Bits + Bips: Why Sam Enzer Says the Fable 5 Ban Should Worry Crypto

Transcript

Today though, we're going to start talking about the Fable 5 ban. So, what's going on? The US government issued an export control directive citing national security concerns, suspending all access to Anthropics Fable 5 and Mythos 5 for any foreign national. That includes Anthropic's own foreign national employees, forcing Anthropic to abruptly disable both models worldwide for all customers. All other anthropic models are currently uneffective, but Anthropic received the directive at 5:21 p.m. Eastern previously, and the government's concern was stated to be a jailbreaking of Fable

5. Um, so let's talk about anthropic first. They said the demonstrated technique for jailbreaking found quote a small number of previously known minor vulnerabilities. other publicly available models are able to discover them as well without requiring a bypass. And they named OpenAI's GPT 5.5. They also said, quote, "We disagree that the finding of a narrow potential jailbreak should be caused for recalling a commercial model deployed to hundreds of millions of people. It would essentially halt all new model deployment for all Frontier model providers." Now, on the other hand, the administration's case, and this was David Saxs, said, quote, "Fable

is Mythos with guardrails, but if those guardrails fail, then you've exposed Mythos and its advanced cyber capabilities to people who shouldn't have them." The admin asked Dario to fix the jailbreak or deploy the model. Dario refused. Anthropic prioritized the continued offering of the consumer model over safety and the ball is in Anthropics court. Now, acknowledging upfront that we don't have a full story from either side and we're still trying to figure out what's going on. I wanted to start Sam in particular with you because I know you've dealt with crypto and seen administrative actions previously. How are you taking this whole thing apart? What do you think

here? >> Uh, sure. Great question. Austin and Austin Ramen and Chris, thanks for having me on. So, this is an interesting we're in an administration that has been in many ways a huge friend to the digital asset sector and to the AI industry looking and the president has made clear he wants to remove red tape and make America the the capital for crypto, for AI, for tech in the world. Um, and and to create the kind of regulatory environment that will attract entrepreneurs to build here and disseminate their products, right? And we are in for AI, we're in a race against China in many respects. Uh and in in the blockchain industry, um there are many projects that integrate AI with crypto, integrate AI

with um with DeFi and regardless have some of the the basic tech infrastructure that could be regulated by export controls. So how do I take it? On the one hand, I think because this administration has been so friendly to uh the tech industry um and you you have the statement from David Saxs about why you can imagine that you know just taking a step back here we know that mythos was extreme is extremely powerful and was in many ways marketed as something so you know too hot to touch right so dangerous um fable is supposed to have safeguards

cards. And you could imagine according to the reports, and I don't know if these are true, but what I've seen in the press is there's reporting that Amazon's CEO told the administration there was a jailbreak. In other words, a way around the safeguards. And 24 or 48 hours later, you've got this 5:21 p.m. Friday night directive not to export it. So on the one hand, you can you can understand as a human who may be concerned about national security why the administration would react this way. On the other hand, as somebody who has lived through what I'll call the Howie or the Gensler wars, um, watching, you know, not necessarily this administration, but government officials

take ambiguous regulations or ambiguous statutory authority and then use it to crush developers, innovators, and businesses. It is concerning when the government has the power to effectively ban the dissemination of software of ideas. Uh there is wellestablished case law that source codes software including encryption software is literally speech uh is literally protected speech under the first amendment. Um here we have not what some of the things that are concerning about this and that's not to say the government doesn't have a valid basis but there's there's there's a

question of what's the substantive basis and then there's a question of the process and here we don't have as the public we don't have much process. The letter that was reportedly sent by the commerce department to anthropic has not been publicly released. We have a description of it from Anthropic, but we don't know what it says. We don't know what the what the concerns were, what the national security's concerns reportedly or allegedly were. We don't know what the statutory or regulatory authority for it was. Um, and this could have if this power is abused, it could have sweeping implications for the AI industry, but also for the crypto industry, right? I mean just taking a

step back what happened here is the regulation invoked the export control regulates the export of what here we're talking about APIs okay does that mean if I have a US server with an API and someone in China accesses it that that's an export if so does that mean the export power can be used against any US-based uh server API I or technology and you know there are exemptions or exceptions for export regulations for things that are published which has often been why permissionless DeFi protocols you you

don't see them getting uh regulated through export directives. That said, what if I have an API uh or what if I run a front end or uh or a DeFi protocol that relies on an underlying AI model um like Fable or something else? I'll say for my part, having lived through the operation chokepoint side of the Biden administration as well, some of the arguments that I'm seeing here, I worry even if the people currently in charge believe them are forming a playbook to misuse them in the future. Right?

Because now we live in a world where you can point at any frontier development that might have cyber security or financial stability implications, say the words national security, and then start imposing things like export controls. To me, the question is where is the limiting principle? Like one of one of the beautiful things about crypto is you meet an incredible amount of interesting people working in the space and one of the ones I've met is Gene Hoffman. And if anybody remembers the original encryption wars, Gan was at PGP at the time that was happening and was the guy carrying around a physical book of printed code, right, to get around export controls because the first amendment allowed him to do that. And I

think it is a fascinating thing to see all of these principles that we've been fighting about now for 20 30 years coming back front and center with this discussion because what I will kind of raise here and Chris you've like lived through some of the national security side of things. Those concerns are not invalid. There are genuinely valid national security concerns if people could use these tools to damage the United States. But how do you contextualize those? Like where would you put a dividing line? Because you're also somebody who's operating.

>> National security will always trump responsible innovation no matter what. Um and if you look right now a lot of the vectors of attack you're seeing in Congress right now on the Clarity Act, you know, maybe banks aren't so happy about interest anymore and maybe there's a different way to kill this thing by going after national security, right? So that is always the the Trump card, no pun intended. Um, as you look at this right now, I was at this uh event this morning and I spoke and afterwards uh Hillary Clinton came on and the one thing that jumped out at me and you look she was very articulate about her perspective around Iran and maybe we'll talk about that later. But at the end

the moderator said, "Hey, what keeps you awake at night?" And she said, "You know what really keeps me awake at night? AI." And so if you think it's bad right now with the government intervening in anthropic and I think we can have a long debate about whether this was politically motivated or whether it was not and some people say oh they just hate Dario so they're going after him but I think we're just getting warmed up and I think AI has a pretty big problem right now that crypto got in front of frankly um you know maybe our PR isn't the best but we were got we we had a very good game in DC. Um, but I think both these technologies have a PR problem. And one thing as we're going into elections, uh, midterms, you know,

I saw a lot of Democrats get on stage this morning and talk and they emphasize moderation moderation moderation but that Hillary came up and said AI keeps me awake at night. So, I think we're getting warmed up. I love the fact that you mentioned um the encryption wars uh because we we continue to like bump up against this every time there's a new technology and over time you know we figure it out. The problem is like what do we do? You have the Chinese that are coming up with very sophisticated models, very cheap models. Um the more and more we get involved in and put our hand government and overregulate it, a couple things going to happen. Number one, consolidation, right? We see it over and over again. Regulation leads to

consolidation. It boxes out entrepreneurs because it's very expensive. And you know, you listen to the all-in guys, they're like, "Hey, that's the g that's the playbook here. Get big enough to create that regulatory moat." And and that's been the game. That's been the game for a very long time. Um, and so that's the risk that we face. I don't think you can put this toothpaste back in the tube. And then it brings you back to this whole idea of decentralized AI. And we've been in this space, you know, for a very long time. um very very hard unproven and there are parts of the stack that you can decentralize but generally you always have somebody centralized no matter what like whether it's that front end or something else they're going to be subject to regulation so so maybe the future is

like the AI mullet uh where you have the decentralized AI in the back end I don't know um but but I think this is going to get much more complex I I think it's only going to get worse because you know if if the Trump administration is is already taking this much of an active viewpoint um then than I think the Democrats. Last thing is that we're in this period right now of max concern because there's just these models are moving faster than our security. Eventually, I think we're going to reach a stasis where the models actually fix the security and once your vulnerabilities are fixed, yeah, maybe you get some very sophisticated ones that pop up in the future, but we'll we should end up with a much stronger environment from a from a security

perspective once we've had the time to implement these models. So hopefully that plays out uh in the future. >> Yeah, nodding my head at at the comments. I mean overall like the limiting principle is the US Constitution, specifically the first amendment to Sam's point. Uh this is an overreach of the federal government. Uh it's disappointing, right? Uh I know growing up I read Ray Bradbury's Fahrenheit 451, which was a a lesson on the concerns around burning books. We read about George Orwell 1984. There's Ker Vonagget's short story, Harrison Burgron. It's so surprising to see this come from this administration. And in the future, we're not going to have our kids read books. They're going to have access to intelligence on demand like

utility. It doesn't make sense for the role of government to restrict that. There's no due process. National security has been used and abused to contravene on natural rights and it's being abused here. Uh I agree also AI is becoming a political issue. I had a chat this Sunday as my Verizon FiOS went down. call call in to get it repaired and I asked the service operator said, "Oh, like where are you based? Just making some chitchat uh while the IP's updating." She said, "I'm in Virginia, uh Virginia Beach." That sounds lovely.

She said, "No, it's not. They're building a data center here." And I said, "Oh, well, it's just a one-time construction issue." She said, "No, no, no. It's already up and running. It's worrying. It's making some. My utility bill is going up. It's having environmental damage." Her words. So, this is a this will be a continued issue. You know, AI is important for unlocking the potential of humanity, and you need political leaders at this time to step up and communicate that story. What's more likely to happen though is that AI will become a punching bag and used to uh create the next enemy or scapegoat. Uh so yeah, I I agree. You'll see more backlash and I think Anthropic is betting on a change in the midterms.

They have a bunch of ex Biden staffers is my understanding too. that that dynamic is in the background. >> How how much of this though, right? Because like OpenAI clearly caught a stray in anthropics like commentary on this and yet nothing has been done with them. We haven't seen anything coming out about like Grock or any of these sorts of things. How much of this is related to what Sam brought up earlier which was anthropic's own marketing of its own models? Because if you run around saying my model is an existential threat to cyber security, whose fault is it if people take you at face value?

>> No, they have the best model. They have the best model on the block. But I think yeah, Chris is right. It's not the proper role of government here to set cyber security policy. It's company IP property and private enterprises very good at identifying issues and risks of their business and innovating new solutions to address it. Like Y2K should have been a bigger issue than this, right? You didn't have national security telling private companies to go address this Y2K bug. Private companies identified the issue and they invested in technology and it became a non-issue.

And that should happen here. It's very >> Oh, sorry Sam. No, you go, Sam. Go. >> I was gonna say I think the the the problem here, right, is if in fact this type of if you really are concerned about national security, you can't stop Chinese models, decentralized models, or anyone who was able to crib uh the mythos or Fabletech in the period it was out and deploy it, right? This isn't really if you're really tr truly trying to solve for national security, this is not an effective solution, but you are disabling the market from getting up to speed on it to fix it. And if we believe

in the free market, then we should let the free market toy around with this. What what makes me crazy pe people get freaked out about tech. They're naturally scared of it. And the immediate response is, let's go after the tech. Let's regulate the tech. Let's attack the tech, right? But the point is is that it's not the tech that does anything. It's the users, it's the people, it's the institutions, and it's the governments that use it. Like maybe we should get rid of cell phones because you can do a lot of bad things on a cell phone. And I talk about this all the time. When I was in Iraq, I used to get we would get blown up by garage door openers. They trigger IDs on us. So like garage door openers, let's get rid of them. They're dangerous technology, right? So like I wish we would focus

more on the the behaviors and hold people the front ends accountable rather than just go after like if you use mythos to hack somebody well let's go after those people and those institutions and hold them accountable like that I I feel like we always default to the tech and that's the wrong place to default. I feel like it's also the lazy path in some ways because people and by the way back to Sam's earlier parallel with crypto. People have this problem with the internet now where it's global and so you naturally want to expand your reach to regulate things but some of those people might be outside of your specific national borders. I don't think

anybody's really come up with a coherent call it theory of regulation in the internet era where we could effectively address those things without also stepping all over extr territoriality and I feel like as a result they reach for the lazy solution like Sam you do a lot of legal work in this space I guess I would ask you if you were advising the US policy makers thinking about this right now of how to balance these concerns like and I'm going to put you in the awful spot of thinking about having to make this decision yourself.

How would you be approaching this right now as the US government? >> So I think the first thing is they have to communicate their reasoning. If it is in fact a valid national security concern, it is very important. There are mechanisms to regulate through notice and comment rulemaking which is the the bare bones of democracy, right? The bare bones of due process. This goes around that. That's extreme. Fine, but lay out what is the concern. What is it? What is your statutory authority to do it? That is at a bare minimum is very important so that all of us can understand what is the framework here. When um President Trump came in,

he rescended there had been an AI diffusion framework set up by the Biden administration for how the export regulations would apply to AI models and he scrapped it. Okay, but we still don't have a replacement, right? So what is the framework here? What is the precedent being set here? If you want the AI um application makers like Anthropic, OpenAI to comply, to take safety seriously, to have those guards, you need to set the rules of the road. And that's not my own uh message. That's the Trump administration's message, right? The complaint against Biden and Gensler was regulation by enforcement, not guidance. Okay. Well, that that

approach needs to be taken here. I think that's actually quite fair in terms of say what you mean and write it down. In many ways, it echoes the complaints about like secret proceedings at visa courts, right? And privacy violations there is you have all these undisclosed things that we never know about. You took a bunch of actions and we have no way to know if they were completely valid and totally reasonable or complete nonsense and violating the rights of Americans. So I guess step one is transparency in some light are going to be the ultimate disinfectant here >> for sure. It's hard to go beyond that because we don't have the facts. We have anthropics version. I'm not saying they're wrong. I just don't know. Um

you've got the Sax statement which gives you a window but that's not sufficient data for me to make an assessment of what exactly is the rule? How does this rule apply to the AI industry, to the DeFi sector, to blockchain? All of these are unanswered questions. With something this dramatic, we shouldn't have those questions. If you like this segment, please like, subscribe, and tune in every Monday at 4:30 p.m. Eastern time. I'm Austin Campbell, the host of Bips and Bips, along with my friends Rahm Alawalia and Chris Perkins, and our slate of exceptional guests. Every week, we're going to discuss macro, crypto, and the collision of worlds, covering

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