The A.I. Election, Bitcoin’s Wall Street Debut and TikTok’s Doodad Era

This transcript was created using speech recognition software. While it has been reviewed by human transcribers, it may contain errors. Please review the episode audio before quoting from this transcript and email transcripts@nytimes.com with any questions.

I have some observational comedy to share with you this week.

That’s great. What did you observe?

Well, we have a sort of infamous crime problem in the Bay Area.

Yeah, people say that we are caught in a doom loop where, I think, every crime inspires another crime.

Yeah. And so now —

We’re circling back.

(LAUGHING) Exactly. So I did see an innovation in crime prevention in my — near my house this week, which was, I went to get money out of the ATM, because my barber — I was going to get my haircut — only accepts cash.

That’s interesting. We might want to alert the authorities about that. Something’s going on there.

So I went to an ATM and found out when I got there and put in my card and put in my PIN number that it was a cashless ATM. Have you heard of this?

(LAUGHING) Wait, what is a cashless ATM?

(LAUGHING) So I only learned this after I put in my card, but it was like, OK, well, we don’t have cash in this ATM, so you can check your balance. You can make a transfer between accounts, or — or that’s it, basically.

(LAUGHING) Wait, that’s the most useless machine I’ve ever heard of.

I know. I was like, at that point, why do you — like, what percentage of people who go to an ATM are doing things other than getting cash out?

That’s right. Because everything that you just described — you can just, like — I guarantee you that your bank has an app that does that. There does not need to be a machine in the physical world that does — the one thing that you need from the physical world is physical paper.

Exactly. So this is an innovation, I would guess, like a crime prevention thing. Can’t rob an ATM if there’s no cash in it.

It prevents crime, and it also just prevents customers from using it to do the only thing that they want to do.

Yeah, I did — I was telling a friend about this, and they said, you know, it’s sort of like a restaurant that has no food.

Yes, exactly.

You can come in. You can sit down. You can play with the forks.

There’s a scale. You can weigh yourself.

(LAUGHING) Go nuts. But if you want food, you’re out of luck.

Go somewhere else. [MUSIC PLAYING]

I’m Kevin Roose, a tech columnist for “The New York Times.”

I’m Casey Newton from “Platformer.”

And this is “Hard Fork.”

This week, how OpenAI is working to prevent ChatGPT from disrupting global elections. Then, the times David Yaffe-Bellany joins to explain why Bitcoin is back, and finally, “New York Magazine” John Herrman stops by to tell us how e-commerce took over TikTok and whether it can be stopped. I sure hope so.

[MUSIC PLAYING]

Casey, this week, OpenAI released a new blog post about how they are thinking about the 2024 elections. We have elections coming up, obviously, in this country, but also in many countries around the world. And OpenAI has been sort of — people have been asking questions about, will you allow your tools to be used in this or that way when it comes to elections. And this week, they sort of came out with this post saying, this is our stance on how AI can and should and shouldn’t impact elections.

Yeah, and this has sort of become an interesting feature of modern life, where in the run-up to big global elections, tech platforms will come out and they’ll say, hey, here’s sort of the harms and abuses that we know can take place on our platforms, and here’s how we’re thinking about it in advance. Maybe here’s some reminders about what’s banned, and maybe here’s some new things that we’re going to do this year to stop the worst from happening.

Yeah. And there’s also been a lot of fear, I would say, that this is going to be sort of the AI election, or the first election where these generative AI tools that allow people to manipulate images or create deepfakes or write very convincing political propaganda — they’re going to be sort of freely available to lots and lots of people. And so there will just be — experts are worried a sort of flood or a deluge of AI-generated nonsense.

Yeah, so why don’t you try to scare me a little bit, Kevin? Like, let’s imagine we’re living in a world where, god forbid, OpenAI had not released a blog post this week. What sort of harms and threats can you imagine in a situation where the platforms just weren’t taking this seriously at all?

Well, I mean, you can imagine a world where there was just an unlimited or a nearly unlimited amount of manipulated media. So a photo of a person running for office, you know, appearing to accept a bribe from a local businessman in their district or something or meeting with a foreign leader. We’ve seen already examples of these kinds of manipulated imagery. Ron DeSantis actually got a bit of heat recently for publicizing these images that had been created using AI, of Donald Trump hugging Dr. Fauci, which, for his audience, I imagine, is like the worst thing you could possibly imagine.

Disgusting.

So that’s the sort of nightmare scenario that a lot of experts are envisioning, is this stuff just sort of goes mainstream. It becomes very, very easy. And things like running a troll farm to interfere with elections by just pumping out a bunch of manipulated text and images — that becomes trivially easy. You don’t need hundreds of people in St. Petersburg working at your troll farm. Anyone with a ChatGPT subscription can basically spin one of these things up.

That’s right. I just — I actually just laid off my entire team in St. Petersburg. I was like, what do I need you guys for?

[LAUGHS]: We are already losing jobs to AI.

That’s right.

What do you hear from people that you talk to about what they’re worried about in AI in elections?

Well, I’ll tell you, of everything I’ve seen so far, the story that scares me most is the Slovakia case. Did you read about the Slovakia situation?

No, I missed my Slovakia political news alert. What happened?

Well, it’s a really fascinating story. Basically, in the run-up to the Slovakian election, last fall, the country had entered a kind of quiet period where the media is supposed to not cover the election anymore, right? The idea is, hey, let’s take a few days off, let everybody just take a deep breath, make up your own minds without being manipulated.

But in 2023, what it meant was that someone created this snippet of audio, which was later debunked as being generated by AI, and it apparently showed the progressive party candidate talking about buying votes from the country’s Roma minority. The snippet got shared on social media, and a few days later, this guy lost the election.

Now, of course, elections have many, many causes. We can’t definitively say how much did this one piece of audio actually affect the election. But if you’re somebody who’s been worried about what generative AI means for elections and democracy, this is the bad scenario. Right?

There is a world where a piece of fake media goes viral, no one can push back on it during the time that it matters, and all of a sudden, it might have had an effect on the outcome. So that’s the sort of thing that I’ve been keeping my eye on, and it was why I was frankly relieved to see OpenAI come out this week and say, OK, OK, we have a few ideas.

Yeah, and I think we should say, this is not just happening in Slovakia. We are already starting to see this kind of thing happen in the US. My colleague, Stuart Thompson, had a great story the other day about some of this sort of early warning signs that AI is being used in these malicious ways.

And one of the examples that he wrote about was brought to light by a researcher named Daniel Siegel who found these people on 4chan who were watching these parole hearings. And then, they would go and do things like use AI to undress the female expert witnesses who were testifying at these parole hearings or make voice clones of judges in these parole hearings, like, saying offensive and racist things.

And they would share these manipulated files on 4chan. And this doesn’t appear to have been politically motivated. It was just a bunch of idiots, like, goofing around on 4chan. But imagine this kind of thing happens to someone who’s running for city council in your town. That could be really hard to come back from.

Oh, yeah. You know, it’s not just political uses we’re seeing this. If you’ve scrolled through TikTok over the past few months, I imagine you’ve probably seen some sort of deepfake celebrity who is trying to sell you crypto or run some other scam, right? So I think it’s important to note just how quickly this is becoming normalized within the media environment of, OK, I’m seeing a celebrity or I’m hearing a politician’s voice. How do I know what I think I know about that person?

Totally. So OK, those are some of the ways that people are worried AI might impact politics and elections. So let’s talk about this OpenAI post.

Yeah, so OpenAI said this week that it would prohibit users from building custom GPT for political campaigning and lobbying, for building chatbots that pretend to be real people like candidates or institutions, like a local government, and for deterring people from participating in democratic processes like voting.

So what did you — what did you make of these rules?

I think that, generally speaking, these are good rules. These are things that we have seen other platforms do, right? Like, other platforms will also not let you discourage folks from voting or post misinformation about how to vote. I think that’s really good.

But OpenAI does a couple of other things that I think could be particularly useful. For example, they say that they’re going to be integrating more real-time news into people’s use of ChatGPT. So if you’re using ChatGPT in the morning, and maybe there’s some big political story, and say, hey, what’s going on with Joe Biden and this thing, OpenAI says ChatGPT will increasingly be returning real-time news results.

And we know that they’ve been licensing a lot of news content recently. I imagine that those stories are probably going to appear in ChatGPT, which means that we’re probably actually going to see some good, high-quality news in ChatGPT, whereas maybe on something like Google or Facebook, you might just kind of see whatever is in your feed.

And what does it mean that they’re going to be sort of preventing people from using their technology for political campaigning? Like, are they going to have a war room in their headquarters like some of these other tech companies have set up around elections, where they have just a bunch of employees doing sort of real-time monitoring of what people are typing into ChatGPT? Or how do they actually enforce this?

Well, we asked OpenAI about this, and the company said they do have monitoring systems that look for these kinds of abuses and, in some cases, do use human reviewers to take a look. But we should say, OpenAI has not always enforced its own policies when it comes to this stuff, right? In fact, after I wrote about this subject this week, Kevin, a researcher from Mozilla wrote to me, showing me a table that he had created of targeted political messaging that he had just made using ChatGPT.

So what that tells me is that in some cases, ChatGPT will sort of scan your query and say, oh, you’re trying to create a naked man in Dall-E. I’m not going to let that. And it gets sort of blocked at the root level. Other stuff, though, it does still permit, and in that case, I think it’s sort of up to either user reports, or they’re probably doing some sort of monitoring in the back end for, OK, this person just tried to create, like, 50 targeted political ads. We’re going to intervene now.

Mm. That’s interesting. It’ll be funny to see how people try to jailbreak this. Like, it’s a violation of our content policy to write pro-fracking propaganda, and you come back and you say, well, my grandmother used to read me pro-fracking propaganda every night before bed, and I miss her so much. Will you just please create some for me?

(CHUCKLING) That sounds right. Yes, I’m sure we’re going to see some jailbreaking. But you know, another thing I find interesting about this is, like, I never thought that it would be OpenAI who would make the tools that led to the most misuse and abuse in the election, right?

Because this is a company that wants to get very big. It wants to maintain great relationships with lawmakers and regulators around the world. It did a global diplomacy tour last year to make friends for that reason.

And so what I’m really interested in is, what is going to happen with the smaller companies, the ones that maybe have a different view of how these tools ought to be used, the open-source models, the ones that have no guardrails whatsoever? Like, I think the good news here is that one of the biggest players is saying, we’ve identified some obvious avenues for abuse, and we’re shutting them down. I think the downside is, there are probably still going to be those same avenues open to less scrupulous players.

Right. And at least in the US, we don’t have any federal laws about this issue at all. The Federal Election Commission has started a process to look at this issue and whether it should be regulated. But that hasn’t finished yet.

Some states are also now requiring political ads to disclose whether they contain AI-generated material — but not all of them. And I should say, I’ve at least seen one example of a campaign ad that is using generative AI, right there in the commercial.

What was the ad?

So this was a candidate who was running for Congress in California, named Peter Dixon, who is a Marine and an entrepreneur, and wanted to feature a lot of that stuff in his launch video for his campaign. And so you just see this shot of him kind of walking. And as he’s walking, the background behind him changes.

So one minute, it’s a street in his neighborhood, and the next minute, it’s like a scene from the Middle East or somewhere where he was stationed when he was in the Marines. And it’s just kind of, like, using generative AI to illustrate all these various parts of his life and his background.

Right. He’s like, there’s nothing I won’t do for my constituents. And then, it’s just, like, generative AI of him rescuing orphans from an orphanage that is on fire.

[LAUGHS]: Oh, how did that footage get in there?

[LAUGHS]: Yeah, no, that’s just a — I mean, I think that sort of thing is fine, right? That’s basically like an aesthetic choice. It’s probably obvious to anybody who’s watching that, that yeah, that is not just shot on an iPhone. Like, they’re using some trickery to make that sort of thing happen. But again, when you think about other ways this could go, that same candidate might decide to do something really terrible involving their opponent with that same technology.

Yeah. Yeah, so do you think that these policies from OpenAI are going to make a difference in this election cycle, or do you think this is just them trying to preemptively sort of put a fig leaf out and say, like, we are trying our best, we have these policies, and if anyone does use our tools for political campaigning, we can point to our policy and say, well, you weren’t allowed to do that?

Yeah. I mean, I think that these policies are important in the sense that they set a norm, right? Like, OpenAI is the AI company that people are looking to to understand what is the responsible player that is under the most scrutiny doing here. And I do think that sort of raised the floor for the other companies, companies that might have wanted to be more permissive. Now, they’re probably going to face pressure to do that less.

At the same time, your true policy is what you enforce. And as we said, OpenAI has not always enforced its own policies. So my hope is that in the months ahead — and certainly, I think I’ll be doing this — journalists pay close attention to, is there a big gap between what OpenAI said it was going to do and what it’s actually doing here.

And how do these policies from OpenAI compare to the AI-manipulated media policies of some of the other big platforms?

It’s a good question. And I think it tells us something about how new all this stuff is that the policies are actually pretty different. Right? Like, there are some meaningful gaps in the ways that these companies are thinking about, and not everybody has the same policy.

Meta has also banned political advertisers from using its generative AI ad creation tools. So if you’re going to try to use generative AI in your political ads, you at least can’t do it with Meta’s own tech. Google will actually block you from using political keywords at all when you’re using its ad creation AI tools. It also will watermark AI-generated imagery and audio, so that if you’re looking, you can figure out how it’s made.

Oh, that’s interesting. So if you want to run an AI-manipulated ad for your campaign on Facebook or Google, you can still do that. You just can’t use those companies’ own generative AI tools. Like, you could make something in Dall-E of yourself rescuing orphans from a burning orphanage, but you can’t use that right in the ad creator itself. Is that right?

Yeah, that’s right. And then, platforms also have rules around sort of disclosing when generative AI was used. And so even if you didn’t use our tools but you posted it, some of the platforms are going to make you disclose, like, hey, we use some generative AI here. And we’re actually seeing that in the state law. So among the states who have passed laws around that, this is really the most common approach, is to say, we’re not going to ban you from using generative AI, but you do have to disclose it.

Yeah. I think one thing that I’m thinking is, like, no matter what OpenAI does or doesn’t do or how it changes its policies, there are so many other tools out there at this point. It seems like the things that we’re most concerned about, which is these deepfake videos and these manipulated audio clips, like what happened in Slovakia, you can’t actually use OpenAI’s technology to do that stuff. It’s not part of their suite of products.

But you can use other companies’ tools. There are smaller companies, like ElevenLabs, which makes these voice-cloning audio things. There’s now open-source versions of these video-creation algorithms.

So these are maybe a little bit harder to access, but if you are a troll or a campaign operative, you’re going to be able to do that stuff pretty easily. And so I think it’s actually the smaller companies whose products we may need to watch out for more.

Yeah. And I think a good secondary question to that, Kevin, is, OK, so let’s say that you’re one of these bad actors, and you use the open-source AI tool to create the terrible audio clones to try to swing the election. What are you going to do with it?

Well, as we’ve said, Google and Meta have policies that require there to be disclosures when ads are using AI. But X has not said anything about this, and my strong suspicion is, they are not going to aggressively enforce this stuff. So to the extent that people are still using X to get their news, I do expect we will see people really try to test the limits there.

The other one that researchers are really interested in is Telegram, which is the messaging service, and they also have a very laissez-faire content moderation policy. They have to be dragged kicking and screaming into removing just about anything. So to the extent that Telegram is heavily used during this election, I think we could see a lot of deepfakes and other synthetic media flying around there.

Totally. And what’s really sort of scary to think about is the extent to which elections, at least in the US, often are influenced by pieces of media, right? I mean, remember the Mitt Romney 47 percent video or the “Access Hollywood” tape for Donald Trump. That kind of thing could be easily generated using AI.

And I also think there’s one other piece of this that doesn’t get talked about as much, which is the danger that all this AI-generated media and these fears and conversations about AI-generated or manipulated media give politicians who actually do bad things the easiest possible out, right? It creates a kind of plausible deniability. You can imagine, if the “Access Hollywood” tape had come out in 2024, Donald Trump could say, that’s a deepfake.

Now, I don’t think it would have worked in that case, because that was, like, network footage from a TV show. But you can imagine a politician who does actually get caught doing something bad — taking a bribe, you know, posing for a photo with someone they shouldn’t have — they just get the easiest excuse of all time now.

Yeah, academics have a great term for this. They call it “the liar’s dividend.” And it’s basically, because there is so much falseness in the world, it becomes easier for politicians or other bad guys to stand up and say, hey, that’s just another deepfake. So yes, that is something that we should watch.

I think that that will actually become a bigger problem after the first, like, giant deepfake that takes the world by storm and briefly fools everybody. Like, we need to, I think, sort of have had that moment for a politician to be able to get away with that. But yes, absolutely something we should keep our eyes on.

My hunch is that the biggest use of generative AI in this election cycle is actually not going to be in ads or in these giant October surprise manipulated media scandals. I think it’s going to be in fundraising, and specifically in these horrible, manipulative guilt-trip fundraising emails. Do you get these?

Well, as a journalist, I don’t donate to political campaigns.

I don’t either, but I still get them.

Oh, really? I mean, my friends tell me about them constantly. And it’s always like, Casey, do you have five minutes? Democracy is at stake.

(LAUGHING) Right, right. It’s like — it’s like, Casey, it’s Joe Biden. I’m disappointed in you.

(LAUGHING) Yeah.

(LAUGHING) Or like, it’s Pete Buttigieg. I’ve got some questions I really want to ask you. Now, I think, with generative AI, the possibility to really target the stuff at voters exists, and it could be much more manipulative. It could be like, Casey, according to my last knowledge update, you have a fear of spiders. I’m going to let a spider loosen your house, unless you give me $5.

Yeah. And look, I mean, there is already a ton of A/B testing that goes into all of those subject lines, right? And maybe if we put it in lowercase, people would click on it more. If we change the sender to make it look like it’s literally coming from Joe Biden, you’ll open it more.

So people are already doing everything they can think of to get you to open these emails. Once you put really good generative AI into that equation, I imagine, yes, it is going to become much more sophisticated and personalized. That said, I don’t think we’re actually there yet. I don’t think the tools exist for ChatGPT to know that I’m terrified of spiders. But —

Are you terrified of spiders?

— let’s check in again on the midterm. I mean, I’m not generally excited when I see a spider. Here’s what I’ll say. If it’s a spider that’s, like, smaller than — I don’t know — like, a phone, and I see it in a bathroom, I’m not terrified.

Where are there spiders that are bigger than a phone?

Florida. It’s why I won’t go there.

[LAUGHS]: Are we talking, like, an iPhone Max?

No, just sort of the normal, the Pro.

OK.

Yeah, the Pro.

So that’s sort of the doom-and-gloom picture of AI and elections. But I want to ask you, is there any use of AI in elections or in campaigns that you think would actually be appropriate and might help democracy?

I mean, I — look, if we want to experiment with personalization and persuasion, I would be comfortable with people using that to get out the vote. If people want to build campaigns around how do we get people out to the polls, that seems OK with me. Now, of course, if we make that technology available, it will probably also be used by people who are trying to do persuasion around individual candidates or ballot issues.

So that’s going to be a bit of a double-edged sword. But that’s what I would like to see. How about you? What do you think? Do you want to see generative AI in politics this year?

I just don’t think we have a choice, right? Like, these tools we’ve talked about are being built into basic enterprise software. So now, if you have Microsoft Word and you’re using that to write something, like, it’s just going to be able to suggest AI completions for that. If you’re using Photoshop for your campaign ad, it’s possible to use generative AI in that, too, not for any malicious purpose, but just to kind of spruce it up a little bit.

Yeah. I can’t wait till Microsoft Word is like, hey, it looks like you’re trying to win an election. You want any help with that?

[LAUGHS]: That’s the Pro version. You got to pony up for that.

So let me get a prediction from you, maybe, to close this out. Do you think that a year from now, we will be sitting across from each other, and when we think back on the 2024 US presidential election, do you think that generative AI is going to play a big role in the outcome, a medium role in the outcome, or a small or no role in the outcome?

I think for the presidential election, my prediction would be that it has a minor effect, for all the reasons that we talked about. If you’re running for president, you’ve got cameras and reporters following you everywhere you go. There’s sort of a paper trail for anything that you say or do on the campaign.

And it’s going to be hard to manipulate that in a way that’s not immediately debunkable by journalists and news organizations. But I think my answer changes if you are asking about state and local elections. There are some laws in some states that are going to maybe make that less of an issue, but I think in general, I think there’s going to be a lot of trickery in those elections. And so yeah. If I’m running for city council or state senate or local school board, like, this is something that I’m thinking about.

Well, you should be, because I’ve already prepared some very convincing deepfakes of you.

So sleep with one eye open, Roose.

Your opposition researchers have been working full-time.

Mm-hmm.

All right. After the break — is crypto coming back?

God, I hope not.

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So Casey, I know you are someone who is very, very optimistic and positive about the crypto industry and its future.

I am not, Kevin. But I’ll tell you that it is sort of like — you know how it seems like every Halloween, there’s a new “Saw” movie? It feels like every January, someone tells me that crypto is making a comeback, and here you are, once again, popping up, as if at the end of a horror movie.

Well, I should say it brings me no pleasure to report what’s going on in the crypto industry right now.

It gives you some pleasure to report what’s going on in the crypto industry.

Well, only because it makes you so mad.

But Casey, I want to talk about this today, because it seems like crypto is, yet again, rising from the grave.

Kevin, I have deep misgivings about this, but I will allow you to make your case.

So this kind of thing happens a lot — crypto. There’s a big bust, and then there’s a boom, and then there’s a bust and a boom. And so you know, crypto has been going through, I would say, a hard time. Many of the industry’s most prominent figures — SBF, CZ from Binance — are in trouble with the law.

Some of the biggest exchanges have been in trouble. There have been scams and frauds and lawsuits. And it’s all just a huge mess.

All my old crypto heroes are in jail, Kevin.

And yet, investors — some of them still remain optimistic that crypto is still worth investing in. And we got some news on this front on Thursday of last week, when Wall Street firms started allowing customers to trade Bitcoin through something called an ETF. So there’s been a lot of optimism in the crypto industry about the approval of these Bitcoin ETFs. And these ETFs, as boring as they might sound, actually explain a lot of why people are calling this a crypto comeback.

Yeah. And we should say that the US government fought these ETFs from becoming a reality, but they lost in court. And so now, here they are, and that is why we’re talking about it today.

Yeah.

So as we found ourselves saying, “WTF, ETF,” there was only one person we could think to talk to, and that was, of course, DYB.

(LAUGHING) Yes. So David Yaffe-Bellany, my colleague at “The Times,” is our go-to reporter on all things crypto. Let’s bring him in here.

David Yaffe-Bellany, welcome back to “Hard Fork.”

Thanks for having me.

Hi, David.

So usually, when we have on the show, it’s to explain how some facet of the crypto industry has melted down or someone is going to jail or some fraud is unraveling. But we have some really interesting news to talk about today, which is that crypto may be making a comeback. Am I right about that?

I maybe wouldn’t go that far, but it’s definitely a rare kind of good-news day for crypto. So people are celebrating.

Let’s talk about this. Because I would say, just in my sort of anecdotal interactions over the last few weeks, people that I know who used to be really into crypto before the big crash are starting to talk about it again. And they’re getting excited, and they’re starting to talk about what coins they should invest in. And I’m just, like, hearing about it more than I would say I have in the past year or so. So what is going on?

I mean, the simplest explanation for that is that prices are going up again. And when prices go up, people get excited, because they see opportunities to make money. But the sort of question of why prices are going up after this horrible 18 months for crypto, where many of the biggest companies melted down, there were bankruptcies, there were criminal prosecutions — that’s a really interesting question.

And basically, what’s been happening over the last six months or so is, there is increasing optimism that a new investment product for crypto is going to get approved by the SEC. And that probably sounds surprising, because the SEC is sort of notoriously anti-crypto, and the current chair, Gary Gensler, has made it one of his missions in life to, some would say, kind of eradicate crypto in the United States. But the SEC lost a big legal battle in August over something called a Bitcoin exchange-traded fund, or a Bitcoin ETF.

Yeah, let’s talk about that. Because I remember covering crypto, like, a decade ago. There was this dream, back then, of someday being able to buy and sell Bitcoin sort of on the stock market the way that you would buy or sell other kinds of ETFs.

And that dream was because, at the time, buying crypto was one of the most complicated things a human being could actually do.

(LAUGHING) Yes! No, literally, that was the reason for the push — was because there are — for many things that an investor might want to invest in, it is not practical to actually go out and buy the thing. Like, if I want to invest in gold or corn, if I think the price of corn is going to go up, I don’t actually want to have a warehouse where I take delivery of my corn, right? I want to be able to buy and sell a thing that sort of acts like a security, that acts like a stock, but tracks the price of whatever I’m actually interested in. Is that a good explanation of what an ETF is?

I mean, I have a lot of friends with warehouses full of corn, but I understand what you’re saying, yes.

So an ETF — I think we should explain — is just like — Casey, do you know what an ETF is? What’s your best guess?

It is a fund that is traded on exchanges, Kevin. But it’s basically a way to — when the price of Bitcoin goes up and you own the ETF, you get a little taste of the action. And when the price goes down, then you get hurt.

Wow.

Yeah.

Such an eloquent explanation —

Thank you so much.

I think the dream from crypto advocates is that there are all these people who may be interested out there in investing in crypto, but they don’t want to set up a Coinbase account or go through the hassle of, like, securing bitcoins in a wallet somewhere. Like, these are just people with retirement accounts, and maybe a little bit of money to invest. And if you could somehow make a product that could allow those people to participate in the crypto economy without actually owning crypto, they would be much more interested in doing that. And so therefore, the crypto economy as a whole would benefit from that.

Yeah. I think that’s one way of describing it. Another way of describing it is that so far, the number of people that could lose money on crypto has been limited to people who actually go to the trouble of setting up these accounts and creating their seed phrases and storing their Bitcoin in hardware wallets. But now, by putting it on the stock market, any schlub with a Schwab account can go now and lose their entire life savings. And what could be more exciting to the fraudsters and the scammers who have been pumping this stuff up for the past 10 years then to have a whole new market of suckers to take advantage of?

All right. So there’s the optimists’ and the skeptics’ case. This has been a goal of people in the crypto industry for years now — getting one of these Bitcoin or crypto ETFs approved by the government. But it’s been a long slog. So maybe you could sort of walk us through what’s been happening and why, all of a sudden, these things are getting approved.

Yeah, so you’re right. This is a more-than-decade-long dream of the crypto industry, to be able to trade this stuff on Wall Street in kind of a smoother way that’s going to attract a sort of whole new audience of investors. But over and over again, the federal government, the SEC in particular, has shot down attempts to get this product approved.

They’ve made many of the points that Casey was just making — that this is a volatile product. You know, it’s an industry that’s riven with scammers. And it’s risky to open up the audience of people who might play with this stuff to random guys with retirement accounts, basically.

What changed is that one of the companies that was trying to offer the Bitcoin ETF, a company called Grayscale Investments, sued the SEC over the denial of their application to offer this ETF and ended up winning in court. And so essentially, the SEC was left with few options other than to approve a bunch of these things. And that’s what ended up happening last week.

The way that SEC approvals work is that there are four commissioners — two Republicans and two Democrats — and a chair, who can sort of be the swing vote some of the time. And in this case, the two Republican commissioners and the chair voted to approve these products. And basically, what the agency said was, we didn’t have much of a choice.

So Gary Gensler, who is, as you pointed out, made it his career’s mission to get rid of crypto in the United States, did ultimately vote for this, which surprised me. But I guess you say, in his view, he did not have an alternative.

Yeah, I mean, he issued a statement, which is — it’s really kind of a remarkable statement. It was basically the bitterest thing that you could possibly say on this day when you’re offering the crypto world this huge kind of celebratory moment. He was like, don’t mistake this for an endorsement of Bitcoin. We still think crypto is bad. But the courts — they left us with no other option.

That’s essentially what the statement says. And there are still critics out there on the left saying that Gensler should not have voted to approve this stuff, that the SEC could have continued to fight. But he was certainly in a tough position legally.

It is one of the most incredible statements I’ve ever heard from a financial regulator. I’m just going to read from it, because I think it’s very remarkable. Gary Gensler wrote, “Bitcoin is primarily a speculative volatile asset that’s also used for illicit activity, including ransomware, money laundering, sanction evasion, and terrorist financing.

While we approved the listing and trading of certain spot Bitcoin ETP shares today —” I guess ETP is Exchange-Traded Product, right?

Yeah.

”— we did not approve or endorse Bitcoin. Investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto.” So clearly, he’s not a fan of this decision, even though he was one of the people who voted to allow it.

Mm-hmm. Yeah, this is a huge defeat for Gensler. I mean, this was one of — I mean, he’s filed all these lawsuits, started all these fights with the crypto industry. A lot of them haven’t really been resolved. They’re kind of pending in the courts. This is one that he lost.

Yeah. How has the rest of the financial and crypto world been reacting to the approval of these Bitcoin ETFs? And by the way, how many ETFs are there now for Bitcoin?

So there are 11 ETFs that have been approved. Some of them are offered by big companies that you’ve heard of, like BlackRock and Fidelity, which is a huge deal for crypto, because those sort of titans of traditional finance have historically stayed away from some of this stuff. And then, a bunch of them are also offered by kind of more crypto-specific companies, like Grayscale.

But in terms of the reaction — I mean, first, I think it’s difficult for people outside of the crypto world to understand just the level of obsession and anticipation around this approval. I mean, there are random Bloomberg intelligence analysts who know a lot about ETFs who basically became overnight celebrities on crypto Twitter and have hundreds of thousands of followers now hanging on their every word about whether the 19 B4 forms were filed on time and what that might suggest about when the approvals would come in.

It was just total, absolute obsession for maybe a month leading up to the approvals of these products. And that was partly because people were banking on the idea that prices might shoot up once the approvals came in.

And did prices shoot up?

Prices actually shot down, which was disappointing to a lot of people, but was soon explained as, you know, oh, this news had already been baked in to the price of Bitcoin, because everyone saw it coming. And in the long term, it’ll still be beneficial. But yeah, it did sort of rain on the parade a little bit. But the parade continues.

Yeah, so you reported, as you just told us, that BlackRock and Fidelity and a bunch of other very traditional Wall Street firms are now offering these Bitcoin ETFs to their customers. But you also reported that some institutions, most prominently Vanguard, have decided not to offer these crypto ETFs. Why is that?

So Vanguard is not one of the companies that applied to offer one of these products, but you could still buy a Bitcoin ETF through the kind of Vanguard interface. And so the company said, no, we’re not going to offer it, because it doesn’t align with our vision of what a smart, long-term investment is. There wasn’t a ton of detail, but clearly, if you read between the lines, what they’re saying is that we don’t trust this stuff, and we don’t think we should be exposing our customers to it.

Yeah. They’re saying, if you want to help build the North Korean weapons program, you’re going to have to do it with somebody else’s ETF.

It’s so funny. Like, I saw some crypto people on the internet getting really mad at Vanguard for this decision not to offer crypto products to their customers. And they were, like, posting things like, oh, does Vanguard want to miss the Bitcoin revolution? Does Vanguard not want to go to the moon?

And it’s like, well, no. It’s Vanguard. It wants to be the most boring financial firm possible. It wants to take your retirement money, invest it in very unexciting things, and send you 15 pieces of mail a month for some reason.

Well, you’ve put your finger on the big irony here, which is that all of these so-called crypto revolutionaries, people who are like, let’s blow up traditional finance, let’s create an alternative to Wall Street, are suddenly relying on BlackRock to change the game for crypto. And it just shows how far the industry has swung from that initial vision.

In other words, swinging to a giant legacy institution, rather than a bunch of punk rock kids in a garage somewhere.

Yeah, becoming exactly the thing that it was founded to replace.

Oh, imagine that.

Let’s talk about that. Because this is sort of the mind-bending part of all this, is that Bitcoin, crypto — these things were established as a protest against the traditional financial institutions, against BlackRock, against Fidelity, against Wall Street. But in order to grow, they have had to embrace and be embraced by the mainstream financial institutions.

And if everyone is just sort of speculating on this stuff through their retirement accounts or their investment accounts, and they’re not actually going out and starting their own hardware wallets and learning about the protocols and forming strong opinions, if this is just like one more thing like corn or oil or whatever that you can bet on, does that in some sense erode the original proposition of crypto?

Yeah, I mean, I think it does. It certainly shows that a lot of those kind of original ideals are no longer super relevant to the people who are kind of leading the charge in the crypto world. And there are some voices of dissent here and they’re kind of making that point. A lot of people in crypto aren’t big fans of BlackRock and are a little bit uncomfortable with the sort of level of obsession that people now have around the Bitcoin ETFs.

But the other factor here is that the crypto community was so starved for good news. I mean, so many bad things have happened in crypto over the last 18 months, that I think that a lot of people were sort of prepared to dispense some of their principles and just embrace this, given how bleak things have been.

Yeah. I mean, I would argue that the whole revolutionary argument around crypto, for the most part, has been a very thin veneer over a bunch of people who just hope that the number goes up forever, and that the reason that they’re excited about this is now, it seems like there’s another chance that the number can go up.

Yeah. And I think we should also say, like, these ETFs have only been trading for a few days, but they’re very popular, right? I saw something about how there have been $10 billion invested in these Bitcoin ETFs in just the first three trading days.

Well, so the crucial thing to understand is, I think that 10-billion figure is volume, so people trading it back and forth. That doesn’t actually mean that 10 billion in new money has gone into the ETFs. You could buy the BlackRock share and the BlackRock ETF at 10 AM, and then sell it at noon.

And that still counts as volume, even though there’s actually a net-zero amount of new money going in. So what we really have to pay attention to is kind of in-cash inflows, and I believe that’s more in the hundreds of millions. But it’s still impressive. And all the ETF analysts have said this was a very kind of successful debut, and it suggests that, long-term, there could be a lot of interest and money coming in.

What’s your best guess, based on your reporting, of how much of this volume, how much of this interest in trading, these Bitcoin ETFs, is speculators, versus people who are actually kind of true believers or people who are interested in crypto and maybe optimistic about how these assets are going to gain value?

It’s a little bit hard to tell who’s money exactly is going in. I mean, the most cynical reading is that crypto money is just moving around internally within the crypto world, that people are selling Bitcoin and buying a Bitcoin ETF, and then trading one Bitcoin ETF for a different Bitcoin ETF. And that’s a lot of how crypto has worked historically, and so it wouldn’t shock me if that’s the case.

But it is a fact that wealth managers across the US who control trillions of dollars in capital love ETFs. They’re one of the most popular products in the kind of wealth management industry. And so some of this money probably does come from the person with a retirement account who is interested in some exposure to this but, like you were saying before, didn’t want to open up a Coinbase wallet.

Can I ask a stupid question about this, which is, if I make a Bitcoin ETF, basically, what I’m selling on the exchanges is like a sort of access to a share of a pile of Bitcoin that I am keeping on behalf of my investors. Like, if I end up losing my Bitcoin, or I lose the password, or it gets hacked and it disappears from wherever I was keeping it, like —

Things that happen all the time in the world of Bitcoin.

Yes, like, do Ma and Pa with their retirement accounts have any claim to that? What is the sort of investor protection angle here?

I mean, in theory, if the Bitcoin that BlackRock is sitting on were to disappear, or BlackRock were to go under, I mean, that could be an issue for the people who are investing in the ETFs. But the sort of custody point — I mean, Coinbase, the exchange, has partnered with most of these ETF issuers. And so Coinbase is the entity that actually has the Bitcoin and is housing the Bitcoin in its wallets.

And do you have the address of where all this Bitcoin is stored?

Yeah, I’ll send that to you over a separate cover.

Just curious.

We can talk later.

But so basically, people are relying on Coinbase protecting this stuff. And Coinbase has a good track record of doing that, especially compared to a lot of other crypto firms.

Compared to Mt. Gox?

Yeah. I know you’re still sitting on a huge Mt. Gox bankruptcy claim —

Oh, I’m waiting for my Mt. Gox payout, I tell you.

And has this optimism in the crypto industry over the approval of these Bitcoin ETFs — has it spread anywhere other than Bitcoin? Like, are people starting to get excited about NFTs again or Web3 or blockchains of other kinds? Or is it sort of just contained to Bitcoin and the price of Bitcoin?

You’re seeing other coin prices go up as well. Solana has gone up a lot recently. That was one of Sam Bankman-Fried’s favorite coins. But it’s sort of rebounded from the sort of shame associated with that.

Ether has also gone up, though not as much as the huge ethermaxies would have hoped. So yeah, this has caused some sort of wider optimism. And there are other factors as well. It’s not all the Bitcoin ETF.

You know, macroeconomic conditions have changed a bit. People are expecting the Fed to cut rates this year. And so all of those sort of broader factors that drove up crypto prices during the pandemic — some of them are coming back, too.

And what does this mean for crypto regulation? I mean, as we’ve talked about with you before, regulators in the US are very hostile to crypto, and really, like, Gary Gensler and other leading regulators have sort of made it their mission to eradicate this stuff or keep it away from the mainstream financial system, to quarantine it into its own little economy that can rise or fall without hurting the economy as a whole. Do you see this as a setback for regulators?

I mean, this is a huge setback for the Gensler agenda. I mean, you can read that in every sentence of that statement that he wrote, right? But it’s worth remembering that Bitcoin has always sort of existed separately from the rest of crypto in the eyes of regulators. Gensler is not arguing that crypto is a security that ought to be governed by the same laws that govern stocks and bonds and that sort of thing.

He sort of conceded that point that Bitcoin is something different, partly because there’s no centralized Bitcoin incorporated that raises money to try to, like, boost the price of Bitcoin. But the sort of broader fight is still going on. I mean, as we speak, I was just listening to it before we started recording. There’s a hearing happening and the SEC’s lawsuit against Coinbase — a four-hour hearing in Manhattan over this question of whether Bitcoin is a security.

Sorry we made you step outside for a few minutes from that.

[CHUCKLES]: Um, yeah, it was a real loss. So that fight is going to continue. And that’s a real sort of existential threat to the crypto world. If we get a court ruling that says, all of this stuff, it’s all securities, then that’s going to change a lot of the way that the industry operates, and maybe force it to flee the United States. And so that’s still a kind of ongoing battle.

I mean, I do think we should try to — this has been a very — I would call it a skeptical conversation about the crypto comeback. But I’m sure you’re also talking to people who are true believers in this stuff, who do think that this is a sort of watershed moment for the crypto industry and the crypto movement. What are those people saying?

I mean, they say that this is sort of vindication for Bitcoin, that Bitcoin is the center of the crypto universe. It has clear applications beyond all this Web3 stuff. It’s a store of value. It’s been one of the best investments that you could make over the last 10 years.

Sure, there are short-term kind of ups and downs. But if you look at the 10-year trend in the price of Bitcoin, it’s way up, and that now, you’re seeing the traditional finance industry say, we’re taking this seriously, and that Bitcoin has some sort of role to play as a kind of digital gold, which was one of the initial visions for it. And I think that there’s some sort of credence to that. And again, you can look at Bitcoin separately from the rest of crypto, and I think a lot of crypto skeptics might concede that Bitcoin has a kind of long-term place in our economy, even if you think that the rest of the industry is ridiculous.

Yeah. And I would also add to that, that I think — I think while a lot of investors and regulators and maybe people who have retirement accounts see the volatility of crypto — the fact that it can rise 50 percent one day and fall 40 percent the next day — as a bug, there are a lot of people who see that as a feature.

There are people out there who want to get rich quick, who don’t want to slowly compound their money over 20 years, who want to invest in something that they feel like they understand better than the people around them, and be paid back pretty quickly on that. So I think that the sort of volatility conversation is interesting, because it’s so clear that that is not what some people, including regulators, want in an asset, but that is definitely what a lot of investors want in crypto.

Yeah, that makes sense to me.

All right. David Yaffe-Bellany, thank you for joining us.

Yeah, thanks so much for having me.

Thanks, David.

We’ll let you go back to four-hour crypto hearing.

Yeah, I’ll log right back on. I might have missed some exciting stuff.

All right.

When we come back, how to sell a pencil on TikTok.

[MUSIC PLAYING]

So Casey, we had an exciting moment happen this week. We had our biggest TikTok experience ever as the “Hard Fork” podcast.

We did. And I’m not — I’m not going to be cool about this. I actually was legitimately thrilled that this happened.

Unbelievable. So every week, we videotape ourselves making this podcast, and we put up clips on TikTok and YouTube. And one of these clips from last week’s episode went viral. We got a million views.

Yeah, now, TikTok is big enough that I don’t know if a million views truly counts as viral, but it’s certainly our biggest clip ever, and it is, if nothing else, viral-adjacent.

And are you getting stopped on the street by Gen-Z TikTok users and complimented on your clip?

Yeah, they’re inviting me to collab with them, teaching me a variety of dances. It’s been a really fun week.

[LAUGHS]: So a taste of TikTok stardom we have now had on this podcast. But today, we are going to talk about something different that’s happening on TikTok, which is that people are starting to sell things through TikTok.

I would frame it slightly differently, Kevin, and say that now that we are TikTok stars, we’re asking ourselves, how do we make money off this thing? And that’s when we found out about John Herrman’s pencil.

(LAUGHING) That’s true. So our friend, John Herrman, who’s a reporter for “New York Magazine” and a great observer of things going on under the surface of the tech economy, has been writing a lot about e-commerce and, specifically, shopping on TikTok. And he recently did what I thought was a brilliant experiment, where he became a TikTok seller and attempted to sell his used mechanical pencil on TikTok. And I want to talk to him about this. Because I think it’s not only a very funny stunt, but it’s also just sort of a peek under the hood of one of the biggest platforms and how it is trying to change itself to become, I would say, more commercial. So people have been selling things on social media since, basically, the invention of social media. But what’s different now is that it’s being sort of built right into the app, where if you go on TikTok, there’s now a whole sort of shopping category, a tab that you can end up in.

Yeah. It’s as if it’s gone from there being a small little convenience store inside of TikTok, to now, the entire app is just a shopping mall. And I think if you browse TikTok at all, you will see more and more posts from this shop being advertised at you. Perhaps you have had the question, why am I seeing this, and what is going on behind the scenes? And John went out and got that full story for us.

All right. Let’s bring him in.

John Herrman, welcome to “Hard Fork.”

Thanks for having me.

Hello, John.

So you just wrote this fascinating piece about your experience selling a used pencil on TikTok Shop. So I want to talk to you about this experience. But first of all, what made you want to do this?

I didn’t set out to sell this old pencil I had. I was just kind of poking around TikTok Shop, because like anyone who uses TikTok, I was seeing more and more content that was directly selling stuff. And it would be live streams of people doing QVC-style telethon sales pitches, or just people doing affiliate selling — things that they don’t sell directly but they were hoping to make a commission on. And it was really just kind of everywhere. So I just jumped in. I read that it was easy to set up a store. So I started doing that.

So let’s talk about how you actually sell something on TikTok, because this is not a feature that I have ever tested.

Yeah. And if you have a mechanical pencil at home and you’re looking to make some quick cash, I want you to grab your notebook and maybe a pen, and I want you to write down everything John is about to say. Because you could actually make a little bit of money here.

Yeah, and I think we should actually sell the fidget spinner that you are playing with on TikTok.

This is a priceless antiquity. I would never sell it.

Is this your grandmother’s?

Exactly. My grandmother’s fidget spinner.

OK, so John, how do you sell a pencil on TikTok?

Right. So you look at the TikTok store, and you see something that looks like an e-commerce storefront — a place with listings, with sellers. It looks kind of professional, right? On the back end, it’s a little bit more like signing up to sell something on eBay or Poshmark. It’s kind of primitive.

I logged in with my regular TikTok account. I declared my intention to become a seller. They asked me a few questions. I had to verify my identity. I had to provide government ID. And I reached around for products to list, just to see how those tools worked. I tried a half-eaten bag of dog food, which was rejected, because dog food is a prohibited category, unless you have pre-approval.

And when you say half-eaten, you mean eaten by the dog, right?

No comment.

OK. All right. Let’s keep it moving.

A dog did make an appearance on my stream later, so I’ll leave that up to —

OK, all right.

Next thing I reached for was a pencil on my desk. It was just a thing. And so I lifted the pencil. I took five or six images. I uploaded them. I plugged in a few keywords — “mechanical pencil,” “vintage.” I didn’t want to lie about it.

I mean, “vintage” makes it sound much cooler than it is, to be fair.

Well, yeah, I’m selling something. What do you —

And TikTok offered to generate my listing for me, which I thought was helpful. I was just testing these tools out. Why not test another one? I hit the button. And it generated a pretty verbose listing, a couple hundred words that were, like, accurate in spirit.

[CHUCKLES]: Wait, read us the product listing that the TikTok AI came up with.

Let’s pull it up here. Let’s see.

“Upgrade your writing game with a classic mechanical pencil. This retro and vintage-inspired pencil is a must-have for any office or school setting.

This used product comes without a battery or cord, making it easy to use anywhere. And with no warranty needed, you can trust that this mechanical pencil will last through all your writing needs.” That’s a really great way to describe something not having a warranty.

That’s a good pitch. That’s a good pitch.

“Don’t settle for an average writing experience. Upgrade to the classic mechanical pencil today.” That is entirely generated from a very short list of descriptive keywords. Did not edit it, went live with it.

But when I got to the end of the process, TikTok prompted me to sell the product. And I thought, OK, I’ll go live. That seems like the thing that people do. And so I pressed the button, and within seconds, I had more viewers than I had followers.

I’ve got, basically, no followers. This is an account that I use for work, for testing things out, never posted before. But I had hundreds of viewers. The most I saw concurrently was 360-something. Over the 10-or-so minutes that I streamed, TikTok’s analytics told me that I had more than 1,200 viewers. And I can’t emphasize enough how boring and stupid this stream was.

Yeah, I think we should actually watch a little bit of your TikTok shopping stream together. Because it is just a remarkable piece of media, and the beginning of your stardom, your future as the QVC for Gen Z. So I’ll pull it up here and screen-share.

I have — now, one thing I appreciated about this, John, was that you use an AR filter to show yourself wearing these virtual 2024 light-up sunglasses, which I thought really brought a lot of up-to-the-moment energy to what otherwise would just be a live stream of a man selling an old pencil.

[CHUCKLES]: Thank you.

[CARNIVAL MUSIC]

Now, that’s great music. Was that your music selection?

That was a Spotify carnival playlist.

I appreciate that you are selling. You’re not just sitting there with a pencil. You’re demonstrating its features. You’re talking up its selling points.

Yeah. Later in the stream, I made the pitch that it was sort of like having an AI image generator in your hand. And the audience — I got to say, they went wild for that. They all tried to buy the pencil at once.

So this was obviously kind of a stunt, but I have a few questions about it. One is, did you actually manage to sell the pencil?

I did, but to a friend who joined when I asked them to. I did get three or four organic cart ads, meaning the pencil read as unavailable to other people, because it was in someone’s cart. But no one followed through on that. So this was more of a conventional social commerce situation. I reached out to a connection that closed the sale.

How much did you sell it for?

I sold it for $1. I got $0.69 of that. That has not yet been deposited into my bank account. TikTok paid for shipping, that was a little more than $4, as part of their promotional schemes to promote TikTok Shop.

Wait, so on an item that cost $1 that you made $0.69 of, TikTok subsidized the entire cost of shipping that pencil?

That’s right. It was listed as having free shipping. I had no say over that. But all potential customers saw that this was $1, free shipping.

And TikTok then lost at least four times the value of the product on this sale.

Yeah, and —

Which, I think —

To be honest, the product is probably worth about $0.15.

Well, I really enjoyed this stunt and everything that you wrote about it in your story, John. And I think it’s just worth taking a moment to note how prevalent this sort of thing has become on TikTok. As you note in your piece, this is something that TikTok users are expressing a lot of frustration over.

I’ve come to think of it as orange TikTok. Because as you’re swiping through videos, there’s now a prominent little orange box that will tell you, hey, you can actually buy this thing right now. It’s kind of like a Home Depot orange.

And I instinctively have learned to just flick past those things. Because when I was going through TikTok today just to see what will be the first thing that TikTok shows me today, it was a $56 pack of Pokemon cards. And TikTok knows how old I am. Like, I’m not buying Pokemon cards. And I feel like, as you write about, John, the variety of things that TikTok is selling just seems like totally disconnected, in many cases, from what users might want.

Yeah. I mean, to be clear, I was eventually — or my product, rather — was delisted, because used products are not allowed, except for verified luxury handbags and things like that. However, it did illustrate that TikTok is both making it very easy to sell, because they really want people to sell, and also that they’ve put a lot of muscle behind moving these products.

They offer a lot of very deep discounts on the buyer and seller sides. And more important, I think, is that they offer some promotional firepower that just isn’t available anywhere else. If you’re selling on Amazon or Temu or through a Shopify account, ultimately, you are either trying to build a giant, organic social following, which is hard work — takes a lot of time, it’s expensive. Most of the time, you can’t do it.

Or you’re spending a lot of money with social networks. Maybe you’re spending a lot of money on Google. And what TikTok can offer and is offering right now is just, basically, the ability to spam a whole bunch of people — not people who follow you, not people who’ve expressed any specific interest in what you’re selling, but just sort of, like, they will run a very fast, ongoing A/B test on a bunch of users for your store to try to get you some traction.

They recommend that people stream for two-plus hours in order to let the algorithm work — that’s a serious suggestion that they make to sellers — in order to, basically, test and test and test to see who sticks around and who maybe converts sales. That’s something that TikTok seems to be betting is worth it.

And it makes sense for a lot of reasons that TikTok would try this. You just named some of them. I think that, sort of, mobile e-commerce — shopping apps on your phone are huge in China. Live mobile shopping is huge in China.

And so many investors and developers have come along over the past half-decade or so and thought, we ought to just be able to port this over to the United States. Like, Americans, at one time, loved their QVC. There’s no reason to believe that they wouldn’t want something like this on their smartphones.

And yet, we have just seen company after company butt their heads into what turned out to be a brick wall. With Instagram, I was honestly shocked it didn’t work, right? You think about some of the big creators there, like the Kardashians, and the degree to which they’ve been able to build these fortunes, just based on recommending products, eventually creating their own product lines and promoting them there — it’s working for some of the biggest entrepreneurs in the world.

And yet, when you fast-forward to the story of TikTok, and you see how it is working out for them, you see a man trying to sell a mechanical pencil for $1, and it just feels like something is broken there. So I’d be curious to get your thoughts on, do you think that TikTok thinks this is working? And is there anything that they could be doing that would make it work better than it is working right now?

It’s hard to know if they think it’s working. They did recently reduce some of the subsidies for sellers and buyers. This is something that we’ve seen with other platforms. Temu, sort of famously, is losing huge amounts of money on virtually everything.

Temu is an online shopping platform.

Yeah, and they sell mostly direct from China, mostly low-cost goods, and they’ve been running an incredibly expensive and, I think, pretty effective ad campaign for a couple of years now, to try to break into the US market on behalf of a parent company with roots in China. So Temu is sort of a lot of people’s first experience with this style of commerce, this sort of strange, random-feeling grids of products that you scroll through, with a very gamified interface, lots of promotions and coupons.

And a lot of those mechanics are on display in TikTok. But yeah, the difference is that Temu has to break in somehow. They have to buy a Super Bowl ad, which they did.

They have to spend money with TikTok, which they’ve done. TikTok just is TikTok. So they’re kind of running that e-commerce playbook, but they’re doing it without that huge extra expense of marketing everything.

It’s just such a strange pivot to me. It’s like, we’ve made this app. Young people all over the world love it. It’s where a lot of culture is originating. You can find people in entertainment and politics there.

It’s like — and we’re going to use all of this collective attention and direct it at the bargain bin of the internet. And that is how we’re going to make money. It’s just a very strange proposition. And yet, as you talk about in your piece, this has worked in China. Douyin, the Chinese version of TikTok, was apparently on track last year to sell more than $270 billion worth of stuff on its app.

That’s a lot of mechanical pencils.

That’s so many mechanical pencils.

Yeah.

I feel like this there are two ways to look at this from TikTok’s perspective. One is that it’s just great to be in commerce. If you could become a dominant commerce platform, if you could take some market share from Amazon or Shein or compete with Temu or whatever, this is all great. You diversify your product away from the fleeting whims of social media audiences.

You also solve a problem that TikTok’s had for a long time, which is that its creators don’t have a ton of ways to monetize. By giving people the chance to sell stuff — not their own stuff, but to tack on that affiliate link in the middle of a broadcast, it’s potentially a way to make quite a bit of money. That is something that I think solves a couple problems for TikTok, and one huge problem for at least certain categories of TikTok influencer.

My complaint here is that I feel like TikTok has basically doubled the ad load with its shop, right? Because already, when I browse TikTok, I would say I’m seeing an ad every, like, six or seven videos. But now, there’s orange TikTok, which is effectively just a different kind of ad from somebody who’s trying to sell me a pair of viral kitchen shears or something.

But there is something exhausting. Because as a TikTok user, what I generally want is to see something funny or cool. That’s why I will open up the app. I am not looking to just sort of impulse-shop, although I understand millions or hundreds of millions of people are. But my curiosity is, how does TikTok eventually navigate the fact that I think there are a lot of people like me that are not on there to shop and do not just want to look at a bunch of cheap crap every time we open the app?

Well, if I could offer a general, small prediction here, you know, right now, we’re watching TikTok try to onboard a bunch of sellers to try to normalize the shopping experience, to try to prove that it can work. If it does kind of work, I think we’ll see something similar to what we usually see with new features like this, which is, it’ll sort of disappear into the background of the platform. The promotional advantage that you’ll get from using this new feature will be lower than when it was brand new and TikTok really wanted to work.

And this promotional power will sort of be — it’ll become a product. You know, like, Amazon was an incredible place to reach new customers for lots of different businesses. Gradually, over time, to reach those customers, you needed to buy more advertising.

Like, that massive surge of — or at least, massive in-context surge of attention that I got for just a total nonsense store test — that’s the kind of thing that you will eventually have to pay for. They can still offer it. But once people understand that the audiences are there, that the audiences are worth acquiring, then TikTok can start ramping up monetization on this new product.

But for now, until TikTok is a shopping app to most people, they won’t quite do that. And so it’ll feel a little bit artificial, a little bit off. But as you said, you’re getting a preview of what that could look like in the long term — more ads, just a new ad product.

Is TikTok doing more than just sort of giving the platform for people to sell this stuff? Like, I imagine they don’t have TikTok warehouses. They’re not doing what Amazon does, which is, give people the marketplace, but also sell stuff themselves and hold inventory and do shipping and logistics. Is TikTok doing any of that or signaling that it’s going to do any of that? Or is it just purely giving people the tools to sell stuff and get it in front of people?

They’re actually taking some pretty big steps in that direction. No, they’re not trying to become a big first-party retailer. They’re not building hundreds of warehouses and millions of square feet of space.

But they are working with some pretty formidable logistics partners to make it possible to actually run a real store on the platform. That’ll take some time to really spin up. But they’re signaling that they want this to be a place to actually sell products.

And after your experience selling your mechanical pencil for $1 on TikTok, did that change your view of whether this TikTok shopping project is likely to succeed or not?

I think the best judge of whether or not this will work is, it’s not me. It’s, like, an avid, young TikTok user who takes the platform for granted, who’s been there the whole time, and who is feeling either annoyed by this or who is, in fact, excited about it. So like most predictions with TikTok, we’re sort of like, we’re kind of talking around the fact that this isn’t entirely for us.

But yeah, I don’t know. One thing that it did reaffirm for me is that there is something still unique about TikTok as an attention platform. The combination of the size of its audience and its both ability and willingness to test things out on that audience, to find audiences for content in pretty blunt and sometimes crude ways, I think, are really notable.

Like, forget targeting. Forget identifying exactly who someone is, and then trying to imagine what they want or whatever. Forget, like, putting people in demographic categories in the conventional social media way.

Let’s just start from scratch and imagine everyone is a little content-consumption data point, and just run that through. I mean, the process of doing that is so weird and so strangely compelling as you go through it. Like, the amount of strange things that you encounter on TikTok as a regular user is pretty high.

But you tolerate it, because it’s kind of interesting. You kind of wonder why you’re seeing something. And then, the next thing you see is something that you actually watch. And the shopping experience is, I think, a lot like that.

One other thing that you made me think of, John, that I do appreciate about TikTok is that there is something — like, “ruthless” is one accurate way to describe it. And it’s also quite unpretentious. You know, so many of these other social apps will talk endlessly about creating a community and, you know, harnessing the power of the community to create and share.

And TikTok doesn’t bother with that at all. They just say, you are here to consume, and we will show you a wide variety of things. And whatever you like to consume, we’ll give you more to consume.

And that’s actually the entire point of this. There is no higher purpose. You’re here to consume, so consume, you filthy animal.

(LAUGHING) Yeah, that’s absolutely right. I mean, it’s so anathema to how a lot of people think about who they are on Instagram, what they do there. You shop on Instagram now. And what that means, really, is you’re engaging with ads, and those ads are often polished, and you’re going through that funnel.

And then, on some of these other apps like Temu or Wish or whatever, and now on TikTok Shop, it’s just stuff. It’s much more like walking into a trade show in Shenzhen, seeing LEDs everywhere, clothing in every shape and size and color. It’s still kind of fun, you know.

Yeah. What I like about TikTok shop is, like, it’s — finally, a social media app is treating its users with the contempt they deserve.

It’s not this aspirational space where it’s like, oh, you could be a person with great skincare, or — it’s like, you want cheap crap. We know it. And we’re going to just feed it to you endlessly. John, are you going to sell anything else on TikTok?

My pencil listing was removed as a violation of TikTok’s rules. This is the only communication I’ve received from the company about this entire debacle. However, they have been emailing me every single day, despite the listing being banned, informing me that I’m missing out on $1 of sales for every day that I don’t restock my SKU. So I don’t know. I’ll see. Maybe tomorrow, I buy a pack of mechanical pencils and give it a go.

This is actually how journalism can be saved.

Like, every media organization just needs to pivot to TikTok commerce. I mean, start pawning off the decor in the podcast studios, the pencils, the notebooks. I mean, we could have a lucrative side business here.

Everything must go.

A pledge drive. All those fine folks over at NPR — they’re ready to go. They’re going to be superstars on this.

Where are the tote bags? All right, John Herrman, thanks for coming.

Thanks, John.

Thanks for having me. [MUSIC PLAYING]

You know, between Bitcoin ETFs and selling on TikTok, we’ve given our users two truly terrible ways to make money this week, Kevin. So if you had “improve your financial prospects” as one of your New Year’s resolutions, maybe just ignore everything you hear on this episode.

Yeah, don’t listen to the “Hard Fork” podcast.

Yeah, uh, get a real job.

That’s our advice. Just do — just do a sort of standard 9-to-5. Sell your labor for money. It’s not great, but it’s really going to be better than anything you heard about here today.

Yeah.

Yeah.

“Hard Fork” is produced by Davis Land and Rachel Cohn. We had help this week from Kate LoPresti. We’re edited by Jen Poyant. This episode was fact-checked by Caitlin Love.

Today’s show was engineered by Alyssa Moxley. Original music by Elisheba Ittoop, Marion Lozano, Rowan Niemisto, and Dan Powell. Our audience editor is Nell Gallogly. Video production by Ryan Manning and Dylan Bergersen.

If you haven’t already, check us out on YouTube at youtube.com/hardfork. Special thanks to Paula Szuchman, Pui-Wing Tam, and Jeffrey Miranda. You can email us at hardfork@nytimes.com.

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