Porn, Crypto, and Trust
Lessons about regulation
When I was an undergrad, I worked at the University of Calgary’s student newspaper, The Gauntlet. I worked my way up to being editor-in-chief, and spent the few months before I started the position reading up on all the topics the paper might cover that I didn’t know about. At the top of my list was business. I neither knew nor cared about it, but we covered some business and finance news, so I decided to see what it was about.
I dipped my toes in by covering some events on campus that the business school put on. I clearly remember the first event I went to: a media relations person introduced herself, which had never happened to me, and they had free beer. I was not uninterested. I was then invited to a breakfast event at the Fairmont Palliser Hotel, which is where Queen Elizabeth stayed. In the invitation, the media relations person told me to wear a suit.
My biggest realization covering business is that it involves an enormous amount of trust. Finance is a bafflingly complex system that allows us to make, store, and send money. And it works almost all the time! To be sure, fraud and scams exist, and capitalism has its faults, but it’s remarkable to me that any of it exists at all. The very idea of money—that, mostly without question, we have enough trust to use these pieces of paper or data in a bank server—is astounding. Jacob Goldstein covers money’s amazing history in Money: The True Story of a Made-Up Thing.
The trial of Sam Bankman-Fried, the former CEO of FTX, and the oodles of media coverage about him, raises this point anew. Sheelah Kolhatkar explores this in her recent profile of Bankman-Fried and his parents, who are both professors at Stanford Law School.
As Zeke Faux describes in his recent book Number Go Up (and this excellent interview on the Longform Podcast), crypto proponents often have this tension in their beliefs: They’re skeptical of fiat currencies such as the U.S. dollar, but they’re happy to trust people who have been convicted of fraud before or, as in the case of the stablecoin Tether, it isn’t even clear who runs it. FTX was successful in large part by creating the illusion of trust in crypto, but people weren’t doing due diligence and there was no regulatory oversight, so FTX was allegedly able to defraud customers out of billions of dollars.
Another example of trust is depicted in the podcast “Hot Money”. Pornography is difficult for governments to regulate but, like crypto, if people want to use real money, it eventually has to go through the traditional banking system. Because of this, payment companies such as Visa and Mastercard developed their own policies about the types of porn that sites could have and receive payment for. Until last year, sites like Pornhub did little to prevent videos involving minors, sexual assault, sex trafficking, and other exploitation from being posted.
Then Bill Ackman, the hedge fund manager, went after Pornhub and MindGeek, its parent company. As the podcast describes, he did this not by lobbying the U.S. government, but by lobbying Mastercard. As Hot Money describes, the company quickly responded:
Mastercard acted after its investigation found unlawful content. It banned the use of its credit cards on Pornhub’s premium site. Visa followed by suspending not just Pornhub but all of MindGeek sites. It basically cut off the use of its credit cards on premium websites that generate about half of MindGeek’s revenue—subscriptions that are paid for by credit cards.
Shortly after this, Pornhub removed almost two-thirds of the videos on its site, from thirteen million to four million.
It’s troubling that, when it comes to preventing underage pornography and sex trafficking, a private, for-profit business was able to address the problem in a way governments couldn’t. Hot Money describes how banks and payment companies are de facto regulators of porn. They take on this role, essentially, to protect their brands, which is not the main reason to regulate porn!
There are many problems with this approach. The companies make vague policies that other people have to interpret, and there’s no government oversight or public involvement in these policies. I highly doubt an ethicist was consulted. It took Bill Ackman—Bill Ackman!—texting Ajay Banga, the Mastercard chief executive, to say “Mastercard is facilitating sex trafficking” to get the company to act. This is all very bad.
But there’s another sense in which it’s incredible. Because companies want people to trust them, they take on a regulatory role. They’d make more profit if they could accept payments for anything, but most people don’t want to use or invest in companies like that, so companies do the right thing. Ackman texts Banja, and very soon after Mastercard bans the use of its credit card on Pornhub, and very soon after Pornhub removes almost ten million suspect videos.
FTX is in part a story about how a lack of regulation led to a very bad outcome. Hot Money tells the story of how trust led to a good outcome despite a lack of regulation. For the latter, the conclusion here shouldn’t be that the system works. It did work in this case, but it’s far from the best system. Still, it’s an important story of how incentives lead to trust, which leads to more ethical behaviour.
Quick Hits
An inmate at a medium-security prison in British Columbia who has a terminal illness has been granted parole to die outside of jail. He has applied for a medically assisted death. As the prison population ages, questions about how treat these people ethically will become increasingly pressing. For a related story, see Katie Engelhart’s excellent New York Times Magazine piece on prisoners with dementia.
Speaking of excellence, my wife, who’s a registered dietitian, gave an excellent interview on nutrition for children here. Among other things, she highlights some of the ways that fathers play an important role but are left out of discussions.
A research team including Eliana White and Jocelyn Downie published a qualitative study on the effects of institutional objections to medical assistance in dying in Canada. The whole thing is available here.
Four philosophers and a musician hiked the Presidential Traverse in New Hampshire last Saturday. I was there. It was a good adventure. You can see my stats here.