Apple’s Very Bad Week

Why Privacy Matters

By Keith Teare • Issue #269 • View online

Apple crosses to the dark side. Its image fingerprinting and matching technology can be used for much more than protecting children. And it will be. The right to privacy is more important than ever.



Apple has had a very bad week. Or perhaps a couple of weeks. Regular readers will not be shocked that I am writing this on an M1 MacBook Pro and using Apple’s new TouchID enabled keyboard. I am a long-standing lover of all things Apple.

I am also a believer in the freedom of individuals to privacy. In a bizarre attempt to justify its new image fingerprinting and matching technology being applied to every iCloud image and many locally stored ones too the company embarked on a publicity frenzy. TechCrunch editor Matthew Panzarino published a lengthy interview with Erik Neuenschwander, Apple’s Head of Privacy.

Cynics might re-label his title.

The interview is solid and Erik definitely does a good job of calming the nerves of those who might feel that Apple is prying into their private business as part of an attempt to catch those who abuse children.

As I read it I couldn’t help but conclude that Apple has a blind spot. The tech Apple has built is impressive. It involves a digital fingerprint or watermark from an image and then the ability to match that fingerprint to a database of known images of missing or abused children. This scanning will happen on all iCloud images and many images that are sent in messages on an ios device. Apple claims to be doing the world a service by making an unobtrusive scan that produces a list of identifiers but sees images known to be of concern for child safety reasons.

Here is the problem. This fingerprinting technology could be used for images or videos for entirely different purposes. If a government wanted to find political activists accused of being dissidents for example. All it would need to do would be to open its image database to Apple and make a law forcing Apple to scan the images and find any instance of that person on any iPhone under the Government’s jurisdiction.

Once Apple has chosen law to apply this technique to, it can be applied to any use case by any Government anywhere with Apple having a choice to comply or not do business in the country. The only way to avoid this is to protect private citizens and our devices from being scanned without our permission.

In this week’s newsletter, we have stories that cover this issue, including links to Apple’s justifications and to opponents’ reactions. On this issue, I am not with Apple.

The lead section this week highlights the intention of Circle to seek the status of a Bank. Axios explains how that may be a path to USDC (a stable crypto coin) becoming a backer of the US digital dollar. This would be the private currency that we discussed in last week’s newsletter. Accompanying it I link to a piece by Kevin Werbach reminding us all that technology is created by humans and typically embeds the goals of its creators in its code, hence is not neutral. Kevin is right. And Ezra Klein explains how the Senate does not understand the technology that it sought to regulate as part of the infrastructure bill – Crypto.

This is why rights are so important when tech or politicians seek to impinge on them. More in this week’s video.



The $ Goes Private?

How crypto giant Circle could create a U.S.-backed digital currency — Axios

Crypto giant Circle has announced its intention to become a bank, fully regulated by the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC.

Why it matters: We’re still a very long way from this happening. But if it does, Circle’s USDC stablecoin could become a de facto central bank digital currency.

How it works: Circle’s dream is to become a narrow bank — one that eschews fractional-reserve banking entirely, and instead places all deposits on reserve at the central bank.

  • Only banks can open accounts directly at the central bank, which credits them with pure money.
  • In Circle’s case, the “depositors” would be holders of USDC, and the collateral backing up USDC would be the money on deposit at the Fed. Circle would pocket for itself the interest that the Fed pays on bank reserves.

The big picture: If the dream were to become reality, then Circle would effectively be issuing a cryptocurrency backed by the Fed itself — for all intents and purposes, a central bank digital currency, or CBDC.


Technology isn’t Neutral. Even Decentralized Cryptocurrencies. | by Kevin Werbach | Aug, 2021 | Medium

Kevin Werbach

The cryptocurrency community has been in a tizzy over tax reporting language in the Biden Administration’s infrastructure bill. There are important matters at stake. As I’ve pointed out, though, the ultimate issue isn’t what most of advocates are focusing on. It’s the regulatory challenge of Decentralized Finance (DeFi).

(For those unfamiliar with DeFi, the Wharton Blockchain and Digital Asset Project and the World Economic Forum recently published a summary report. For those too lazy to read 20 pages, here’s a short, accessible overview I wrote for The Conversation. If you’re too lazy even for that, it’s about delivering financial services — trading, lending, asset management, etc. — as decentralized applications on blockchain networks.)

DeFi services are decentralized, non-custodial, and fully implemented in open-source software. That’s what makes them so powerful, so innovative, and also potentially so dangerous. Already billions of dollars are sloshing around in the DeFi world, with the prospect of much more in the years to come. Finance is already highly digitized and automated; capital flows fast when it sees an opportunity. That’s exciting — DeFi promises major benefits, including for financial inclusion as well as for professional traders — but we need to consider the risk side of the equation as well.

Both the benefits and the dangers of DeFi, like all blockchain-based systems, flow from its decentralized structure. Which is why this comment by Brian Brooks in a piece for Fortune struck me. Brian, former acting US Comptroller of the Currency under President Trump, just abruptly resigned as CEO of the US arm of Binance, one of the largest global cryptocurrency exchanges.


Opinion | The Way the Senate Melted Down Over Crypto Is Very Revealing — The New York Times

Ezra Klein

For months, there’s been a debate over what should count as infrastructure. Roads and bridges, sure. But what about preschool and health insurance and child care? Democrats say yes, Republicans say no. With the exception of broadband access, however, there’s been almost no discussion of the infrastructure underpinning the digital economy. But right at the end, that changed, when a meltdown over cryptocurrency regulation almost derailed the bipartisan infrastructure bill’s passage in the Senate.

I’m going to try to do a few things here. First, I want to explain why crypto matters, even if you think Bitcoin is just goldbuggery for nerds. The technology is evolving to be much more than a digital currency, and Silicon Valley sees it as the digital infrastructure atop which the next internet will be built. Then I want to trace the fight that consumed the final days of the bill, because this was just an early skirmish in what will be a much longer campaign.


Klobuchar Still at War on Big Tech

Blumenthal, Blackburn & Klobuchar Introduce Bipartisan Antitrust Legislation to Promote App Store Competition | Press Releases | United States Senator Richard Blumenthal

Wednesday, August 11, 2021

[WASHINGTON, D.C.] — U.S. Senators Richard Blumenthal (D-CT), Marsha Blackburn (R-TN), and Amy Klobuchar (D-MN) introduced the Open App Markets Act, which would set fair, clear, and enforceable rules to protect competition and strengthen consumer protections within the app market. Two companies, Google and Apple, have gatekeeper control of the two dominant mobile operating systems and their app stores that allow them to exclusively dictate the terms of the app market, inhibiting competition and restricting consumer choice.

“This legislation will tear down coercive anticompetitive walls in the app economy, giving consumers more choices and smaller startup tech companies a fighting chance,” said Blumenthal. “For years, Apple and Google have squashed competitors and kept consumers in the dark — pocketing hefty windfalls while acting as supposedly benevolent gatekeepers of this multi-billion dollar market. I’m proud to partner with Senators Blackburn and Klobuchar in this breakthrough blow against Big Tech bullying. This bipartisan bill will help break these tech giants’ ironclad grip, open the app economy to new competitors, and give mobile users more control over their own devices.”


Apple’s Very Bad Week

Apple Privacy Letter: An Open Letter Against Apple’s Privacy-Invasive Content Scanning Technology

Read and sign the open letter protesting against Apple’s roll-out of new content-scanning technology that threatens to overturn individual privacy on a global scale, and to reverse progress achieved with end-to-end encryption for all.


Apple Fails to Justify the Means and Forgets to Justify the Ends

I mean, my god this was an obvious communication failure…

They see you when you’re sleeping. They know when you’re awake. They know if you’ve been bad or good. So…

Did you hear the news? Apple is about to start looking at all your photos. One by one. The blanket rationale is to catch pedophiles, but they want to see it all! Beautiful, isn’t it?

Or, at least, that’s what the focal point of most articles about this topic largely seem to suggest. And that’s too bad because there is a really interesting debate and conversation to be had here. But we’re largely missing it as a result of such headlines about the world’s most valuable company.

And it’s largely Apple’s own fault. Perhaps feeling left out by the constant communication own-goals by Facebook, Apple set up the mother of all self-owns.¹ It’s hard to think of a more massive communication fuck up, honestly. Again, because this topic is so big, so important, and so sensitive. Apple probably should have had an event, or at the very least a large-scale pre-brief with journalists and bloggers to talk through these issues.²


Daring Fireball: Apple’s New ‘Child Safety’ Initiatives, and the Slippery Slope

Apple yesterday announced three new “Child Safety” initiatives:

First, new communication tools will enable parents to play a more informed role in helping their children navigate communication online. The Messages app will use on-device machine learning to warn about sensitive content, while keeping private communications unreadable by Apple.

Next, iOS and iPadOS will use new applications of cryptography to help limit the spread of CSAM online, while designing for user privacy. CSAM detection will help Apple provide valuable information to law enforcement on collections of CSAM in iCloud Photos.

Finally, updates to Siri and Search provide parents and children expanded information and help if they encounter unsafe situations. Siri and Search will also intervene when users try to search for CSAM-related topics.

(CSAM stands for Child Sexual Abuse Material — a.k.a. child pornography. People familiar with the lingo seem to pronounce it see-sam. Another acronym to know: NCMEC — nick-meck — the National Center for Missing and Exploited Children. That’s the nonprofit organization, founded and funded by the U.S. government, that maintains the database of known CSAM.)

The third initiative — updates to Siri and Search — is the easiest to understand and, I think, uncontroversial. The first two, however, seem not well-understood, and are, justifiably, receiving intense scrutiny from privacy advocates.


Matthew Panzarino Interviews Erik Neuenschwander, Apple’s Head of Privacy

Terrific interview — great questions, asked in the right order:

Panzarino: One of the bigger queries about this system is that Apple has said that it will just refuse action if it is asked by a government or other agency to compromise by adding things that are not CSAM to the database to check for them on-device. There are some examples where Apple has had to comply with local law at the highest levels if it wants to operate there, China being an example. So how do we trust that Apple is going to hew to this rejection of interference if pressured or asked by a government to compromise the system?

Neuenschwander: Well first, that is launching only for U.S., iCloud accounts, and so the hypotheticals seem to bring up generic countries or other countries that aren’t the U.S. when they speak in that way, and therefore it seems to be the case that people agree U.S. law doesn’t offer these kinds of capabilities to our government.


WSJ News Exclusive | Apple Executive Defends Tools to Fight Child Porn, Acknowledges Privacy Backlash

A senior Apple Inc. AAPL +0.06% executive defended the company’s new software to fight child pornography after the plans raised concerns about an erosion of privacy on the iPhone, revealing greater detail about safeguards to protect from abuse.

Craig Federighi, Apple’s senior vice president of software engineering, in an interview, emphasized that the new system will be auditable. He conceded that the tech giant stumbled in last week’s unveiling of two new tools. One is aimed at identifying known sexually explicit images of children stored in the company’s cloud storage service and the second will allow parents to better monitor what images are being shared with and by their children through text messages.

“It’s really clear a lot of messages got jumbled pretty badly in terms of how things were understood,” Mr. Federighi said. “We wish that this would’ve come out a little more clearly for everyone because we feel very positive and strongly about what we’re doing.”

The Cupertino, Calif., iPhone maker has built a reputation for defending user privacy and the company has framed the new tools as a way to continue that effort while also protecting children. Apple and other tech companies have faced pressure from governments around the world to provide better access to user data to root out illegal child pornography.

More Here

Where is Venture Capital Going?

Venture Capitalists Are Not Going Away Anytime Soon — Crunchbase News

Gené Teare

Are venture capitalists an endangered species?

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It’s an interesting question, as investing in private tech companies becomes increasingly competitive.

If nothing else, we’re experiencing the end of venture capital as we know it, according to Sam Lessin of Slow Ventures, who predicts in a recent column in The Information that by next year, nontraditional tech investors will invest more in private tech companies than traditional Silicon Valley VC firms will.

Our data seems to show that’s already the case.

Despite this fact, I do not agree with Lessin’s conclusion: He suggests venture capitalists need to find new ponds and focus elsewhere while leaving the more predictable SaaS startups to growth equity investors.

Some sector-focused venture funds are already investing in other ponds and providing differentiation. But the software and SaaS pond is big — and growing — and to cede this to growth equity could cripple the whole ecosystem.

And most startups still fail — even those that raise Series A and B funding.

Growth equity has a different take, gaining a stake in the best pre-IPO companies. This is a very different rationale to the messy business of building a startup.

Let’s dive a little deeper into what’s actually happening and what the future could look like.


Hedge Funds Want to Get Into the Quest for Unicorns but the Venture Is Fraught — Bloomberg

Becoming a crossover is not a walk in the park. The likes of Tiger Global and Hillhouse Capital have to learn to wander through the death valley curve.

Shuli Ren

After the pummeling they suffered at the hands of Robinhood retail traders, hedge funds are speeding over to private markets and the turf of venture capitalists. The eagerness can be breathtaking: Enormous checks written within minutes at the negotiating table, with not even a board seat in recompense, just to get part of the action. The swiftness of the matchmaking puts the likes of Masayoshi Son of Softbank Group Corp. to shame.

In the second quarter, New York-based Tiger Global Management LLC became the world’s most active venture capitalist, doing 1.3 deals a day versus SoftBank’s one, according to CB Insights. Coatue Management LLC, also based in New York, is now among the top 10 investors in U.S.-based startups. In Asia, Zhang Lei’s Hillhouse Capital Group — which began as a hedge fund — is engaged in a bitter rivalry with Sequoia Capital China, the venture capital shop led by Neil Shen.

Masa Son pours money into new fund as Softbank scales back China bets New York Post, Lydia Moynihan

Softbank CEO Masayoshi Son is doubling down on his investments.

The billionaire investor behind tech companies like WeWork, Alibaba and Doordash plans to invest $2.6 billion of his own money for a 17 percent stake in SoftBank’s most recent venture capital play: Vision Fund 2, he said on Tuesday.

Son made the announcement during an earnings call with investors Tuesday — months after SoftBank announced it was tripling the size of the fund to $30 billion following months without any significant fundraising.

The company now says it has $40 billion of committed capital for its artificial intelligence focused fund, which boasts returns of 119 percent.

“Son is trying to create a culture of putting your money where your mouth is,” a person close to SoftBank tells The Post.

But Son’s commitment is also raising questions as business leaders are typically encouraged to avoid mixing their personal investments with their corporate responsibilities.


Monthly Funding Recap: VC Tear Continues With $61B Invested And 53 New Unicorns Born In July 2021 — Crunchbase News

Gené Teare

The furious pace at which venture investment was deployed globally in the first half of 2021 is not slowing down as we move into the third quarter.

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Global funding came in at $61 billion in July 2021 — matching the all-time record set in June 2021, Crunchbase data shows.

“Digitization of entire economies is driving new tech adoption, innovative business models, evolving consumer and enterprise behaviors. The pace of acceleration has actually picked up this year vs last year,” Hans Tung, managing partner at GGV Capital, told Crunchbase News via email. The firm has increased its investing pace year over year in 2021 by 74 percent per Crunchbase data and is among the more active venture firms by deal count this past month.

Global monthly funding in 2021 through July averages $50 billion per month — up 82 percent compared to 2020’s $27.5 billion, and 2019 at $24.3 billion.

Mega rounds last month include India-based e-commerce giant Flipkart’s $3.6 billion private equity round led by Canada Pension Plan, GIC, Softbank Vision Fund and Walmart. And Michigan-based electric vehicle company Rivian raised $2.5 billion from the Climate Pledge Fund, D1 Capital Partners, Ford Motor and T. Rowe Price. Both companies have now raised total funding of more than $10 billion each.

South Korean travel platform Yanolja raised $1.7 billion led by the Softbank Vision Fund. And New York-based Articulate, a 19-year-old workplace training platform, raised a $1.5 billion Series A led by General Atlantic.


How Sweden Became the Silicon Valley of Europe U.S. News & World Report

By Colm Fulton and Supantha Mukherjee

STOCKHOLM (Reuters) — As Klarna’s billionaire founder Sebastian Siemiatkowski prepares to stage one of the biggest-ever European fintech company listings, a feast of capitalism, he credits an unlikely backer for his runaway success: the Swedish welfare state.

In particular, the 39-year-old pinpoints a late-1990s government policy to put a computer in every home.

“Computers were inaccessible for low-income families such as mine, but when the reform came into play, my mother bought us a computer the very next day,” he told Reuters.

Siemiatkowski began coding on that computer when he was 16. Fast-forward more than two decades, and his payments firm Klarna is valued at $46 billion and plans to go public. It hasn’t given details, though many bankers predict it will list in New York early next year.

Sweden’s home computer drive, and concurrent early investment in internet connectivity, help explain why its capital Stockholm has become such rich soil for startups, birthing and incubating the likes of Spotify, Skype and Klarna, even though it has some of the highest tax rates in the world.

That’s the view of Siemiatkowski and several tech CEOs and venture capitalists interviewed by Reuters.



Sell Your Company Or Go Public? IPO vs Direct Listing vs SPACs

Author and entrepreneur Shirish Nadkarni breaks down different avenues for taking a successful company to the next level from IPOs and direct listings to SPACs.


Salesforce is Streaming Live

The streaming wars are coming to the office

Good morning! This Wednesday, Salesforce enters the living room with Salesforce+,

The Big StoryNetflix, Hulu and … Salesforce+?

It’s Friday night. The long workweek is finished and you’re curled up on your couch. After debating for 20 minutes whether to watch “The Office” or “Schitt’s Creek,” you get tired and instead turn on … Salesforce?

Say hello to Salesforce+, an expensive marketing campaign masquerading as a streaming site. The company even launched Salesforce Studios to support the initiative and has hundreds of people working on the project — including script writers and producers — according to CMO Sarah Franklin.

  • The idea is an expansion of Salesforce’s successful Trailhead program, an online educational platform that offers courses on how to use the company’s own tools. It’s become a critical recruitment channel for Salesforce.
  • But instead of “courses” on topics like data management, Salesforce+ will offer original programming created by Salesforce and, at some points, its customers and users.
  • “It’s going to help you learn things that help you do great at your job, whether you’re a salesperson, a marketing professional, a CEO, etc.,” she told Axios.
  • Salesforce wants to use the new content hub as a way to create a deeper connection to the brand to encourage users to “want to use our products and want to engage more with us,” per Franklin.

This is marketing 101. And it’s a dog and pony show that anyone who’s been to an enterprise software conference in the past five years has witnessed firsthand.


Jamaica Goes Digital

Bank of Jamaica mints the first batch of national digital currency

The Bank of Jamaica plans to issue a total of $1.5 million of CBDC to institutions and authorized payment service providers as part of a pilot ending this December.


Startups of the Week — $10 billion valuations

Talkdesk Dials Up Another Large Round, Hits $10B-Plus Valuation — Crunchbase News

San Francisco-based Talkdesk closed an “opportunistic” $230 million Series D, pushing the valuation of the cloud-based contact center company to more than $10 billion.


How Figma Became Design’s Hottest Startup, Valued At $10 Billion | by Greylock | Aug, 2021 | Greylock Perspectives

As CEO, she’s guided PagerDuty from a single-product company into a multi-product platform by detecting novel use cases and broadening awareness across industries. In 2019, Tejada spearheaded an…


Reddit is valued at more than $10 billion in latest funding round. — The New York Times

Just six months ago it was valued at $6 billion. It raised $410 million in its latest round.


Tweet of the Week

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