Ep. 130: Good & Bad Developments in AI & Blockchain

0:00in five episode 130. My concern is though that it's gonna be hard to draw a line. Like in other words any kind of general rule you can bring up to say we want to have the ability that if someone wrote a book that we need to make sure that no company with their LLMs trained on that material how could you possibly enforce that or how could you know you know I mean like so I think really this is going to give the government and I'm not saying the Trump administration right now but I'm saying this power this legislation if it goes through in the way that is being described here would give some future administration the ability to go to any company that's producing an LLM and say open up the hood we got to see how are you trying this thing. Welcome to InFi the future of finance. Hey everybody welcome back to the InFi podcast. Today we are going to cover three recent news items that are of relevance to Infinio or InFi viewers specifically because these announcements

1:01all have to do with either blockchain or AI and of course you know Infinio you know that's what we're about here so let me go ahead and just go through them in order with my commentary. So the first thing is coming from Politico this article I'm reading from was on March 20th the title is Senator's White House strike quote agreement in principle to resolve bank crypto clash and the subtitle of the title of agreement could unlock a path forward for landmark crypto regular bill so I'll just read large snippets here from the opening paragraphs and then I'll step back and explain the big picture. Key senators say they have clenched a ton of agreement with the White House on language they hope to include in cryptocurrency legislation that is aimed at resolving a clash between banks and digital asset firms over stable coin yield marking a potential major breakthrough for the bill. The agreement between Senator Tom Tellus Senator Angela also Brooks and White House officials could clear the way for landmark crypto

2:05regulatory bill to advance in the coming weeks. The legislation has been stalled in the Senate banking committee since January in part due to the riff between banks and crypto firms. So this is a quote. Senator Tellus and I do have an agreement in principle also Brooks said in an interview a Friday we've come a long way and I think what it will do is to allow us to protect innovation but also gives us the opportunity to prevent widespread deposit flight. Here this is the last thing I'll read here folks. The clash and question has centered around whether crypto exchanges should be allowed to pay yield to stable coin holders through rewards programs. Tellus and also Brooks have both been sympathetic to concerns raised by Wall Street groups that allowing stable coins to pay any kind of yield could lead customers to pull deposits out of bank accounts. Again they that particular article and I was looking around a bit it wasn't jumping out as to what is the compromiser that you know the language did they land on that satisfied both parties at least in principle. I haven't seen that exact language yet so hopefully that'll be announced soon

3:09but let me just explain what the conflict is over. I've covered this for sure in the written blog posts that I do at the end and finial website. I'll make it a note here. I'll certainly link to that in the show notes page for this episode. I don't know if I've walked through it here on the in five podcasts but in any event in case you haven't heard me spell it out before here's what's going on. So if you think about what is a stable coin so a stable coin it has the same type of features. It's structurally if you want to use that term similar to something like to a cryptocurrency like Bitcoin in that it's a token that lives on a blockchain and people can move that around and it can be decentralized and so forth but the thing that separates stable coins from Bitcoin and Ethereum and other more obscure altcoins is that a stable coin is the name suggests it is designed to maintain parity with some other thing and typically and most popularly

4:14government issued fee at currencies primarily the US dollar. Okay so you got things like tether and circle and so forth and they have there's stable coins that the function of them is to be a thing that lives on a blockchain but maintains parity with the US dollar. Okay so if just real briefly I just want to explain what does that have to do with banking and why would stable coins threaten conventional banks because those quotations I read to you that that's a big concern that represented as for the banking industry are saying hey if legislators don't get this right then you're going to leave open the door for massive like trillions of dollars in deposits leaving the conventional banking system and going into stable coins right and we'll be shocked to learn that the bankers don't want that to happen and they're telling people that wouldn't be bad so that's what's going on so let me just explain like what is the connection what does that do with anything and this is interesting because like I kind of stumbled upon this myself just to

5:14my own research so my academic background for those who don't know is I wrote on money in banking like the theory of it and you know I'll imagine a system that was unregulated and what market forces would kick in and what would regulate banks that way and you know would there be wildcat banking and fly by night banks with no reserves and stuff like that and how did that work and I've done a lot of work studying historical periods where the banks were relatively unregulated and they issued paper notes that were redemption claims on the actual gold or silver coins that were stored in the vaults so would I notice pretty soon as I started working on stable coins was that huh there's a sense in which stable coin issuers are kind of like old school banks in conventions of the wild west that's a bit of a misnomer because the wild west wasn't that wild but in any event that's the idea and I realized oh this actually might provide fertile ground to test some

6:15of the theories that my economic or economist colleagues and I had about what would a world look like if you had you know you didn't have the government coming in and insisting on reserve ratios and just banks could do whatever they want but you know there would be competition the public would be more reassured if a bank had higher reserves than another bank and you know that kind of thing and so realized the stable coins before the genius act actually allowed that and so the idea is you got some company that's issuing stable coins that says for example if you have one of these coins they should always trade near one dollar and so go ahead and you can view this thing as being just about equivalent to actually having a dollar on deposit with a conventional bank somewhere you go log into your online checking and yet I've got a hundred dollars in my checking account with Bank of America or whatever and so stable coin issuers want you to believe oh if you just have a hundred of our tokens that live on a blockchain that's basically the same thing is having a

7:18hundred dollars and so what mechanisms could they use to convince the public that they should go ahead and do that that that wouldn't be a foolish thing to do to or another way putting it someone wants to sell a car certainly they would take an electronic payment if you could sell on the money or something or if you wrote them a check and they didn't think it was going to bounce or even better if you had like a cashier's check or something if you had a money order on the post office right various ways of communicating there's some other reputable company that is good for this and here you go I'm going to transfer it to you and so likewise if somebody's trying to pay you five thousand of these things that are supposed to be one dollar each you say what is oh it's a stable coin it's issued by this company so what types of things would would merchants want to know to reassure them okay yeah I could take these things and that's basically the saves of someone writes me a checker swipes their debit card or whatever tied to a conventional bank so obviously the practice like if they've heard of it before it's been

8:20around for a while in their experience oh yeah I've never had trouble unloading this it's widely accepted community but then pushing it back what's the bookable why would the community accept in the first place like how do we get there and so one obvious thing is the backing to say you know if you wanted for example you could turn these stable coins into the issuer and say I would prefer to have whatever if these are supposed to be one dollar well here's ten thousand of them now you give me ten thousand dollars wire to my checking account and so if the stable coin issuer were willing to do that had a redemption pledge maybe not for people with just a handful but like for a minimum threshold but they had that that would provide a floor but then I push back the question another stop say okay but how are they able to honor that redemption it's one thing if the company issuing the stable coins just says oh don't worry we're good for it and so that's why you should feel safe taking these in transactions or holding them yourself right you know you you want to take some profits on your bitcoin and so instead of going out back into fiat and having money in your

9:23checking account instead you just trade on some exchange somewhere some of your bitcoin for the amount of stable coin that you want to have quote in cash right and so again the stable coin issuers are trying to get the public to feel safe allocating some of their portfolio to their particular stable coin right and so how do you do that it's sure it helps to announce to the world don't worry if you have 10,000 of these things or more and give them to us within 48 hours we will wire the money into your checking account okay that's good but that promise needs to be credible and so then that leads to oh okay so here's our portfolio right because that's the business model people wire or somehow get us dollars into the coffers of the stable coin issuer and then they mint the corresponding number of stable coins against that incoming payment less but transaction beyond minting fear whatever okay and so that now the stable coin issuer has a bunch of money that

10:28just came in they issued stable coins and so how can they honor their commitment to redeem upon demand well they can go put those payments to work and they can build up a portfolio of assets okay so if you're familiar with the history of banking this is exactly what old school banks would do right people would come in with a bag of gold coins or silver coins deposit in their checking account and then they would get some kind of paper from the bank whether it like it could be literal bank notes or it could be a checkbook ledger and then they go around town spending the notes in that and the merchants would accept the notes at par with the golden silver coins if they trusted that oh yeah the bank's good for it but then now what do the banks do typically they wouldn't just put it in the vault and let it sit there and have a hundred percent reserves instead they might lend some of it out or they might take some and go put it into certain investments or whatnot by bonds with it okay so that's the issue and so in that context a hundred percent reserves meant is it all the gold and silver coin is it sitting in the vault and so that's the idea

11:35all right and so again you see that with stable coin issuers okay so now to continue the analogy with banking and this stuff that I kind of it was just interesting from my perspective to have all the stuff dovetail because I was kind of just doing this in my head in the corner when I was first getting into this stuff and then to see that oh yeah this is you know other people are landing on the same conclusion it was clear to me that if the government didn't step in and start regulating this sector that where the market was going to go is that new people issuing new types of stable coins perhaps backed up by different types of collateral or assets how would they gain market share so you're some newcomer you have some new asset that you want to or you think you have like whatever user interface that's more convenient or whatnot how are you going to get people to hold your stable coin instead of holding USDT or USDC you know which were the market leaders because among other attributes of a good stable coin is deep in liquid markets right if you're sitting

12:35on a bunch of stable coins you want to know oh if I need to trade them away I don't want to get stuck where oh if you try to sell too many of them on a given day you're going to push the price down or so you don't want that to happen no you want them to be quote as good as a dollar anytime all right and so other things equal the deeper and more liquid the market the better and so again if you're this upstart how are you going to compete so right now tether's model was they would take in all the dollar payments issue tether stable coins against it and then they would go invest in a portfolio of assets consisting of a large chunk of treasuries but not exclusively and then that portfolio would earn a positive return over time they invested in yield generating assets with the people holding tether weren't getting any interest payments no it was a dollar that was what it was just like if you're walking around a hundred dollar bill that's a Federal Reserve note that's a note issued by the Federal Reserve Bank you don't earn interest on that so likewise old

13:38school stable coins did not pay interest that they were just serving the function of representing a dollar for example and that was good enough that's what I was supposed to do just like if you had a ten dollar bill in your pocket that was serving a purpose and you'd have some allocation of your assets to literal currency in your pocket okay so again if you're a newcomer trying to break into that market or industry what would you do you'd have to start sharing some of that yield with your clients and the way that would work or one way it could work because you still want to be a stable coin you just want to be out on my stable coin is always one dollar or you know very close to it 0.9988 okay and so what would you do then like if you if the assets you invested in yielded whatever 8% on average then maybe what you would do is the issuer is you would pocket three and pay five to your customers and so what that would mean is like over time your portfolio

14:40quote backing up the outstanding stable coins would grow by let's say 8% so you could issue 8% more stable coins and the idea is you would pocket three distribute it to your shareholders or put it in the company coffers as a reserve fund or something and then of the other 5% of newly issued stable coins you would distribute them pro rate up to your existing holders right so somebody who was sitting out a hundred of your stable coins over the course of the year would receive five more stable coins as they were newly minted right so each one is still a dollar roughly but they would earn the right to receive more over time so that's what I thought would have happened in the old school development if it were laissez faire of governments around the world kind of where hands off and just as buyer beware do what you want we're not getting involved in this I think market forces would have pushed that and also they would have insisted on more

15:40transparency and demonstration of reserves and I think the market would have sorted itself out the people who really absolutely wanted to be sure that their wealth was going to be there they might have gravitated towards stable coin issuers who didn't offer a yield but it just really held their portfolio in extremely liquid safe acid like conventional checking accounts or even $100 bills stored in you know vault and Switzerland or something right because checking your accounts can fail that's is what Silicon Valley bank showed right so it's just because you're a stable coin issuer and have your money literally in checking account balances that doesn't mean everybody's safe because the bank could go now all right so you could do that or ones who wanted to earn some yield because they yeah we're okay we don't insist that you this stable coin issuer have it all in whatever one months he bills or $100 bills stored in the vault and Switzerland go ahead and you can put it in things that are a little less liquid but not crazy and you give us whatever 4% a year and other

16:45people might want more aggressive things and they want to get a higher yield so again these arguments mirror the arguments that other economists and I would have over just conventional banking going back 20 years the arguments are longer than I was saying me 20 because of my age I didn't dive in these arguments until 20 years ago okay so anyway with all that context now what happened was the genius act came along last year and explicitly forbade payment stable coin issuers so that adjective meaning if what you're trying to create is a payment stable coin like something that's intended to be used to replace other types of dollars for online payment transactions and you owe somebody money or something is being sold for a price and you're sending these stable coins over as the way to buy it if that's what these things are for then the genius act said the issuer that is not allowed to pay interest on it okay and you can see you know at that point I commented and

17:46said clearly the banks have to be involved here like they they must fear the competition because of the stable coin issuer could pay interest again now that's like a checking account that has the pays interest and so more and more people might say well why am I doing my online banking with Bank of America or Chase or whatever when I could just get into stable coins and especially the biggest stable coin issuers that seem to have a lot of assets under management their portfolios back in the stuff up and they got a good reputation and track record and so forth and they pay whatever 5% that's pretty good and they're open 24-7 you know it's not like they're closed over on the weekends and holidays and stuff like your regular bank might be so you could see how being able to pay interest would threaten conventional banks so the genius act forbade that but then we finally now get caught up to where we are right now that's still left a loophole right so yes the issuer of the stable coin under the genius act couldn't directly pass

18:52through a yield like in the way I said for example that oh if you just hold our stable coin it's not that its unit value goes up over time because no it's supposed to be stable that's the whole point of it but that we as we mint more as our assets grow and now we have like a bigger base to support newly minted stable coins to maintain whatever the ratio is to the backing that we're telling the public we hold to mint more and distributing the people based on how many of the already hold so the genius act made that illegal can't do that all right but there was a way around that you can call a loophole if you want and other places would say okay well what if you just take your stable coins and park them with us and then we will pay you a yield for that so instead of the issuer of a stable coin saying hey let's call them widgets to be funny because that's you know economists always use that as a generic term so if some stable coin called the widget stable coin and you issue a hundred of them you're holding a hundred and then over time

19:58you know the widget company earns 8% per year and a mint 8% more and give five to you can't do that but what if instead there's some deal where coin base says hey if you deposit your widget stable coins with us we will pay you 5% per year for that so you put you so you know technically the way the contract is structured is it's not that the widget issuer is minting more and giving to you that no it's a stable coin just you know you just hold it but then coin base is saying if you keep if you park a hundred here and keep them there for a year well the cost of your give you five more and add those to your account so there I mean that's like how conventional bank works if you have a thousand dollars in currency the federal reserve doesn't print more 10 dollar bills and mail them to you but no the way you can make your current amount of cash turn into more cash as you can go down your local bank hand it over and say I'm going to park my cash

21:03here with you how much will you pay me for that so nowadays checking accounts don't offer a very high yield but in principle they do and back in the day there was a more attractive yield okay so I'm saying that's what where the market went in the genius act kind of solidified that it's okay we can work with that and so still it then especially so here I don't know exactly what sorts of deals behind the scenes the stable coin issuers had with exchanges like coin base and whatever so here I'm just saying hypothetically the way you could take what I was talking about originally and just not do it is the widget stable coin issuer could still be earning 8% on its assets we could still tell the public we've got these things backing it up you know putting it in short term investments that roll over every three months or whatever so that they can tell the public yeah unless you know for large redemption requests were good they would know if there's a huge run on the bank we could be in trouble but for normal expected redemption requests were good

22:07and they earn a pretty safe 8% return and they want to get 5% of their customers but they can't do it directly so what could they do they could somehow cook up a deal with coin base and say if you show us how many people have things on deposit with you we will pay you and they could call it something else they could say whatever performance fee or marketing budget or whatever okay so I'm just saying that's one way they could do it and so you could still have on paper being compliant with the genius act and yet still it's economically kind of the same thing all right so there I've just explained where the conventional banks are coming from they're saying hey if you bought what we were telling you about why in the interest of protecting the public because that's always I was trying to the public right that stablecoin issuers can't directly offer yield well now you can see the banks would argue that these exchanges and whatever they can't pay you interest or whatever

23:09give you some kind of fee for keeping your stablecoins parked with them because it's just kind of the same thing okay but now the exchanges and stablecoin community and come back and say no you're right if the exchange didn't do anything with it then yeah would be kind of same thing but that doesn't exhaust all the possibilities there really are examples where the exchanges or other entities are acting as true what you would call credit intermediaries where people are handing over their stablecoins to them you can use the verb like to stake them or lock them up or whatever terminology you want to use relinquishing control temporarily and then that intermediate institution is passing it through to other recipients who then go do something with it engaging in real economic activity to generate a yield that way and then they pass some of that return back to the people whose capital made it possible okay so there the analogy would be with conventional

24:13banking it's not people putting their money in a checking account just for safe keeping but they think it's always there instead it would be like if you bought a certificate of deposit from a bank in the bank you know give you a five percent yield because then the bank took those funds and lent it out to whatever some other business or something put into a shopping mall who knows what and at the bank earn whatever an eight percent yield on that and then pass five percent back to you is a certificate of deposit holder okay so there there's nothing fishy going on with that it's just the bank is acting as the people buying the CDs from the bank are happy to take a lower yield than the investments that their money is ultimately funding because the risk is borne by the bank that the banks promising them with this example five percent yield and then the banks go on out and get in it somewhere and so the public defers the bank is a better credit assessor and there's pooling elements and things like that that the individual

25:16saver the individual household doesn't necessarily want to go and invest directly in some shopping mall because it's too risky they'd rather just buy CDs from the bank okay so the pushback from the crypto side with all this stuff is to say that is a legitimate economic function that stable coins are helping to facilitate and so you can't just have a blanket prohibition saying nobody can pay to have control of somebody else's stable coins because then you'd be killing that whole sector and so that's where we are and that's what they're trying to hammer out in this so-called clarity act is to come up with a way to say can we prohibit this sort of call it sterile just storing your stable coins somewhere and the people are paying you for that versus your transferring control of your stable coins is somebody else because they're going to go do something productive with it or that gives a genuine return to them from some outside enterprise

26:20and that's what they're paying you for so that's where we are okay next news item Paul Atkins the SEC chair on March 17th gave a speech at the DC Blockchain Summit the title of which was a regulation crypto assets colon a token safe harbor okay so here let me just I'll skim the first few paragraphs here and you'll get a gist of it so this is good afternoon blah blah blah it's our pleasure to join you today to discuss a subject that says the center of American innovation capital formation and the enduring principles of our securities laws this is for over a decade market participants have operated without clear guidance on the fundamental question when does a crypto asset implicate the federal securities laws today I am pleased to announce that the SEC's persistent failure to provide clarity on this question is over as we speak the commission is implementing a token taxonomy an investment contract interpretation our interpretation grounded in existing law and informed by extensive public input establishes four asset categories that are

27:23not deemed securities namely digital commodities digital collectibles digital tools and payment stablecoins under the genius act so here's one more section here folks with these categories in place the interpretation then clarifies that only one crypto asset class remains subject to the securities laws namely digital securities which are traditional securities that are tokenized this distinction returns the commission to its core mission in statutory authority of protecting investors involved in securities transactions we are not the securities in everything commission anymore okay so I'll stop there so that's kind of a clever plan words that he did there that the SEC securities and exchange commission and he was saying so in the print you know he's got securities and everything commission and the e and everything is capitalized so he's saying we're not the securities and everything commission anymore okay so I think this is a great development I got this they have to hammer this all out and everything but this is kind of the announcement they're saying this is where we're going

28:25with this and specifically you don't know the backstory it has been unclear what types of things qualify as securities and hence would be subject to the jurisdiction of the SEC and the reason this matters is that there's a huge regulatory framework that falls on you if what you're doing is a security whereas if it's not then you know you can there's much more leeway and it's easier for you to go ahead and get in dabble in this stuff okay and so you know up till now people would want to operate this sector would prefer than it not be a security but the thing that really doesn't work is if you don't know if it's going to be a security or not right you don't want to build a whole business model and go ahead and launch and then the SEC comes in this is what do you do and you're in violation right so that's really what you know what so this thing I think given that the federal government exists and regulates this stuff this is very sensible and I have a lot of problems with various things the Trump administration is doing but in terms of

29:29them being clear on regulating the blockchain financial space I think they've done much better certainly than would have been the case said Kamal Harris wasn't the election okay just to give a little bit here of the background so the quintessential securities are like stocks and bonds whereas gold is actually a commodity just like oil or something pork bellies and traditional currencies like what's a US dollar is that a security well no it's you might call a medium of exchange and so this all dovetails with economic categories as well so a security being like a financial claim on something whereas even a gold coin back in the day was not a claim on anything right just the hunk of metal now it served financial functions you know I have to say that but it really it wasn't a security okay the way a share of corporate stock is or a bond

30:29issued by a company would be right it doesn't obligate anybody else to do anything on your behalf it ironically even modern government fee currency like a 10 dollar US bill you might say oh well this is a note issued by the federal reserve okay but it doesn't really obligate the fed to do anything what are you gonna do with it you can go ahead and turn it 10 to get 10 signals or get two fives but it's not binding the fed really the same way that if you own a share of google or something okay so given that then over the years people are like what's Bitcoin what is that how should it be classified in terms of right the regulatory framework like how do we plug it in to the pre existing pattern the taxonomy of different types of financial instruments or things and what regulations are applicable and like I said it it has been somewhat vague but I always thought in terms of economics and said look you can think of Bitcoin as like a digital gold or you can think

31:32of it as like a digital currency and so since actual gold and actual currencies neither them is a security with a Bitcoin shouldn't be either right and so in traditionally that it has been exempt thus far but again it's it was a bit vague but that other things weren't so obvious things like stable coins for example what is that okay so that's the context and so that's why this ruling is so certain this framework that he's talking about is so significant because again for one thing you can see by his tone there if he was talking to Perry Ann Boring in the beginning addressing it to hers the host of this conference and we've interviewed her here in the infi podcast it's crypto and blockchain friendly the current administration okay so in any event that's welcome development and I'm hoping that proceeds as swimmingly as the chairman indicated okay and then there's the last news item here Marsha Blackburn on March 18th released a discussion draft of the national policy

32:39framework for artificial intelligence so I'll just read a little bit here from her websites press release so Marsha Blackburn is Senator from Tennessee today US Senator Marsha Blackburn released a discussion draft of her legislative framework to codify President Trump's executive order to create one rulebook for artificial intelligence that protects children creators conservatives and communities from harm while ensuring United States wins the global race for AI supremacy quote instead of pushing AI amnesty President Trump rightfully called on Congress to pass federal standards and protections to solve the patchwork of state laws that has hindered AI innovations since Senator Blackburn now Congress must answer is called to establish one federal rulebook for AI to protect children creators conservatives and communities across the country and ensure America triumphs over foreign adversaries in the global race for AI dominance the Trump America AI act is the solution America needs okay so with all this stuff

33:40the idea that all the states are all regulating it's a patchwork and then you want to have one federal standard that's true you had that trip just about and everything when I was working in the energy sector that was a big thing there like various states would have different standards for like emissions and the you know gasoline purity and stuff like that or re-renewable mandates for electricity production things like this and so it was always a trade-off that hey you know a lot of the industry groups wanted just a federal standard but then the other the flip side is when you had experimentation you might get a sense of okay if some state tries one thing another you can see which one is better or you can get some experimentation and you know 50 different experiments as it were okay so anyway that trade-off always exists does here as well but beyond that again just big picture it's always easy to point to some abuses and then say and this is why we need regulation to stamp that out and blah blah blah but

34:44you guys got to look at the potential downside okay so for here I understand just like in the blockchain space that yeah the AI's new and people are going to be afraid to develop if there's no standards in place like that's all true here as well but the particular thing for here Marshall Blackburn's version of it there were a few things that jumped out that I think should concern people and so here I'll just be just give you few specifics so one thing is under the section of protecting creators it says these are bullet points makes clear that an AI models unauthorized reproduction copying or processing of copyrighted works for the purpose of training fine-tuning developing or creating AI does not constitute fair use under the copyright act okay and then it also protects the voice and visual likenesses of individuals and creators from the proliferation of digital replicas without their consent okay so I understand where they're coming from with this right so that it does seem you know if you people have written stuff and then they realize that oh anthropic or open AI used my stuff when they were training

35:51their latest models and they didn't pay me for it and so now their model you know part of its usefulness is that it knows the stuff that they got from scanning in my books my textbooks or whatever they went to my lectures online and I charged for it somehow they got into that and now their LLM knows all my stuff and that's partly why others pay them for it is because this thing is so knowledgeable and they never paid me so if someone did that to a lesser extent someone just took my books and included that in a bigger book that they then sold Barnes and Noble I would clearly sue them you can't do that right as my stuff's copyrighted so how is it different right so you get that and then also yes oh what's her name I'm blanking on her name but the actress that played Mallory with Michael J you know the sister of Michael J Fog is a family ties I think but anyway that's what her things now is she's very up in arms against using AI in Hollywood and just more generally the arts that apparently what they'll do is they'll have some actor actors come

36:56in go into some booth and it'll you know just scan them from a million different angles and things and then just completely capture their you know take their voice or whatever and then now they can go make a movie an AI generated movie with that person in there as a character because they got all the measurements and requirements they need to be able to then generate the live action performance but even beyond that then if somebody even more so like yeah I'm sure everyone seen the funny AI videos of there was recently one where JD Vance was like a college basketball star and they had RFK junior commenting like he was the coach or something so yeah they people make these funny things and obviously then go get permission from the people to do it and so this is a burgeoning new industry as a work cottage industry at the moment so you can see how yeah people are concerned they want to place some limits on that my concern is though that it's going to be hard to draw a line like in other words any kind of general rule you can bring up to say we want

37:58to have the ability that if someone wrote a book that we need to make sure that no company with their LLM trained on that material how could you possibly enforce that or how could you know you know I mean like so I think really this is going to give the government and I'm not saying the Trump administration right now but I'm saying this power this legislation if it goes through in the way that is being described here would give some future administration the ability to go to any company that's producing an LLM and say open up the hood we got to see how are you training this thing because we want to make sure that you're not using unauthorized or the flip side it's going seriously crimp their ability to generate content and to give the power to users to generate content if it's like oh no you can't you know anything that resembles somebody is off limits because also too it's like well imagine like a political cartoon like Dunesbury or something for those familiar with that clearly political commentary and satire involves taking today's

38:59politicians and putting them in situations and having them say things right we do the political cartoon it's not that Raul Reagan could have objected and said hey I didn't give you permission to use my likeness when you're making fun of Star Wars the Star Wars program or Iran Contra and so I'm saying that this is going to give the government a huge club with which to crack down on any AI producing company that they want to all right and the last one I'll point out is this particularly ominous is it says here in the section of protecting children places a duty of care on AI developers and the design development and operation of AI platforms to prevent and mitigate foreseeable harm to users again like yeah who could be against mitigating harm to users right and there are crazy cases right now going around I haven't dug into the details but I think some of these are legit like that this actually happened where people were depressed and we're talking to an ally you know chatting with an ally or whatever talking about the in the thing

40:03apparently like advise them on how they could take their own lives again I haven't gone in and invented those claims to see but as far as I know that has happened okay and so yeah something like that happens is you'd expect the government to come in and say hey geez we should maybe put some regulations in place to stop that but then look at the next bullet point is in the section sunsets section 230 all right so what what is that case you don't know section 230 of the 1996 Communications Decency Act is a foundational US law protecting online platforms from liability for user generated content it states that interactive computer services are not treated as the publisher or speaker of information provided by others enabling moderation of offensive material without losing immunity okay and so the gist of section 230 is that it says Facebook Twitter other places online forums by them allowing people to come in create user accounts and then post content that other people

41:06can see that overarching entity that's facilitating that providing the forum or the platform is not publishing all those things so it's not like a magazine that individual contributors write it in the magazine publishes those articles and so if the magazine published something that was liable us or defamatory whatever like they might be liable just as the author is okay whereas what section 230 established was no Facebook is not responded so many publishes something you know post something on their Facebook profile you can't sue Facebook for that and also it gives leeway that Facebook is allowed like they can have a rule saying if we catch you saying ed off Hitler was great we're gonna take that down and you can't post I'm not gonna get into the digit but certain things you're not allowed to post on Facebook company policy and the point is the fear was that without section 230 if the company did have minimum standards like that well then it would almost

42:12be like oh so that means they're saying as long as you abide by these standards then we approve and endorse anything you do post and we stand behind it so that if somebody were to post something that was slanderous or liable us or defamatory but it didn't violate you know you can't post a swastika and stuff whatever the other official company policies are then that meant Facebook was cool and then they could be liable too so blackburns outline there of what she wants to do it explicitly says it's going to remove section 230 protection from you know AI platforms and again I think then you could just see it how much that would arrest development because now again the companies developing the AI tools and elements and things like that if they have to worry we'll wait a minute if some customer takes our thing and then goes and does something with it you know we were held liable pretty broadly if we don't have the section 230 protection and again with this

43:15stuff you can see the tradeoff that you understand the impetus for well hey we want to make sure that the public's not doing crazy dangerous things with these new tools and it would be irresponsible for their manufacturers as it were to not put safeguards in place but again the flip side of that is all right but then the old adage to give the government the power to stamp out evil also gives the power or the government the power to commit a bunch of evil that's the tradeoff here so in any event if that case that was on your radar I did want to just bring your attention that under the seemingly non objectionable guys of protecting children and conservatives and communities and other people copyright holders and the other sees that that sentence had there was a lot in here that would give certainly future administrations a lot of power over the course of AI development and again would give the government the ability to come in and say hey we want to look

44:15and see your training how that work what are the weights on these parameters and so forth because we want to have our people look at this and make sure you're in compliance with the law all right that's my summary of three recent news items thanks for your attention everybody see next time this concludes another episode of InFi the future of finance with Dr. Robert Murphy the information provided is for educational purposes and does not constitute financial advice consult with qualified professionals before making any financial or investment decisions for more information on the host and for previous episodes visit infinio.ai thanks for listening