which the SEC rejected under Exemption 8. They also want more information on the SEC’s 2018 settlement with the EtherDelta decentralized exchange. [Bloomberg Law, archive]

Bill’s beautiful launderette

Bill Guan, the CFO of the Epoch Times, ran a crypto money laundering operation through the paper’s companies. This apparently supplied over three-quarters of the paper’s revenue in 2020. If you ever wondered how they could afford all those billboards … [Press release; indictment, PDF]

Guan ran the paper’s “Make Money Online” team. The MMO team would buy dirty money from crimes on prepaid debit cards from an unnamed crypto platform for 70 to 80 cents on the dollar. The MMO team would move the money through layered transactions and fraudulent bank accounts into Epoch Times accounts.

Guan lied to banks and crypto exchanges that the money was from subscriptions or even donations from Epoch Times supporters.

The Justice Department has gone out of its way to not name the Epoch Times and stresses that this action has nothing to do with the paper’s “news-gathering” operations — they’re nailing this all on Guan. The indictment notes that other parts of the company even asked Guan what was going on with all the debit card purchases.

Paolo’s beautiful launderette

Consumers’ Research is running a very loud and well-funded advertising and lobbying campaign against our good friends at Tether, saying they’re money launderers and sanctions busters and their backing is questionable. There’s billboards and seven-figure TV ad spend. The ad voiceover speaks of “preece manipulation.” [Tethered To Corruption; press release; YouTube]

It’s not clear who is behind this campaign. Consumers’ Research is a conservative propaganda nonprofit whose funding is laundered through a donor-advised fund — a way for rich people to make controversial donations without having their names attached.

We’ve asked other public critics of Tether and Consumers’ Research doesn’t seem to have contacted any of us at all. The consensus is that it looks like a single guy who is extremely personally pissed off at Tether for unclear reasons. A deal gone very bad, maybe? Bennett Tomlin summarizes what’s known. [Mailchimp]

Consumers’ Research is not wrong about Tether, though. The use case for tethers is still crime and sanctions evasion — in the latest case, Russian commodities firms settling with their Chinese counterparts. Russia’s invasion of Ukraine seems to depend on Tether supplying liquidity. OFAC should probably get onto that. [Bloomberg, archive]

FTX: Salame sliced

When FTX went down, it was incredibly obvious that this was a crime scene. All the FTX executive suite — except Sam Bankman-Fried — pleaded guilty and offered to cooperate with prosecutors in the hope of a lighter sentence.

Ryan Salame was too cool for that. He confessed to a smaller selection of crimes but didn’t agree to cooperate. Salame has now been sentenced to 90 months (seven and a half years) behind bars. After the sentence, Salame gets three years of supervised release. Judge Lewis Kaplan has ordered him to pay $6 million in forfeiture and $5 million in restitution. [Justice Department; Sentencing memorandum, PDF]

Prosecutors had recommended five to seven years. The Probation Office had recommended the maximum sentence of 120 months imprisonment, and evidently, Judge Kaplan was convinced.

The defense asked for no more than 18 months. LOL. [Sentencing memorandum, PDF]

FTX’s ripped-off customers are outraged at getting back only 100% of their stolen assets plus interest. So they’re suing for even more than that. They claim that because they had crypto supposedly on the exchange before the collapse — though in fact they did not, because Sam Bankman-Fried had stolen it — any cryptos recovered by John Jay Ray’s team must surely belong to them personally. [CoinDesk]

LessWrong and Effective Altruism web hosting company Lightcone hosted a “prediction markets” convention that just happened to be filled to the brim with race scientists from the Rationalist sphere and also failed to return donations from FTX to the bankruptcy. Whoops. The effective altruists are now falling over themselves to argue that it’s all okay, race-and-IQ theorists aren’t really racists, and kicking the racists out is bad. Also that Lightcone should probably have answered FTX’s letters about the money. [Guardian, archive; SFGate; Effective Altruism forum; Effective Altruism forum; Twitter, thread, archive]

The war on Terra

Do Kwon and Terraform have agreed on a settlement with the SEC for $4.5 billion and Judge Jed Rakoff has approved it. [Doc 271, PDF; letter, PDF; press release]

Total remedies — disgorgement, interest, and penalties — come to $4,473,828,306, which will become just another claim in Terraform’s Chapter 11 bankruptcy. Do Kwon must pay $204,320,196 out of his own pocket, which will go to investors.

Do Kwon is still in jail in Montenegro awaiting extradition. We already know that Milojko Spajic, the libertarian-leaning prime minister of Montenegro, was a crypto fan — photo opportunity with Vitalik Buterin and all — but It turns out that he personally bought $75,000 of LUNA in April 2018 and may well be the person keeping Kwon out of the clutches of the US or South Korea. [Bloomberg, archive]

Kwon said in 2023 how crypto “friends” of his had financially supported Spajic’s Europe Now Party. Kwon called it “a very successful investment relationship.”

Regulatory clarity

NYDFS guidance: virtual currency firms licensed in New York (that’s you, Coinbase) need to keep the Department of Financial Services updated on their responsiveness to customer complaints (that’s you, Coinbase). [DFS]

The US Treasury reports on the use of NFTs for “illicit finance.” The uses are not so much sanctions evasion, but more mundane criminal money laundering for frauds and scams. [Press release; Report, PDF]

Kanav Kariya has stepped down as President of Jump Crypto — “the end of an incredible personal journey.” By pure coincidence, this came four days after the CFTC was reported to be probing Jump Crypto’s trading. Jump was one of the heaviest US-based VIP users of Binance, served as a market maker for Terra and FTX, filled crypto orders for Robinhood, and seems to be a part-owner of TrueUSD. [Twitter, archive; Fortune, archive]

85 years old and still running Ponzis? Now that’s a work ethic. [Justice Department]

Still good news for bitcoin

The Gemini crypto exchange has been told by New York to pay back $50 million to Gemini Earn customers. Gemini is also now barred from lending crypto in the state. New York previously got $2 billion back from Genesis, who lost Earn customers’ money in the first place. The two settlements should leave Earn customers made whole! [Press release]

Robinhood is buying the European crypto exchange Bitstamp. [Bloomberg, archive]

Congressman Tom Emmer doesn’t think he can get US crypto legislation through this year. Oh well. [CoinDesk]

Bitcoin ETFs and ETPs have existed outside the US for many years, so the coiner insistence there was massive pent-up demand for a US-based ETF wasn’t such a plausible claim. And so ETPs in Europe have had net outflows every month this year. [FT, archive]

David Rosenthal writes on the bitcoin halving and how it actually worked out. [DSHR]

Watch Jackie Sawicky’s new Proof-Of-Waste Podcast! The first one features Peter Howson, author of Let Them Eat Crypto. [YouTube]

Daniel Kuhn, CoinDesk: well, the world has rejected crypto. But maybe we don’t want the world using crypto! Have you considered that, huh? Anyway, “adoption means following the law (which is often at odds with crypto’s values).” Well, yes. This opinion piece also looks to the philosophical wisdom of Roko Mijic, the creator of the mind-numbingly stupid Roko’s Basilisk thought experiment. [CoinDesk]

Posted on by Amy Castor 3

Pivot to AI: Replacing Sam Altman with a very small shell script

We’ve got a new Pivot to AI post. This one is on David’s blog. [David Gerard]

OpenAI just dumped their CEO Sam Altman. You just don’t come out and call your CEO a liar in a press release! 

The world is presuming that there’s something absolutely awful about Altman just waiting to come out. But we suspect the reason for the firing is much simpler: the AI doom cultists kicked Altman out for not being enough of a cultist.

Image: Sam and Ilya, back in the happier days of June 2023

Posted on by Amy Castor 0

Pivot to AI: Pay no attention to the man behind the curtain

  • By Amy Castor and David Gerard
  • We need your support for more posts like this. Send us money! Here’s Amy’s Patreon, and here’s David’s. Sign up today!

“all this talk of AI xrisk has the stink of marketing too. Ronald McDonald telling people that he has a bunker in New Zealand because the new burger they’re developing in R&D might be so delicious society will crumble.”

— Chris Martin

Crypto’s being dull again — but thankfully, AI has been dull too. The shine is coming off. So we’re back on the AI beat.

The AI winter will be privatized

Since the buzzword “artificial intelligence” was coined in the 1950s, AI has gone through several boom and bust cycles.

A new technological approach looks interesting and gets a few results. It gets ridiculously hyped up and lands funding. The tech turns out to be not so great, so the funding gets cut. The down cycles are called AI winters.

Past AI booms were funded mainly by the US Department of Defense. But the current AI boom has been almost completely funded by venture capital.

The VCs who spent 2021 and 2022 pouring money into crypto startups are pivoting to AI startups, because people buy the idea that AI will change the world. In the first half of 2023, VCs invested more than $40 billion into AI startups, and $11 billion just in May 2023. This is even as overall VC funding for startups dropped by half in the same period from the year before. [Reuters; Washington Post]

The entire NASDAQ is being propped up by AI. It’s one of the only fields that is still hiring.

In contrast, the DOD only requested $1.8 billion for AI funding in its 2024 budget. [DefenseScoop]

So why are VCs pouring money into AI? 

Venture capital is professional gambling. VCs are looking for a liquidity event. One big winner can pay for a lot of failures.

Finding someone to buy a startup you’ve funded takes marketing and hype. The company doing anything useful, or anything that even works, is optional.

What’s the exit plan for AI VCs? Where’s the liquidity event? Do they just hope the startups they fund will do an initial public offering or just get acquired by a tech giant before the market realizes AI is running out of steam?

We’re largely talking about startups whose business model is sending queries to OpenAI.

At least with “Web3,” the VCs would just dump altcoins on retail investors via their very good friends at Coinbase. But with AI, we can’t see an obvious exit strategy beyond finding a greater fool.

Pay no attention to the man behind the curtain

The magical claim of machine learning is that if you give the computer data, the computer will work out the relations in the data all by itself. Amazing!

In practice, everything in machine learning is incredibly hand-tweaked. Before AI can find patterns in data, all that data has to be tagged and output that might embarrass the company needs to be filtered.

Commercial AI runs on underpaid workers in English-speaking countries in Africa creating new training data and better responses to queries. It’s a painstaking and laborious process that doesn’t get talked about nearly enough. 

The workers do individual disconnected actions all day, every day — so called “tasks” — working for companies like Remotasks, a subsidiary of Scale AI, and doing a huge amount of the work behind OpenAI.

AI doesn’t remove human effort. It just makes it much more alienated.

There’s an obvious hack here. If you are an AI task worker, your goal is to get paid as much as possible without too much effort. So why not use some of the well-known tools for this sort of job? [New York]

Another Kenyan annotator said that after his account got suspended for mysterious reasons, he decided to stop playing by the rules. Now, he runs multiple accounts in multiple countries, tasking wherever the pay is best. He works fast and gets high marks for quality, he said, thanks to ChatGPT. The bot is wonderful, he said, letting him speed through $10 tasks in a matter of minutes. When we spoke, he was having it rate another chatbot’s responses according to seven different criteria, one AI training the other.

Remember, the important AI use case is getting venture capital funding. Why buy or rent expensive computing when you can just pay people in poor countries to fake it? Many “AI” systems are just a fancier version of the original Mechanical Turk.

Facebook’s M from 2017 was an imitation of Apple’s Siri virtual assistant. The trick was that hard queries would be punted to a human. Over 70% of queries ended up being answered by a human pretending to be the bot. M was shut down a year after launch.

Kaedim is a startup that claims to turn two-dimensional sketches into 3-D models using “machine learning.” The work is actually done entirely by human modelers getting paid $1-$4 per 15-minute job. But then, the founder, Konstantina Psoma, was a Forbes 30 Under 30. [404 Media; Forbes] 

The LLM is for spam

OpenAI’s AI-powered text generators fueled a lot of the hype around AI — but the real-world use case for large language models is overwhelmingly to generate content for spamming. [Vox]

The use case for AI is spam web pages filled with ads. Google considers LLM-based ad landing pages to be spam, but seems unable or unwilling to detect and penalize it. [MIT Technology Review; The Verge] 

The use case for AI is spam books on Amazon Kindle. Most are “free” Kindle Unlimited titles earning money through subscriber pageviews rather than outright purchases. [Daily Dot] 

The use case for AI is spam news sites for ad revenue. [NewsGuard]

The use case for AI is spam phone calls for automated scamming — using AI to clone people’s voices. [CBS]

The use case for AI is spam Amazon reviews and spam tweets. [Vice]

The use case for AI is spam videos that advertise malware. [DigitalTrends]

The use case for AI is spam sales sites on Etsy. [The Atlantic, archive]

The use case for AI is spam science fiction story submissions. Clarkesworld had to close submissions because of the flood of unusable generated garbage. The robot apocalypse in action. [The Register]

Supertoys last all summer long

End users don’t actually want AI-based products. Machine learning systems can generate funny text and pictures to show your friends on social media. But even that’s wearing thin — users mostly see LLM output in the form of spam.

LLM writing style and image generator drawing style are now seen as signs of low quality work. You can certainly achieve artistic quality with AI manipulation, as in this music video — but even this just works on its novelty value. [YouTube]

For commercial purposes, the only use case for AI is still to replace quality work with cheap ersatz bot output — in the hope of beating down labor costs.

Even then, the AI just isn’t up to the task.

Microsoft put $10 billion into OpenAI. The Bing search engine added AI chat — and it had almost no effect on user numbers. It turns out that search engine users don’t want weird bot responses full of errors. [ZDNet]

The ChatGPT website’s visitor numbers went down 10% in June 2023. LLM text generators don’t deliver commercial results, and novelty only goes so far. [Washington Post]

After GPT-3 came out, OpenAI took three years to make an updated version. GPT-3.5 was released as a stop-gap in October 2022. Then GPT-4 finally came out in March 2023! But GPT-4 turns out to be eight instances of GPT-3 in a trenchcoat. The technology is running out of steam. [blog post; Twitter, archive]

Working at all will be in the next version

The deeper problem is that many AI systems simply don’t work. The 2022 paper “The fallacy of AI functionality” notes that AI systems are often “constructed haphazardly, deployed indiscriminately, and promoted deceptively.”

Still, machine learning systems do some interesting things, a few of which are even genuinely useful. We asked GitHub and they told us that they encourage their own employees to use the GitHub Copilot AI-based autocomplete system for their own internal coding — with due care and attention. We know of other coders who find Copilot to be far less work than doing the boilerplate by hand.

(Though Google has forbidden its coders from using its AI chatbot, Bard, to generate internal code.) [The Register]

Policy-makers and scholars — not just the media — tend to propagate AI hype. Even if they try to be cautious, they may work in terms of ethics of deployment, and presume that the systems do what they’re claimed to do — when they often just don’t.

Ethical considerations come after you’ve checked basic functionality. Always put functionality first. Does the system work? Way too often, it just doesn’t. Test and measure. [arXiv, PDF, 2022]

AI is the new crypto mining

In 2017, the hot buzzword was “blockchain” — because the price of bitcoin was going up. Struggling businesses would add the word “blockchain” to their name or their mission statement, in the hope their stock price would go up. Long Island Iced Tea became Long Blockchain and saw its shares surge 394%. Shares in biotech company Bioptix doubled in price when it changed its name to Riot Blockchain and pivoted to bitcoin mining. [Bloomberg, 2017, archive; Bloomberg, 2017, archive]

The same is now happening with AI. Only it’s not just the venture capitalists — even the crypto miners are pivoting to AI.

Bitcoin crashed last year and crypto mining is screwed. As far as we can work out, the only business plan was to get foolish investors’ money during the bubble, then go bankrupt.

In mid-2024, the bitcoin mining reward will halve again. So the mining companies are desperate to find other sources of income. 

Ethereum moved to proof of stake in September 2022 and told its miners to just bugger off. Ethereum was mined on general-purpose video cards — so miners have a glut of slightly-charred number crunching machinery.

Hive Blockchain in Vancouver is pivoting to AI to repurpose its pile of video cards. It’s also changed its name to Hive Digital Technologies. [Bloomberg, archive; press release] 

Marathon Digital claims that “over time you’re going to see that blockchain technologies and AI have a very tight coupling.” No, us neither. Marathon is doubling and tripling down on bitcoin mining — but, buzzwords! [Decrypt]

Nvidia makes the highest-performance video cards. The GPU processors on these cards turn out to be useful for massively parallel computations in general — such as running the calculations needed to train machine learning models. Nvidia is having an excellent year and its market cap is over $1 trillion.

So AI can take over from crypto in yet another way — carbon emissions from running all those video cards.

AI’s massive compute load doesn’t just generate carbon — it uses huge amounts of fresh water for cooling. Microsoft’s water usage went up 34% between 2021 and 2022, and they blame AI computation. ChatGPT uses about 500 mL of water every time you have a conversation with it. [AP]

We don’t yet have a Digiconomist of AI carbon emissions. Go start one.

Posted on by Amy Castor 2