Proving how people innovate with the ways they try to steal from others, Tracy and Monika discuss fraud in the blockchain and innovation. They address the question from an audience about how we can be better at dissuading fraud by laying down how they fight innovation scams with diversity and questioning. They bring in the topic of social proof and how important having multiple perspectives are when it comes to addressing issues, showing how we become stronger in groups and social interaction.
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Fighting Innovation Scams With Diversity And Questioning
We are excited to be here because we have an episode in which we’re responding to someone who reached out to us on Facebook. I’m excited that we got reached out to. We’re not doing this into the ether out there. People are responding. We had Bernard from the UK and he reached out and said, “How can we be better at dissuading fraud in blockchain and innovation?” I thought that’s an interesting topic. We hear about Bitcoin scam, token scams and a lot of these things going on. I think I’ve heard that before.
I’ve heard it all over the place.
Monika, we were talking before about it and there is an interesting place in which there is fraud happening. It happens at every technology I’ve ever been involved in for the last many years. Every time there’s a new technology, there are fraud and scams that go on because a lot of people don’t understand the technology. They don’t vet them properly. They don’t ask the right questions.
Not from an investor’s standpoint. When you think about it, it’s a lot easier to tell a lie to a couple of people in a room where they don’t have a lot of opportunities to cross-reference. You were talking about the Theranos, not just fraud but the conspiracy behind all that fraud. Many people, her family even that were involved in and lying to investors and painting a false picture.
For those of you who don’t know, I just want to back up. The Inventor: Out for Blood In Silicon Valley came out on HBO and it’s the Elizabeth Holmes story about how Theranos came about and how it dissolved into going from $900 million in investment and being worth almost $10 billion in valuation. They’re still in court. It could be a negative value. It could be they owe money. How does something like that happen? I watched that ironically after thinking about that we were going to talk about this and it showed you that it has nothing to do with blockchain specifically or with Bitcoin or cryptocurrency in general.
With health tech or with specific anything, it’s if people are going to lie, they’re going to lie. It also is a lot easier to either lie in a group of people that will agree with you or lie alone where there’s not a lot of other social proof. There might be something there. It’s not a blockchain thing, but it’s a social proof thing. It’d be harder to tweet a lie where lots of people can be, “The sky isn’t orange. That’s crazy.” You could maybe convince a three-year-old who hasn’t been outside in a long time. “The sky, that’s called orange,” and it could work. Depending on the audience and depending on the isolation, you can get away with fraud much more easily than in a social environment where people are always watching and either agreeing in a blockchain-y way or not agreeing and disagreeing and saying that’s false. There’s an opportunity for social proof to win out. It’s a social conversation. It’s not even a blockchain conversation. Technology blockchain happens to mimic social proof in a technological way, but not the other way around. It’s not like, “Blockchain’s going to solve fraud.” It’s more like, “Blockchain is finally looking at a way and it’s finally constructing technology that imitates what we’ve already figured out socially to do, which is see if we all agree with it or not.”
This is a thing. I don’t know that blockchain is a solution for any of those things in particular. They’re solutions for problems within that structure. You have rampant distress going on so you can have a more transparent view of those things or you can have an opportunity to have checks and balances and mutual agreement across the block. You look at that and that’s interesting. I do think what we’ve created in these disruptive technology environments over time and part of a Silicon Valley problem, because that’s where it starts out, is that we’re like, “This is the hot new thing.” It’s that mutual agreement. Theranos, the people who were invested in that were like, “How can Henry Kissinger be wrong? How could these big players like General Mattis be wrong?” They think that there’s something here because of the social proof of who was in it and yet no one asks the questions.
That’s where we have also to be careful in blockchain. Who are we involving? Is it diverse enough? That’s the conversation that I started having and the answer that I gave Bernard initially was that the reality is I believe that technology can be sounder. A company can be sounder when you were pushing back on them and asking those questions from diverse perspectives. Had someone been in the med-tech industry started asking more questions, had that not been gated off and blocked off strongly, then this would have come to light way sooner.
Before the $900 million investment level.
There are a couple of things I see. They wanted to be the early interim, but they could stand to lose the money.
That’s Investment 101. There are all kinds of rules. Only the people that can stand to lose the money are allowed to be a part of it, thanks to the SCC. This seems like such a social issue. I tell people too that I have a couple of billionaire friends. It’s odd being that I’m not a billionaire.
You surround yourself with them.
I happen to know them occasionally. I run across them and we have legitimate deep friendships. This isn’t like, “I’m good at keeping a Rolodex.” I look out and try to get friends that are not like me. I have friends that are super crazy libertarians. I have friends that are far off the political spectrum and directions I do not care to venture myself, but I am curious. I’m like, “What’s it like over there?” You believe all kinds of crazy stuff. I have cousins that love their guns on their birthday, they want to show the latest gun they bought. I’m like, “You are that neighbor. How sweet.” That diversity makes my life more enriching. I like it because I can ask people that I know won’t agree with me. They’re going to tell me such a different thing.
It’s not just for a company or for investment, it’s in my life. I want the chance to see and reflect on reality from multiple vantage points and I only know what it’s like to be me. I don’t know what it’s like to be them until I ask them and until I let them talk to me and ask me questions and challenge me or give me new information and new insights that I wouldn’t have come up with. I liked the idea of not being the authority of my reality, but the curious onlooker along with other people who I intentionally choose to be different from me and give me their feedback too.
I’ve worked so long in innovation in general. The innovation process is foreign to many people that they expect that this stuff can be done. They’re like, “The technology is fully formed. It can be done.” There is a lot of invention along the way that has to come and has to happen. Not recognizing that or not having cognizance of that as you enter into evaluating, vetting and investment whether or not you want to start a company and be involved in that is shortsighted, to begin with. Elizabeth Holmes made a huge mistake in that she kept pushing back and saying, “If I believe this can happen, the team will make it happen.” That is not how Steve jobs did it. That is not how Edison did it. He beat his employees to work hours and hours. They had no light. They had to invent the light bulb. How it came about is that he was a slave driver about it and didn’t give up. They were working at it at the core technology level and he was still listening to the people who knew what they were talking about. She wasn’t. She had no one involved in the process who knew what they were talking about. Anyone who did, she discounted them for being contrary.
If you are looking to be the authority, you’re probably looking to go down as wrong in history all by yourself then and bring whoever’s with you down with you. It’s becoming more apparent whether it’s evidenced in the way that we’re technologically innovating or how we are communicating. We are stronger in groups. We are stronger in social interaction. When you think about it, what gives YouTube video any value anymore? It’s if everybody watches it. It’s if everyone engages it. That means they have to either agree with it or disagree with it, but they have to want to consume it. The power is in all of us engaging, not in someone saying, “I know best or I have the best.”
That’s why I’m not a huge fan of liking. Liking is not the point. I so appreciate the engagement we’ve received here. If you don’t comment, then we’re not having that conversation around whether or not this is valid and interesting. It brings up a point I am always questioning every time I go and I write about a lot of startups. Every time I write about them, I know there’s a risk that a few months later they could be gone.
That’s innovation. That’s not even a risk. That’s a reality. There are lots of flashes in the pan.
All I can do is write a decent story or ask good questions here about it and try to prove that. That’s why we have a disclaimer at the front of our podcast. We’re not here giving advice or endorsing any of these companies because we don’t have time to vet them for you.
I’m not in the vetting process for people.
It’s not our day job. It’s not what we are. I felt for The Wall Street Journal and the guy who wrote the cover story on Fortune on Elizabeth Holmes because it was like they felt duped in that process too. They’ve tried hard to vet it and get it, but they could never get the answers they were seeking. They were on deadline and their editor said, “Publish.” That’s how it comes about and we’re the same way here. We’ve got to publish. We’ve got to send you out some episodes and bring you some interesting things to consider and think about. We’re scratching the surface, that’s all our job is. Our job isn’t deep journalism or isn’t investigative in any way, shape or form. It was always a risk when we were presenting something or thinking about it. I try to ask those questions and I try to think about as, “Did they answer that?” One of the ones that have been going around in my mind is a lot of these cryptocurrencies, a lot of the apps that I’ve looked at, even NASGO and some of the other companies, they are not achieving everything they claim they can do. We try to point that out, but are we pointing out and diving deep into how they might not succeed? I don’t think we have necessarily the bandwidth to do that.
That’s the other thing is that the critical eye sometimes needs a lot more investigative background than a cheerleading eye. We look at things that we think are exciting and we champion them. Sometimes we’re wrong. There’s nothing wrong with saying, “This is an exciting area. Let’s look at this and look at that.” Some of those stars go out but some of them live on. That’s fine. To be a critical voice is a different animal. Coming from the art world, I remember looking at what art critics would say and thinking, “Why don’t you go read the telephone book and find meaning there?” When you have people that are like, “I’m outside of what you’re doing, but I’m here to criticize it.” Give me a break. If you like it, talk about it. If you don’t, leave it to people to mull it over and not like it together. You don’t have to bring always a critical eye to everything. The proof could be in the pudding.
I do think that if you do have a viewpoint that is critical, that is because of experience, then you do have an obligation, you speak up. You do have an opportunity to do that. Whenever I try to look at some of the things we’re working on, I look at them and say, “Are they poised to build a good stable company? Are they getting some market proof underneath it?” When I see market proof, there’s something to base some decisions on. I’m not looking at their financial statements. There was a lot of criticism over Theranos because none of the investors ever reviewed audited financial statements.
After that much investment?
These are the investors who should know better.
You said it’s a Silicon Valley thing. It starts there because they all know each other. We can blame it on Silicon Valley because that happens to be the behemoth of the problem. This problem is group dynamics. It’s people not going, “Who’s the dissenting voice? Let’s value that.” It’s not always the criticism, but who has a new question? Who came from a different country? Who’s got a different experience? Who is the minority in the room? It’s like biodiversity. We only have one kind of broccoli that we buy in the store anymore. There used to be 30 kinds of broccoli that were available in North America and Europe. There no longer is. There’s a problem here, whether it’s in our culture or our permaculture.
There’s a problem that we’re becoming more homogenous. What happens when your genetics become homogenous? You end up becoming hemophiliacs like the Spanish aristocracy back in the day. There’s a lot to be said for diversity in general and in all ways. When you think, “What’s the person I would rather not listen to right now?” Maybe you should stop and listen to them. If nothing else out of curiosity, somebody might have at some point before they put $900 million into a company said, “Can we see your P&L?
It is one of those things where I look at that and I think, “That’s not how I operate. That’s good that I don’t operate that way,” and maybe you shouldn’t have either. I look at that as there is a very big risk in a startup at all stages. When you’re seeding something, you should be investing because it’s okay to lose the money because it’s going to happen.
At some point, you’re going to lose nine out of ten.
This was a more extreme case of some conspiracy and it’s still in the court system. It’s not proven that that’s what it is, but it appears that way. She had a grand goal. We all have it in our business. We have this big goal, this big hairy audacious goal. You look at that and you go, “This is great. I would like to be a part of that. I would like to have seeded that,” but in the back of your mind, especially at a certain level of being on their board of advisors, which many of those big names were. You have to come in and say, “Are we asking the deeper questions? Do they have a path to get there?” It’s not that we’re this far away or it’s a little bit more money and it’s around the corner. If you’re not asking the questions of, “Did they build the right team? Do they have enough investment?” that’s a problem too. You’re negligent as an advisor in that process because it is your job to be a part of that and to help make that happen.
We watched this movie and my kids seem to like it all the time, The Martian with Matt Damon. He says at the end, “If you solve one problem and then you solve the next one that comes after that and you solved them in front of you and took each one as they come and figure out how to solve that, then eventually you get to go home.” Eventually, you get to the innovation. If you skip all those and only have your eyes out here where the entire company, the entire investment group, the entire team, you will never make it from here and there. Somebody has to solve those problems all along the way, and that’s a good company. That’s a company with a sustainable structure underneath it. It’s also the same way with money. The money has to flow in that same way too. When I look at that, that’s what I’m looking for is like, “Are they taking input? Are they soliciting diverse opinions?” When I hear that block off sound bite-y thing, I’m turned off by it and I would have walked away. That’s for me what happens when we get a guest on who does that. I almost don’t want to air it.
When I get the sound bites, I’m like, “That didn’t answer the question. Can we dive a little further?” I get it sometimes when I ask inconvenient questions at panels when I’m in a room at say a blockchain conference. I’m like, “What about interoperability? What if your chain doesn’t operate with other chains? What are you doing about that? Because you’ve got this coin, you’ve got this ecosystem. Everyone knows they’re going to have an exit, but your exit is tied to this cryptocurrency?” They pivot and then like, “Little ma’am, you don’t know.” I’ll be like, “Let me rephrase it. Perhaps you didn’t’ understand.” You have to rephrase it two or three times. You know that it’s like, “You don’t want to admit that you don’t know the answer.”
You don’t know how it’s structured. A networking group of mine bought into a coin that they were all excited about and I refused. This was way before I knew enough of the industry that has legitimately refused, but something didn’t sit right with me in the way they were answering questions. At the end of the day, these people are thinking they’re going to get out of this in six months, nine months or within a year.
They’re not playing a long game.
None of them were playing the long game and none of them could afford to lose the money. That was the other part that I saw there and I thought, “There’s something wrong here.” What was wrong was now that they made money, it grew. It did what it said it was going to do. That was good, but there’s no exchange because nobody wants in now. Everybody wants out and nobody wants in. You’re stuck with the timeshare. That’s what I saw was that salesy model that they were stuck with the timeshare. That’s what I heard and that was the tone of everything. I was like, “I’m out of there.” Now that I’ve been out there with videos and our podcast, I’ve got all these people coming up to me and like, “Did I get scammed?” I was like, “No, you bought in for what you signed up for. They raised the value, you did that. What you didn’t anticipate and didn’t understand and didn’t ask the question was, ‘How am I going to sell it when I’m done with it so I can recoup that value?’”
How am I going to be able to have liquidity?
Is there a marketplace? You didn’t ask about the liquidity and now you’re stuck. I was like, “That’s on you. You didn’t know enough to ask the questions.” It’s also on them because they shouldn’t have been selling to that group. That’s how I felt about it. That was not a group that didn’t understand what they were getting into. That’s how scams happen and they feel scammed, but it was also on them for not asking the right questions. That’s what we hope to bring here. That’s my point to all of this is that if we can bring perspective on how to build great companies? Are these people on the path to that and asking those deep questions? Is this investment structure strong? Do they have good financials? Do they have a plan for interoperability or do they have a plan for liquidity?
Those questions are what you and I are bringing here. That’s at least asking those diverse questions and pushing back. We’re going to keep doing that for you. Hopefully at least then it starts you thinking about the questions you want to ask before you invest in something or before you get involved or before you give an opinion about some company. When you’re in the blockchain market, when you’re in the cryptocurrency area, people keep asking you questions, “Should I do this?” I’m like, “I don’t want to answer that.” Did you ask these questions as a fair thing to respond?
It’s a fair thing to respond. You can’t always be telling people what they should do. It’s just, “Have you thought about this? Have you thought about that?”
How did you ask these questions? That’s what we’ll keep trying to do, bring great questions so that we can start to root out and see who’s succeeding here.
Time will tell. It’s such an early time. People have been like, “Do you have any comps for your company?” I’m like, “It’s a little early to be talking about how people have exited or been valued at this point.” Early days are exciting, but they’re also a bit more mysterious.
Be realistic about what stages these companies are in. That’s something that we need to investigate further as we’re having the conversation with them. We’ll be asking those questions. I did an interview with Markus Levin of XYO. They have a team of people who have exited, who have built stable companies outside of blockchain, outside of tokenization. That’s important to know too. Ask the questions about the team because that may be an indicator. At least they understand the structure of the company. They didn’t come into it 21 years old without any experience. Never having built a company and not surrounding it with people who can build a company. Looking at that is always an important thing to investigate. I hope we’ve answered your question, Bernard, and we hope other people will be encouraged to reach out to us and engage. That’s the idea of what we want here. We want your diverse opinions. We want your diverse ideas. We want your diverse questions.
It would be wonderful to get more of that. Definitely write in, comment and let us know what you think.
Remember, NewTrustEconomy.com is where you can always find all the information on us, on all of the posts that we have there. We’ve got videos. Everything’s all there. We’re excited. We have a New Trust Economy’s channel on YouTube. All the videos can be watched straight in your YouTube app as well. You can listen to us on your favorite podcast app and it would be great if you helped us out. If you not only subscribe to the podcast on your favorite app, but you also took time to rate and review us. We’d appreciate that at this stage.
That would be helpful. Please rate and review.
Thank you so much. I’ve been so pleased with the outpouring because I manage a lot of podcasts and to be reached out to by people before you even hit your 50th episode is impressive. We have a community who’s active and engaged and I love that. It makes me more excited to build great episodes for all of you. This has been Tracy and Monika.
Thank you so much. We’ll catch you next time.
Important Links:
- Markus Levin – interview with Tracy Hazzard
- XYO
- New Trust Economy – YouTube page