Earlier this week, David Karp agreed to sell Tumblr to Yahoo for $1.1 billion in cash, netting more than $200 million for himself. It’s a deal that makes sense for both sides. Yahoo gets a whole lot more real estate to run ads while Tumblr, per the agreement, continues to operate as a separate business. Together the two companies count as many users as Facebook – around a billion, give or take.

Over the years David Karp has had plenty to say, so we figured we’d provide a little hyperlink madness. Here he tells his story – entirely in his own words.

I was a pretty Internet-savvy kid growing up. My dad bought HTML For Dummies for me when I was 11. I was just bored tooling away on my computer and I think I just started messing around with making something on the computer. I would run around the neighborhood building little storefront Web sites. I didn’t want people knowing I was a teenager, because I didn’t want to be sending the wrong impression. I tried to deepen my voice on the phone, but I’d still get mistaken for a girl. I was so silly. I tried to be very formal and put on a deep voice to clients over the phone so I didn’t have to meet them and give away how young I was. I lied about my age. I lied about the size of my team. I lied about my experience. I was so terribly embarrassed about it for so long. I should have just owned up.

Where I feel the most productive and engaged is when I’m buried in code, buried in some project, tweaking some designs. I’m certainly introverted. The whole binge-drinking, staying-up-late, hipster lifestyle has never been attractive to me. I never spent much time with people my own age. I can’t imagine where I would be today if it weren’t for people who had just the right thing to say at exactly the right time.

Tumblr started pretty modestly. I had tried to set up blogs, I tried to tweet, used Flickr and Delicious, I wanted something that allowed me to be more expressive, to present myself in a way I was proud of. Something that I really wanted out of my website, out of my blog, was something much more free form, something much less verbose where I could share the things that I was like working on, the things I was just coming across on the Web, be it like a funny YouTube video or a photo of something I just took, and the tools at the time really weren’t built for that.

I really wanted an identity online. I wanted something online to call “me.” Sometime in 2005, I came across a tumblelog called Projectionist, [which] solved the posting problems of WordPress with a brilliant aesthetic sense: You can put up bits of media but the theme or the “skin” will take care of the aesthetics, and the media will be in nice little enclosures. Video will come up in a nice frame, blurbs will come up in nice little bubbles, there will be the ability to make gorgeous typography quotes. I was running a consulting company in 2006, and one month we had two weeks between contracts where we were just sitting around, and I said “Hey, let’s go for it. Let’s see if we can build this thing.” It took [Marco Arment and me] two weeks to build, and it became the first version of Tumblr. The day Marco  and I launched Tumblr, we set up this stats page to watch registrations. That was a really fun day :) Overnight we had like 30,000 registered users.

Ten years ago there were maybe hundreds of people creating digital content; I wanted to be one of those prolific people, with an identity and a presence. Today there are millions of people making stuff and putting it into the world: that’s become part of our identity and it shouldn’t be limited to people who fancy themselves writers, or who are particularly witty or talented: curation is a new, more accessible way to express yourself. Distribution used to be controlled by the radio or publishers, but you can get a bigger audience through Tumblr or YouTube ­– the economics of that haven’t quite caught up. Kickstarter and Etsy are part of that whole new economics, and with things like that coming up, the next Justin Bieber won’t graduate out of YouTube for profit. They’ll graduate from whatever open platform works for their media.

At the core we have this community of millions of creators who make the stuff – and around them this big web of tens of millions of curators, people who are slicing and dicing it into little channels, blogs full of the stuff they care deeply about. And they have this big audience. . . who show up every month who can find the content organized into channels that can be so nuanced, thoughtful and specific. Even if you’re not the guy who gets in front of the camera and plays guitar you can still express a point of view, be creative, through the stuff that you select.

We are not cash-flow positive yet, which means we are always running out of money. There was no expectation we were selling the company. This was our providence. Investors wanted to know: ‘Are you hiring as many people as you should? And, if you had more people, could you move faster?’ They asked me that question all the time.

Frankly, keeping up with growth. . . presented more work than our small team was prepared for. [In 2010] an issue arose that took down a critical database cluster. This brought down our entire network while our engineers worked feverishly to restore these databases and bring your blogs back online.  I was such a stubborn perfectionist until it became really clear we had to bring other people in, because having it all fall on me was really slowing us down. Sorry we let you down.

I’m elated to tell you that Tumblr will be joining Yahoo. Before touching on how awesome this is, let me try to allay any concerns: We’re not turning purple. Our headquarters isn’t moving. Our team isn’t changing. Our roadmap isn’t changing. And our mission – to empower creators to make their best work and get it in front of the audience they deserve – certainly isn’t changing.

There are enough people in this world like ready to screw you but if you really keep your head up and focus on the things you love you’re going to do wonderful things.

Sources:

1. “Where Does Tumblr’s Founder Find Inspiration?” by Lauren Dell, Mashable.

2. Cartier “Make Your Move” ad, 2011.

3. “David Karp is the Barely Legal Blogfather,” Maxim.

4. “David Karp, Founder of Tumblr, on Realising His Dream,” by Josh Halliday, Guardian.

5. “Before Tumblr, Founder Made Mom Proud. He Quit School,” by Jenna Wortham and Nick Bilton, New York Times.

6. “Would You Take a Tumblr With This Man?” by Doree Shafrir, New York Observer.

7. Cartier “Make Your Move” ad, 2011.

8. “I Meet Tumblr Whiz-Kid David Karp,” by Paul Mason, BBC.

9. “David Karp: Why I Started Tumblr,” interview by Chris Dixon.

10. “So What Do You Do, David Karp, Founder of Tumblr?” by Sammy Davis, mediabistro.

11. “David’s Log,” by David Karp, Dec. 11, 2008.

12. “So What Do You Do, David Karp, Founder of Tumblr?” by Sammy Davis, mediabistro.

13. “I Meet Tumblr Whiz-Kid David Karp,” by Paul Mason, BBC.

14. “Watch David Karp’s Talk about Tumblr from Wired 2012,” by Liat Clark, Wired UK.

15. “I Meet Tumblr Whiz-Kid David Karp,” by Paul Mason, BBC.

16. “David Karp, 26, Tumblr Founder, Is Multimillionaire,” by Steven Lee, Daily Press Dot Com.

17. “Lessons Learned: How Tumblr Recovered from a Business Crisis,” by Teri Evans, Entrepreneur.

18. “Downtime,” Tumblr Staff Blog.

19. “Lessons Learned: How Tumblr Recovered from a Business Crisis,” by Teri Evans, Entrepreneur.

20. “Downtime,” Tumblr Staff Blog.

21. “Flashback: Tumblr Founder David Karp’s Words of Wisdom to Entrepreneurs,” by William Wei, Business Insider.

Image: Wikicommons

Adam L. Penenberg

Adam is the Editor of PandoDaily and a journalism professor at New York University. Author of several books, including the critically acclaimed "Viral Loop", he has written for The New York Times, Forbes, Fast Company, as well as many others. Follow him on Twitter @penenberg.

Theodor (“Ted”) Holm Nelson, the man credited with conjuring the term “hypertext,” once told Wired magazine that four maxims have guided his life. “Most people are fools, most authority is malignant, God does not exist, and everything is wrong.” Nelson, an academic (he teaches a class at the University of California at Santa Cruz) is known for grand ideas and even grander pronouncements. Many moons ago he envisioned a “different kind of computer world, based on a different kind of electronic document.” He found conventional computer documents that mimic paper limiting. In their stead he dreamed of “flying pieces, visible side-by-side connections, connection of content to origins, and unbreaking links,” and sought to create a universal hypertext library that he predicted would one day help transform humans into an entirely new form.

Except, as a famous Wired magazine story by Gary Wolf put it, the project, which Nelson christened Xanadu, “sucked” him “and his intrepid band of true believers into what became the longest-running vaporware project in the history of computing – a 30-year saga of rabid prototyping and heart-slashing despair.” Nelson, in a lengthy and slashing letter to the editor, called Wolf’s profile “a nasty piece of work,” a “hatchet job,” and described Wolf as an “innovator in electronic media” who, by combining “the word processor and the poison pen” had managed to create a “new electronic literary genre.” Perhaps, Nelson continued, “my ideas may have been too startling and sweeping for many people.”

Yes, Nelson does not lack for self-confidence, but when he speaks the geeknoscenti are bound to listen. Recently, as he told Christopher Mims and Leo Mirani of Quartz, Nelson was reading an essay on the brilliant and elusive Japanese mathematician Shinichi Mochizuki, written by Caroline Chen, a Columbia journalism graduate student, when it hit him “like a pie in the face.” Shinichi Mochizuki must be Satoshi Nakamoto, the mysterious creator of bitcoin.

The proof was sketchy but that didn’t stop him from posting an odd, rambling 12-minute video, complete with an imaginary conversation between Sherlock Holmes and Doctor Watson – in faux British accents, no less – announcing his discovery. He says the reason he posted first and asked questions later was that he’s “often been the first to know something, but have had a lot of trouble getting credit for it.”

As he’d hoped, Nelson has been rewarded with heaps of press – Forbes, Quartz, BusinessInsider, and covered on blogs obsessed with all that is bitcoin. The Register went so far as to interview Stilgherrian, a mono-named Australian freelance writer specializing in “big-picture Internet issues,” who stipulated that Nelson might be eccentric but he “has the annoying habit of being right.” Stilgherrian pondered whether that whole Sherlock Holmes-Watson digression might contain a clue, a “nugget of data” that could lead to…

OK, stop right there. Before we go down the path of a  ”Murder, She Wrote” episode let’s look at his evidence. It won’t take long.

You can boil it down to a few choice ideas: Whoever created bitcoin must have been really smart, and Mochizuki is a genius, who earned his PhD in mathematics from Princeton when he was 23. Mochizuki doesn’t bother with the standard academic peer review jive. He simply releases papers when he’s good and ready on his website and lets mathematicians comb through them afterward without feeling the need to defend or explain anything. Both Satoshi Nakamoto and Mochizuki have excellent English skills, as evidenced by the writing in Nakamoto’s famous bitcoin paper from 2008 and Mochizuki’s stellar record at Princeton.

That’s it.

So you can forgive me for not congratulating the man for his awesome scoop.

First, Nelson wasn’t the first to posit Mochizuki as Nakamoto. The week before a blogger, who had read the same profile of Mochizuki as Nelson, reached the identical conclusion. He added that Nakamoto and Mochizuki have the same number of Hiragana symbols in their first and last names.

Nelson points to Mochizuki’s claimed proof of the “ABC Conjecture,” which is so complicated that not even high-level mathematicians can comprehend it. This paper was released in 2012. Nakamoto published his paper on bitcoin as a “peer-to-peer electronic cash system” in 2008 and mined the first 50 bitcoins in early 2009. If you sift through Mochizuki’s list of papers he published in 2007 and 2008 – and there are a lot of them – you’ll find titles like “Algebraic and Anabelian Geometry of Configuration Spaces,” “The Geometry of Frobenioids,” “Absolute Anabelian Cuspidalizations of Proper Hyperbolic Curves,” “Arithmetic Elliptic Curves,” “Foundations of p-adic Teichmuller Theory,” “The Etale Theta Function and its Frobenioid-theoretic Manifestations,” and many others.

Don’t worry: I have no idea what he’s talking about either. Nevertheless, even I can see that there’s nothing in his list of papers then or now that has anything to do with cryptography, exchange systems, software development, and the like. Mochizuki tends to develop his ideas over a series of papers and keeps revising over time. That’s how “frobenioids,” which is something that he himself conceived of, became a key aspect of his “ABC Conjecture.” Also, Mochizuki publishes his works on his own site. He doesn’t publish them elsewhere then lurk on forums like Satoshi Nakamoto did until April 2011, when he evaporated into the cryptographic ether. About the only similarity between the two, besides the fact they both may be Japanese (or maybe not in Nakamoto’s case) is the way they express “references” or endnotes at the ends of papers. (They both use brackets and number them [1], [2], [3], and so on.)

Yeah, pretty thin. If Mochizuki created bitcoin, then Isaac Newton wrote Romeo and Juliet.

Nelson isn’t the first to fail in uncovering Satoshi Nakamoto’s true identity. Josh Davis, in a story for the New Yorker tried (and the man he fingered denied it). I also laid out my attempts in a piece for Fast Company and discovered a number of stunning coincidences that led me to believe it might be three men, and they also denied any part in it. For all we know, Satoshi Nakamoto may have been mining bitcoins this entire time and could be worth hundreds of millions, if not billions of dollars.

As for Mochizuki he hasn’t denied anything. Then again for him that’s par for the course. He doesn’t commingle with us mere mortals on earth. Like Nakamoto, Mochizuki is a “dance-away genius,” a poetic term Nelson came up with. He’s lost in his own head — not anonymous, but he may as well be.

Image: Wikicommons

Adam L. Penenberg

Adam is the Editor of PandoDaily and a journalism professor at New York University. Author of several books, including the critically acclaimed "Viral Loop", he has written for The New York Times, Forbes, Fast Company, as well as many others. Follow him on Twitter @penenberg.

After Yahoo acquired Tumblr for a reported $1.1 billion Yahoo CEO Marissa Mayer took to – what else? – Tumblr to announce the deal:

“We promise not to screw it up.  Tumblr is incredibly special and has a great thing going.  We will operate Tumblr independently.  David Karp will remain CEO.  The product roadmap, their team, their wit and irreverence will all remain the same as will their mission to empower creators to make their best work and get it in front of the audience they deserve.  Yahoo! will help Tumblr get even better, faster.”

Tumblr’s founder must have popped the same happy pills, because on – what else? – Tumblr he used words like “elated,” “awesome,” “unbelievable” “dream,” “ultimate” and “fuck yeah” to describe his feelings. Karp also felt the need to “allay” concerns:

“We’re not turning purple. Our headquarters isn’t moving. Our team isn’t changing. Our roadmap isn’t changing. And our mission – to empower creators to make their best work and get it in front of the audience they deserve – certainly isn’t changing.”

If history is any guide, let’s hope that Karp got that in writing. When Yahoo acquired Flickr for a relatively paltry $30 million in 2005, founders Stewart Butterfield and Caterina Fake also took to the company blog. Like Karp, they couldn’t contain their glee – “Woohoo!” and said they would be “working with a bunch of people that Totally Get Flickr and want to preserve the community and the flavor of what is here. We’re going to grow and change, but we’re in it for the long haul, with the same management and same team,” which “in spite of our wiseassery, tomfoolery and tendency to hoot spontaneously – is crucial for preserving the Flickrness that is Flickr.”

How’d that work out for them? For the first couple of years, things were fine. Fake told Gizmodo that “Yahoo was a good fit initially” and “in the subsequent two years after the acquisition, Flickr blossomed.” Then Yahoo’s Corporate Development department began to bleed Flickr dry, denying it resources because it didn’t generate sufficient revenue. “The money goes to the cash cows, not the cash calf,” as one anonymous Yahoo employee told Gizmodo. Instead of constantly innovating, Flickr management found itself in meetings defending the product.

Other acquisitions, whether for billions or tens of millions, have ended similarly. In May 1998 Yahoo acquired GeoCities, a site that allowed users to set up their own websites and was the third-most trafficked site on the Internet, for $3.57 billion in stock. It instituted changes to bring it more closely aligned with Yahoo’s ethos and users left in droves. Within a decade GeoCities was gone, and today it limps on in Japan only.

Yahoo also bought Overture, which pioneered the sale of advertising linked to web searches, and a valuable patent it received in 2001, which it accused Google of violating. The case settled in 2004, with Yahoo receiving approximately $365 million in Google shares. While Yahoo struggled to absorb Overture into its business Google did just fine, becoming one of the most valuable companies in the world while its once-rival shriveled into what it is today.

And who can forget its biggest acquisition, the $5.7 billion that Yahoo paid in stock to Mark Cuban and company for Broadcast.com in 1999? At the time Broadcast.com might have been most famous for making a mess of live streaming a Victoria’s Secret fashion show. After it was absorbed the company was renamed Yahoo Broadcast Solutions, then spun off into Yahoo Launchcast, which still exists, I guess, although not many people have heard of it.

Despite Mayer’s promises (or protestations?) David Karp would do well to keep these lessons in mind as he sallies forth.

Adam L. Penenberg

Adam is the Editor of PandoDaily and a journalism professor at New York University. Author of several books, including the critically acclaimed "Viral Loop", he has written for The New York Times, Forbes, Fast Company, as well as many others. Follow him on Twitter @penenberg.

The president of Western Union scoffed at the invention of the telephone, calling it little more than an “electric toy,” and the company informed Alexander Graham Bell that his brainchild to place one in every home was “utterly out of the question.” A couple of years later, Oxford University professor Erasmus Wilson predicted that when the 1878 Paris Exhibition closed, the electric light would “close with it and no more will be heard of it.” When Henry Ford sought investors for his car company in 1903 a Michigan banker advised his client against it, forecasting that “the horse is here to stay, but the automobile is only a novelty.” In 1946, Darryl Zanuck, president of 20th Century Fox, said, “Television won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.”

Throughout history, great technological innovations – the sort that fundamentally change business, culture, and life itself – must overcome initial skepticism. Once it does, a pattern emerges. Entrepreneurs recognize its potential for disruption and start businesses, which attract consumers and newcomers who join the party, bringing with them investment. The media writes about it breathlessly. All of this together works to pump air into the bubble as some companies go public and their stocks soar in a speculative frenzy.

Ultimately reality sets in. After burning through cash, companies fold, leaving investors to wonder when and how someone will actually make money. Optimism turns to pessimism. Stock prices crash, investment dries up and this entire sector is given up for dead, until, over time, the core technology is woven into the fabric of life. It’s a cycle of boom, bust, and sustained growth, followed by the inevitable decay when someone figures out how to build a better mousetrap.

While bubbles get a bad rap they are a necessary stage of technological development. They yield ancillary cultural benefits, which are pervasive through history – movements or revolutions the real importance of which end up being something quite peripheral to the main thrust of the movement’s ideology. With that in mind, are we at the onset of a bitcoin bubble?

It does have all the characteristics. Since February 2009, when it was first introduced, bitcoin has overcome initial skepticism and gone from mere curiosity to a billion-dollar market. About 11 million bitcoin have been mined since the crypto-based currency was introduced, and at a price of $115, it has a combined value of $1.3 billion. As the money supply has increased, so too have the number of businesses that will accept bitcoin. Investment is beginning to flow to companies trafficking in the currency. Recently Union Square Ventures announced a $5 million investment in Coinbase, which operates as an exchange. Liberty City Ventures, another New York-based VC firm, has a $15 million bitcoin fund to invest in startups. Boost VC plans a Bitcoin-related seed fund. Peter Thiel’s Founder’s Fund, is leading a $2 million round for BitPay, a businesses payments processor that works with bitcoin.

Chris Dixon, a partner at Andreessen Horowitz, thinks that bitcoin could be the next big thing. At the recent Pandomonthly in New York, he claimed it had the potential to revolutionize online commerce, which is plagued with fraud.

So what’s next for bitcoin? Well, if it follows the same boom, bust, and beyond paradigm as railways, cars, and dot coms, we’re in for an interesting ride. And even when the bubble pops – and it will inevitably pop – it will likely leave behind something quite valuable.

After railroads supplanted canals as a hot investment in the early 19th century, the number of railroads spiked. Between 1825 and 1826, as many railroads were founded as had been created in the previous 20 years. When the market crashed, it crashed hard, and by the mid-1870s, 40 percent of American railway bonds were in default. At the turn of the 20th century there were hundreds of automobile makers in the United States. Money and resources poured into them, yet most went out of business until there were only a few left. And we all know what happened during the dot com bust, which weighed down the America’s economy for years.

But these bubbles weren’t for naught. Before the railroad crash, 45,000 miles of track had been laid and by 1900 a national network of more than 200,000 miles long helped the United States grow and prosper. The boom and bust of the automobile industry led to the creation of roads, and ultimately a national highway system. The dot com bust left in its wake significant investments in broadband ­that made Web 2.0 and the rise of Facebook and other online businesses possible.

Because, you see, capacity, or rather overcapacity, is the key to progress. And even when bad things happen, which does when bubbles burst, good can come out of it. The recent credit bubble was devastating for the economy, true, but on the bright side more Americans than ever now have access to credit than they did before. A small gift, no doubt, and probably not worth the pain, but a gift nonetheless.

In the next few years, if the US government doesn’t try to stamp out bitcoin, it will follow a similar course. And when the bubble bursts – if it manages to get to that point – an entirely new currency will have taken root with a vast infrastructure to support it.

First, though, more air must be pumped into the bitcoin bubble. And there’s a whole lot more room before it will pop.

[Illustration by Hallie Bateman]

Adam L. Penenberg

Adam is the Editor of PandoDaily and a journalism professor at New York University. Author of several books, including the critically acclaimed "Viral Loop", he has written for The New York Times, Forbes, Fast Company, as well as many others. Follow him on Twitter @penenberg.

Suddenly, after the recent kerfuffle arising from the Department of Justice seizing phone records of reporters and editors at the Associated Press, President Obama, through White House press spokesman Jay Carney, endorsed a federal shield law. Unfortunately, it’s an empty gesture, or maybe just plain old politics, because not only wouldn’t it have protected the AP from the DoJ’s snooping – there’s an exception when national security is at stake – a federal shield law, at least in its current form, would be so porous it wouldn’t serve much of a purpose to anyone.

As with most legislation, the devil is in the details. And when you’re trying to craft laws to protect journalists from having to disclose the identities of confidential sources, the first thing you must do is define what a journalist is. Unfortunately, that’s not so easy, because, well, what is a journalist? I’ve been working as one for almost 20 years, and I couldn’t give you a definition. What’s more, I don’t know anyone who could. More to the point, how do you cover everyone who should be covered in this day, when everybody can be his or her own publisher but not cover those who shouldn’t be protected?

To start, let’s look at the states: Two-thirds of them have adopted shield laws, and they all try to differentiate between journalists, who, the thinking goes, have good reasons for not disclosing confidential sources, and everybody else. Some take an expansive view of what constitutes a journalist. New York, for example, protects anyone “engaged in gathering, preparing [or] collecting . . . news intended for a newspaper, magazine, news agency, press association or wire service or other professional medium or agency which has as one of its regular functions the processing and researching of news intended for dissemination to the public.” If you work for The New York Times or Associated Press, you’re covered. What if you contribute to a blog but aren’t paid or you run your own? Are you covered? Not according to the wording in the statute because they wouldn’t be considered a “professional medium or agency.”

Some states haven’t updated their shield laws in decades. As a result their statutes slept through the rise of 24-hour cable news, citizen journalism, and social media, and ignore online reporters, bloggers, book authors, freelance writers, and even magazine staffers.

In Indiana, a journalist is someone “connected with or employed by” a newspaper, wire service, or “licensed radio or television station.” Under this statute we at PandoDaily wouldn’t be covered, nor would Slate, Salon, and other online publications. Meanwhile, Kentucky’s statute says, “Newspaper, radio or television broadcasting station personnel need not disclose source of information.” If you don’t work in one of these three media platforms, you’re not a journalist.

In contrast, some states have broader definitions. Michigan thinks of a journalist as someone “involved in the gathering or preparation of news for broadcast or publication.” The District of Columbia views news media as ”any printed, photographic, mechanical, or electronic means of disseminating news and information to the public.” Minnesota just wants to protect the “free flow of information,” and so does Nebraska.

When it comes to protections, it depends on where a journalist makes the deal with a confidential source, and where the court is based.

On the Federal level, one of the blogosphere’s political champions has been Sen. Charles Schumer (D-N.Y.), the lead author of the Senate federal shield measure. Initially, he tried to expand on the language in the House bill by defining a journalist as any person who has the intent to disseminate information to the public, but to get the bill through committee, he had to scale back the language so his version mirrored the House measure.

The House of Representatives in 2007 passed a federal shield law, which included a last-minute amendment that required anyone seeking protection to earn “a substantial portion of [their] livelihood” from journalism. This was aimed at bloggers, who were, depending on your point of view, either citizen journalists democratizing media or opinionated loudmouths posting vitriolic screeds online between trips to the refrigerator. As the Senate worked on its version of a shield law, however, blogs moved further into the mainstream, partly because virtually every newspaper, magazine, and online news organization has co-opted them for their own sites.

Then, in July 2010, WikiLeaks released 91,000 documents related to the war in Afghanistan, and an irate Schumer announced that he would amend the Senate’s “Free Flow of Information Act” to exclude the group. Schumer contended that WikiLeaks could never capitalize on the legislation, because it does not fulfill the ”definition of a journalist,” which requires it to regularly engage in “legitimate newsgathering activities.” That’s bogus, really, because you could make a strong argument that the group did perform journalism. Because, um, what’s journalism? At any rate, the bill already gave judges the authority to waive protections if critical national security concerns hung in the balance.

And that brings us back to the Associated Press and Department of Justice. All prosecutors need to do is claim an exemption for national security, which these days they seem to do willy nilly. Which brings us full circle, because while Obama’s administration may be trumpeting his support for a federal shield law, it wouldn’t have mattered to the Associated Press, and it won’t matter for most of us.

Image: Wikimedia

Adam L. Penenberg

Adam is the Editor of PandoDaily and a journalism professor at New York University. Author of several books, including the critically acclaimed "Viral Loop", he has written for The New York Times, Forbes, Fast Company, as well as many others. Follow him on Twitter @penenberg.

Yesterday the Department of Homeland Security served the Dwolla mobile payment service with a court order requiring it to immediately cease all account activities with the Mt. Gox bitcoin exchange. Today it appears that Mt. Gox, based in Japan, has been cut off from Internet. If you try to get to http://mtgox.com you get a “502 Bad Gateway” message or a blank screen. It may be a coordinated effort among governments as people from Holland, Israel, the United Kingdom, Italy, India, Canada, Egypt, Brazil, Australia, and elsewhere report the same lack of access to the site.

In the warrant (Ars Technica has posted it) Mt. Gox’s subsidiary “Mutum Sigillum LLC,” which is incorporated in Delaware, set up an account at Wells Fargo under the name of Mt. Gox’s founder, Mark Karpeles. According to the warrant, when Karpeles, or someone acting on his behalf, filled out the required paperwork he answered “no” to at least two key questions:  ”Do you deal in or exchange currency for your customer?” and “Does your business accept funds from customers and send the funds based on customers’ instructions (Money Transmitter)?”

It was only a matter of time before the US government took action against bitcoin, the completely digital, crypto-based currency that offers its users far greater anonymity in transactions. A completely decentralized currency that’s minted – or in bitcoin parlance “mined” – by its users outside the reach of US regulators, and nearly impossible for law enforcement to track, was bound to ruffle feathers in Washington. In fact, it already had.

If history is any guide, the government will act aggressively against Karpeles. In 2007, prosecutors shut down e-Gold, which had created a currency redeemable for gold. It based its case on the fact that users didn’t need to produce identification – transactions were anonymous. e-Gold, the government argued, was abetting money laundering and child pornography. The site’s owners were convicted of operating an unlicensed money-transmitting business. The business shut down, and the CEO was sentenced to house arrest.

Then there was Bernard von Nothaus, the “monetary architect” of the “Liberty Dollar.” His currency’s value was derived from precious metals, and he managed to inject some $60 million worth of Liberty Dollars into circulation before the government put the kibosh on him. There was a lot of heated rhetoric: A government prosecutor accused him of “domestic terrorism.” After the trial – von Nothaus was found guilty – the FBI pointed out, “It is a violation of federal law for individuals…to create private coin or currency systems to compete with the official coinage and currency of the United States.”

This is correct. There is a law on the books, 18 U.S.C. § 1960: Prohibition of unlicensed money transmitting businesses. It states: “Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.” It defines “money transmitting business” in the broadest terms, as any business that transfers funds on behalf of the public, “affects interstate or foreign commerce in any manner or degree” and “is operated without a license.”

Proponents of bitcoin have long claimed that because of the decentralized nature of bitcoin, which is disseminated peer-to-peer with no central authority, the authorities would have trouble stamping it out, since the exchanges are largely located overseas. But law enforcement can prevent Internet users from accessing the exchanges just like US authorities did with online gambling sites more than a decade ago by simply by targeting the Internet service providers.

There is no word on the fate of Mt. Gox founder, Mark Karpeles. His blog is still up, with the last post dated May 8. We have reached out to him and will let you know if we hear anything.

Adam L. Penenberg

Adam is the Editor of PandoDaily and a journalism professor at New York University. Author of several books, including the critically acclaimed "Viral Loop", he has written for The New York Times, Forbes, Fast Company, as well as many others. Follow him on Twitter @penenberg.

No one person is in control of bitcoin. No central banker, no governing or regulatory bodies, and there is no mechanism to suddenly manipulate money supply. That’s the point, of course. Satoshi Nakamoto, its pseudonymous creator whose image is represented in the artwork above, called it a peer-to-peer electronic cash system designed “to allow online payments to be sent from one party to another without going though a financial institution.” Unlike American coins, which are forged at the US Mint, and dollar notes – they’re printed by the Bureau of Engraving and Printing – bitcoin creation is decidedly democratic and completely virtual: Anyone who has made the effort to learn can “mine” the currency, trading valuable labor and resources in the form of expertise, processing power, energy, and time. With bitcoin, Nakamoto, whoever he, she, or they are, has, in essence, disintermediated the banks and government.

As with all currencies, bitcoin relies on trust, the economic lubricant that makes transactions possible. To engender this trust, and tamp down the threat of counterfeiting, it relies on an ingenious combination of transparency and anonymity. Someone receiving a bitcoin as payment can see its entire transaction history; he just doesn’t know who’s given it to him. The underlying code is open source, so no proprietary systems were used in its creation. Peer-to-peer distribution means that everyone who uses it is both a user and a supplier of resources. With each peer added to this burgeoning collaborative network the bitcoin gospel spreads just a little further.

In some quarters an almost religious fervor accompanies bitcoin. One commentator/bitcoin enthusiast, Max Keiser, sermonized the “second coming” of “Cyber Christ,” bitcoin and its mysterious founder, Satoshi Nakamoto. While he may have been the first to draw a connection between bitcoin and the formation of Christianity more than two millennia ago, he wouldn’t be the first to apply religious terminology to bitcoin’s underlying philosophy and foundation. So do the techies closest to the open source code, as if they were protectors of the word of God. If Nakamoto is Jesus in this metaphor, the core group of developers working on bitcode’s code are his disciples.

There’s a revealing profile of the bitcoin development team in “Who’s Building Bitcoin? An Inside Look at Bitcoin’s Open Source Development,” recently published in Motherboard, a Vice publication. Satoshi Nakamoto’s handpicked successor, Gavin Andresen, is bitcoin’s lead developer and sits on the Bitcoin Foundation board. Bitcoin’s open source code is stored at Github, an open source repository. It is, in some respects, bitcoin’s bible, the purest expression of Satoshi Nakamoto, more important even than the influential treatise he wrote that explained bitcoin’s philosophy.

Anyone can look at the code and see the “integration/staging tree (how the code has evolved over the years), though only the bitcoin development team can make changes to it. While many may preach, only a select few have the authority to amend Nakamoto’s teachings. As the article reports, someone might submit a chunk of code and the developers seek a consensus on whether to add it or not. If it is, after testing the new application it is merged with what they call “the Satoshi client,” which is the source code. “Controversial” changes, one of the bitcoin programmers told Motherboard, take the longest, while “minor adjustments, such as copy changes or transposing the system into other languages happen quickly.”

Even the way the team interacts has a religious tint. As the article notes, developers communicate one of two ways: via IRC chat and an official mailing list. IRC, says one developer, is “mostly petty stuff, bickering,” the “daily back and forth.” The mailing list, however, “is more formal, the equivalent of nailing something to the door of a church.”

Like the onset of Christianity more than 2,000 years ago, bitcoin is subversive to the entrenched central powers that be. Many early adopters have gravitated to bitcoin to protest what they view as the corruption of the state and central banking authorities and their manipulation of currencies and money supply. It is a sop against governmental overreach, the possibility of a true global currency unencumbered by national boundaries and laws. And it’s spreading fast. Today, there’s more than $1 billion worth of bitcoins in circulation (depending on the exchange rate), which was first described just five years ago in Nakamoto’s paper. Contrast that with the $829 billion of currency in circulation, according to the New York Federal Reserve Bank.

Yesterday, though, the US government took a first step into the wild and wooly world of bitcoin by serving the Dwolla mobile payment service with a court order requiring it to immediately cease account activities with the Mt. Gox bitcoin exchange. Is this the beginning of a government crackdown? No one knows.

In the past, though, the government has made heretics of those who dared to introduce alternative currencies. It charged one virtual currency creator with “conspiracy against the United States,” and after his trial (he was found guilty), the FBI remarked that it is illegal “to create private coin or currency systems to compete with the official coinage and currency of the United States.” In another the government shut down an online business in 2007. It charged its operator with operating an unlicensed money-transmitting business after it had released virtual currency redeemable for gold. Prosecutors focused on the fact that transactions were anonymous and accused the site of abetting money laundering and child pornography.

Clearly bitcoin competes with the official coinage and currency of the US, and none of the exchanges are licensed. It appears likely the government will act against the threat at some point. Indeed, almost two years ago Senators Charles Schumer (D-NY) and Joe Manchin (D-W. Va) sent a letter to Attorney General Eric Holder urging the Department of Justice to take action against Silk Road, an underground website where drugs, weapons, and other contraband are sold and paid for with untraceable bitcoins. At the same time Reuters reported that the Drug Enforcement Agency was “absolutely” concerned about bitcoins, or, for that matter, any anonymous digital currency.

It’s possible a government crackdown could hobble bitcoin in the way that U.S. authorities prevented Americans from gambling online by targeting the central nodes – the Internet Service Providers, which largely block Americans from getting to overseas gaming sites. Bitcoin exchanges can be served from outside the US. Mt. Gox, for instance, is based in Japan. So it’d have to bomb the roads that lead to the exchanges.

But faith can be stubborn, and there’s a long history of governments failing to stamp out citizens’ deeply held convictions and beliefs, which spread person to person on its own terms. If bitcoin is like a religion and unbound by borders, repression may only serve to make its adherents more resolute.

[Image: dailydot.com]

Adam L. Penenberg

Adam is the Editor of PandoDaily and a journalism professor at New York University. Author of several books, including the critically acclaimed "Viral Loop", he has written for The New York Times, Forbes, Fast Company, as well as many others. Follow him on Twitter @penenberg.

Did you know that playing video games is not only good for you, but that they can make you a better person? No, this is not a plug for Steven Johnson’s 2005 book “Everything Bad is Good For You,” although if you haven’t read it, you should. There’s ample evidence showing that playing video games can improve your decision-making, vision, hand-eye coordination, and reflexes, as well as provide a more effective and efficient way to learn, offer psychological benefits, and much, much more.

You can add a new study to this growing body of evidence, and it involves brain games from a company called Lumosity, based in San Francisco. (Disclosure: Menlo Ventures is an investor in Lumosity and a seed investor in PandoDaily.)  Supported by grants from the National Institutes of Health, the peer-reviewed study, published in the journal Clinical Breast Cancer, found that breast cancer patients who had undergone chemotherapy showed “significant” improvement in cognitive flexibility, verbal fluency, and processing speed after playing the company’s games four times a week for 12 weeks.

That may be welcome news, because there are few treatment options available to breast cancer survivors for cognitive difficulties associated with chemotherapy treatment. What’s more, Lumosity games don’t come in a pill form or as shots. They’re a non-invasive and non-pharmacologic method.

“Online, home-based, unsupervised cognitive training shows promise as an intervention for cognitive difficulties in breast cancer survivors,” Dr. Shelli Kesler, an assistant professor of psychiatry and behavioral sciences at Stanford and lead author of the study, told me in an email. “Even long-term survivors can benefit.”

While it would not be fair to say that with chemo the cure is worse than the disease, chemotherapy is hard on the bodies and minds of patients, with many suffering permanent damage such as memory loss, a lack of processing speed and attention. There’s even a term for it: “chemo brain,” which describes post-chemo side effects such as “fogginess,” anxiety, and depression that 75 percent of patients who have undergone chemo report. Given the number of people with cancer in this country – roughly 13 million in the US are living with the disease while roughly 650,000 undergo chemotherapy each year – it’s a widespread problem that doesn’t just affect cancer patients. A National Institutes of Health estimate from 2010 calculated the indirect cost of cancer on society, a result of “illness-related loss of productivity,” was $20.9 billion.

The theory is that chemo changes the brain, and that’s where games come in, because they also change the brain, but in a vastly different way. They alter the brain’s physical structure by tapping into human’s reward system, doling out shots of neurotransmitters like dopamine, which helps strengthen neural circuits. If it sounds similar to working out at the gym, well, it kinda is. Games aren’t the only things that do this, though. So do learning to read, navigating an unfamiliar city’s streets and avenues and playing a musical instrument.

Games of all kinds have all kinds of positive benefits. Studies show that players of action-packed games make decisions 25 percent faster than those who don’t, without sacrificing accuracy, and can pay attention to more than six things simultaneously while most of us can only track four. Games improve a player’s visual attention so he can better locate a target secreted among a bevy of distractions in a complex landscape – an important skill for radiologists who read MRIs and X-rays and soldiers that have a split second to separate enemies from innocent bystanders. Surgeons who play games regularly work faster and commit far fewer errors than those who do not. Since its 2006 release Nintendo’s Wii has become a staple in rehabilitation, so much so it’s spawned the word “wii-hab,” with a growing number of physical therapists helping patients rehab from serious injuries and illnesses. Games can enhance learning, they are a staple in training, and combat veterans who play violent games sleep better and suffer fewer nightmares, lessening symptoms from post-traumatic stress.

Lumosity’s games are not of the first-person shooter variety, naturally. They are basic mind exercises that test your ability to quickly identify two objects – say, a bird and a number – that simultaneously flash on different parts of the screen. Then a player has to remember where the bird was by clicking on its location and clicking on one of five numbers. Or a shape flashes on the screen followed by another shape, and you have to say whether it matches or not. A third game has a player predict what direction a ball will travel after bumpers are removed. You have to memorize where all the bumpers are, then visualize the path instantaneously. It’s not easy. (I’ve tried it.)

Joe Hardy, VP of Research & Development at Lumosity, calls it “a gym for the brain” that can enhance players’ cognitive capacities to improve every day life. The company designs games with “neuroplasticity in mind,” with the idea being to target a muscle like working memory, which is useful for when you want to remember someone’s name or items on a grocery list.

“You need to design a path that loads working memory, forces you to take in information, create a situation for the intake of that information, hold it in their mind, then manipulate it,” he says.

After that company researchers test exercises to improve working memory, then its designers come up with a game to express them.

Dr. Kesler, a neuropsychologist, chose Lumosity games for her study because, she said, she’s most familiar with them, having used them in other studies. One found that Lumosity games could enhance brain function and math skills. Another

She says the company did not contribute to the study and there was no conflict of interest.

Not everyone is sold on the idea that games like the ones that Lumosity designs can make you smarter. In a Q&A with SmartPlanet, David Z. Hambrick, associate professor of psychology at Michigan State University, said, “there is [no] convincing evidence to support the claim by Lumosity and other companies that these programs have far-reaching beneficial effects on cognitive functioning. However, there is actually some evidence that physical exercise, ironically, does improve brain function.”

Some Lumosity players I interviewed would disagree. Maria Ross suffered a brain aneurysm five years ago, which caused damage to her frontal lobe. Her cognitive impairments were most keenly seen in her executive skills: vocabulary recall was slow at first, she wasn’t as “quick” with conversations as she used to be, and her short term memory was faulty. She also discovered deficits related to organization, prioritization, spatial awareness on her left side peripheral vision (mostly due to her eye issues), and information processing. A speech therapist recommended Lumosity as a way to get her “cognitive edge back,” and Ross says she found it was a fun way to rehab her mind.

She first tried a games called “Word Bubbles Rising” to rebuild her vocabulary recall.

“Normally very articulate, I had a hard time finding the right word in the normal pace of a conversation,” says Ross, who wrote a book about her experiences, “Rebooting My Brain: How a Freak Aneurysm Reframed My Life.” “This game helped get my brain unstuck, and tap into those words that I wasn’t used to using every day.”

She also sharpened her memory with matching games, and worked on focus and spatial awareness through the company’s various offerings.

“Since many of the games are timed, this also greatly sped up my information processing – kind of revving the engine up again, so to speak,” she says. “Plus, the games gave me an emotional sense of accomplishment in a very non-threatening but fun environment. I swelled with pride and hope as my scores rose day after day.”

Ross still revisits the games to sharpen her skills every now and then, “just because they are so much fun and so visually appealing.”

Alex Davis, 36, plays in a competitive soccer league in Portland, Oregon, and says that it’s key to understand the geometry of the game, to instantly recognize where each player is and be able to react accordingly. Lumosity, he says, “adds polish or, maybe better, fitness, to my game. When I’m not being diligent to be playing daily and incorporating the visualizations, my reaction time and decision-making suffers noticeably.”

Meanwhile, B. Lou deBonis, a screenwriter and CEO of Geek Street Productions in New York, credits Lumosity games with improving her writing.  “I think [the games have] really amped up my ability to just buckle down and write,” she says. “As a producer I can see it has helped with self-discipline and organization, which is essential to success.”

I tried out some games myself, and while it’s too early to know if they’ll make me smarter, I admit my head tingled after about 30 minutes – as if I’d munched on a kale salad. There’s no study for that, though.

[Image Credit: perpetualplum on Flickr]

Adam L. Penenberg

Adam is the Editor of PandoDaily and a journalism professor at New York University. Author of several books, including the critically acclaimed "Viral Loop", he has written for The New York Times, Forbes, Fast Company, as well as many others. Follow him on Twitter @penenberg.

In episode 2 of our CEA (Chief Executive Artist) series featuring musician & social-media maverick, Amanda Palmer, AFP shows how to put together a ninja gig. Harnessing her social media popularity, she pulls together an impromptu concert at a Masonic lodge in the midst of SXSW with her trademark riot girl verve. She addresses the criticism she received over crowd-sourcing (and not paying) musicians, and even interviews one of these musicians onstage, and proposes that the future of distribution can and should be direct. Most importantly, she asks us not to be afraid of “asking for help,” urging us to say “yes,” and become a part of the natural collaborative process. That is the whole reason we make art, she says.

Ondi Timoner

Two-time Sundance winning director Ondi Timoner's films include "DIG!," "We Live in Public," "Join Us," and "Cool It." She is currently producing Web-series A TOTAL DISRUPTION, and BYOD which she hosts.

Editor’s note:

After PandoDaily published the following guest post by Brandon Mendelson, we received a call from Gary Vaynerchuk, a subject in this opinion piece. He said that parts of “Social media may finally be dying, but the BS around it hasn’t” were inaccurate and requested that we set the record straight.

We take matters of accuracy very seriously and have looked into the matter. In the interest of transparency, we decided to share our findings with our readers. We have included this before the article because we think that too often a correction ends up buried beneath the fold, as it were, instead of being featured as prominently as the original story. 

There are three basic pieces of information in dispute:

1. Brandon wrote: “PSY cheated like Gary Vaynerchuk cheated. Gary Vee used ResultSource, a company that manages bulk purchases of your book – in other words it buys enough copies of your book the week it comes out to push it on to The New York Times bestseller list.”

If you check out The New York Times bestseller list from Nov. 1, 2009, Gary’s book “Crush It,” is listed as #2 in the “Hardcover Advice & Misc. category. It was accompanied by a dagger symbol, which, according to the New York Times, “indicates that some retailers report receiving bulk orders.” The Times instituted this symbology after it had come to light that large organizations had been buying their way on to bestseller lists through the practice of bulk buying. Gary pointed us to his website http://www.crushitbook, where he encouraged bulk orders through a company called 800 CEO Reads.

We contacted the company to ask whether bulk orders it processes end up with the NY Times dagger symbol on bestseller lists. Jon Mueller, 800 CEO Reads general manager, replied in an email: “You’d have to ask the NYT how they categorize things. We just sell the books and report the sales. We’re not sure how they file them from there. In fact, I’d be curious to know, if you find any info.” The New York Times told Brandon it would not comment on its methodology.

Brandon admits that his source might have been wrong about Gary using ResultSource, which has received a bad rap for manipulating the bestseller lists through bulk purchases. While it’s true Gary must have had a large number of bulk orders the second week his book hit The New York Times Bestseller list, there is no way for us to determine if the bulk orders he organized through his site accounted for the spike that resulted in the Times assigning a dagger symbol to his book. Gary says he did not pay a service like ResultSource or any other bulk book buyer to surreptitiously purchase books on his behalf and there is no evidence to contradict this.

2. Brandon alleged that Gary was booked on national TV shows “Late Night, with Conan O’Brien” and “The Ellen DeGeneres Show” because he was represented by CAA, the talent agency, and not because of his growing popularity fueled by his social network of fans and followers.

Gary’s first appearance on “Late Night” took place on Aug. 1, 2007  and he was a guest on Ellen DeGeneres’s daytime show on Sep. 20, 2007. A spokesperson from CAA told me that “the Conan O’Brien and Ellen appearances were booked before Gary signed with the agency.” Gary is the first to admit CAA helped him get plenty of press to promote his books, but they did not get him his first few breakout appearances.

3. Brandon claimed that Gary “has a deeply unhappy publisher that took a bath on the book deal it gave him, as confirmed to me by numerous sources in publishing.” In 2009 HarperStudio signed him to a seven-figure, 10-book deal, “money,” Brandon said, “it can kiss goodbye.”

Gary says the book deal was for six books with an option for four and that “Crush It” on its own was so profitable that it paid off the entire advance. The deal was re-negotiated after his original publisher, HarperStudio, closed up shop. Now Gary is published by HarperBusiness.

This is an interesting moment to tell you why social media is bullshit. I just came back from the Do Lectures in Wales where one of social media’s biggest cheerleaders, Amy Jo Martin, who runs the social media marketing firm Digital Royalty, refused to use the term “social media” in her presentation. In fairness I was also on the docket after her, so perhaps this was a one time thing for Amy. Time will tell.

I’ve also been told by insiders at Ford that their social media guy, Scott Monty, has been transitioning away from “social media” and into “real time marketing.” Apparently allowing customers to post whatever they like can cause trouble. You know, like incendiary stuff being posted that is given the appearance of being endorsed by a major corporation. As with many social media marketers, Scott has been  distancing himself from the monster he helped create. It’s about time. When asked what the return on investment of social media is, Scott told Business Insider, “What’s the ROI of wearing pants?” I don’t know, Scott, but if I’m a company spending hundreds of thousands or millions of dollars on marketing, I want to know what I’m getting, pants or no pants.

Then there’s Gary Vaynerchuk, author of the pamphlet-length social media buzzword laden “Crush It” and “Thank You Economy,” who has a deeply unhappy publisher that took a bath on the book deal it gave him, as confirmed to me by numerous sources in publishing. In 2009 HarperStudio signed the bellicose Belarusian-born wine merchant to a seven-figure, 10-book deal, money it can kiss goodbye. Gary’s problem is that he still has no  answer for what the ROI of social media is, beyond responding to the question with bizarre stuff like, “What’s the ROI of your mother?” You’ll notice a pattern. Both prominent social media experts can’t tell you the value of the thing they’re selling.  

Instead of saying “I told you so,” I’ll say, “There’s a lot of shit we still need to get done.” I’ve made it my mission to clean up the mess of social media so we can focus on what works and what doesn’t. The better the understanding we have of what works and what doesn’t when it comes to getting the word out, the more likely it is that we’ll succeed in whatever it is that we want to accomplish. And since I’m not a marketer, I don’t give a shit about companies like Twitter and all these frauds out there peddling  bullshit strategies. I only care about what works.

Unfortunately, the media hasn’t come around on this, which is why we still have some work to do. Instead they’re quick to herald people like PSY, the Korean rapper who has been gumming up the airwaves and YouTube with “Gangnam Style” as the ultimate viral success story in the way the media once proclaimed Gary Vaynerchuck a “social media success story.” Like Gary, there’s much more to PSY’s story.

You see, PSY is in no way, shape, or form, a viral success story the same way Gary Vaynerchuk was never a social media success story. The illusion of “viral” success for PSY is actually the tail end of months and months of preparation, buying fake views and comments, an extensive PR campaign, and his video fitting a very specific need for the business model that fuels the Web: The Page View Based Economy. Dodgers fans may recall a month prior to “Gangam Style” being released a prominent placement and mention of PSY during the broadcast of a game, at a time when few in America knew who he was. While it’s true that PSY experienced a tremendous amount of success on YouTube, it is not accurate to depict that success as something that happened organically and can be replicated by you, which is what a lot of the social media marketers remaking themselves into “viral marketing” and “real time marketing” experts claim.

The long and short of it is, PSY cheated like Gary Vaynerchuk cheated. Gary Vee used ResultSource, a company that manages bulk purchases of your book – in other words it buys enough copies of your book the week it comes out to push it on to The New York Times bestseller list. PSY’s record label used a slightly different strategy. It purchased views and fake comments using sites like Microworkers and Fiverr, enough to trick the YouTube algorithm.

As I documented in Social Media Is Bullshit with the help of a former YouTube employee, if you launch a video on YouTube, within the first couple of hours of it going live, there are ways to trigger the algorithm. You can do this by planting enough comments, at least ten, in the first hour, paying people to sit and watch the video in full, and then having them share it. This causes the YouTube algorithm to activate, which causes the video to surface higher in search results as well as in the sections that document what’s trending on the site. I won’t bore you with the details, but this is because YouTube, Amazon, and even Apple’s iTunes store use a dumb algorithm in terms of machine learning. They can’t use a terribly complicated algorithm because that’d make their systems suck for consumers, so they use a dumb algorithm, and those dumb algorithms are easy to manipulate.

Gary Vaynerchuk, by virtue of his being placed on the Twitter Suggested User List, racked up hundreds of thousands of followers. Again, nothing viral about that. But the media didn’t report that. Jpournalists just looked at his Twitter follower count and assumed he’s just a popular guy. The media also thought that the YouTube views PSY’s video was collecting were legit, and this spawned more coverage. Having worked for AOL, I can tell you for a fact that we sat and monitored sites like Reddit and YouTube, looking for something that might generate pageviews for us. And so PSY had the illusion of going viral working for him, and those sites all pounced on the video, which in turn brought real traffic to PSY’s video, causing it to grow and spread further and in a more legitimate sense.

Put another way: Stuff doesn’t “go viral” because people are sharing it, stuff often “goes viral” because of companies like College Humor, Buzzfeed, Uproxx, AOL, and others that latch onto videos and content they think will bring them page views; then they all post about it so as not to lose out on potential page views.

And like Gary Vaynerchuk being represented by CAA, which is how he got interviewed on shows like Late Night and Ellen despite his claims to the contrary, PSY was represented by a large record label that used its press resources to leverage the alleged viral growth of the video to get it even more coverage, causing it to spread further. This created a viral loop of people telling more people about the video and the media coverage increasing to match that, which in turn led to even more people clicking on the video.

So the next time you hear about a social media or viral success story, remember the roles that easily manipulated, huge, consumer-facing sites like YouTube play. And don’t buy the snake oil that social media salesmen like Gary Vee and others are trying to sell you.

Above all, be skeptical. Be very, very skeptical.

Brandon Mendelson

Brandon Mendelson (aka B.J. Mendelson) is the author of Social Media Is Bullshit, a contributor to The Wall Street Journal's Accelerators blog, and an instructor at Columbia College in Chicago. You can visit him on the web at http://www.bjmendelson.com.