Unpacking The “Lummis-Gillibrand Responsible Financial Innovation Act”

This is an opinion editorial by Beautyon, the CEO of Azteco.

In this post, I parse the above-named act, pointing out the glaring flaws and errors in it. It should be clear to any American that this bill is an abomination and that it should not pass into law. If it does, it will be challenged in the Supreme Court, struck down, removed with prejudice and the scathing chastisement it deserves.

The idea that there can be “responsible innovation” is absurd on its face. If Senators Cynthia Lummis and Kirsten Gillibrand were alive during the era of lake ice delivery by horse and cart, they would have found that the electric ice box was “irresponsible innovation” because many men would be put out of work and horses turned into glue or meat.

That is exactly what is happening with Bitcoin. This new innovation, which allows everyone to have the powers of a bank in their pocket or their business, puts pre-Bitcoin banks and their ignorant regulators out of business forever. This is “irresponsible” according to Lummis and Gillibrand, who want to preserve the broken and corrupt system and put a lick of orange paint on it to give it a modern look. This is the true meaning and effect of them tacking on and spraying the imaginary, concocted phrase “digital assets” throughout old regulations as is suggested in this bill. It’s blockchain fairy dust and it will not wash off.

Lummis and Gillibrand, with this scandalous, scabrously proposed bill, are going to cause American entrepreneurs (that have passports and know how to use a map) to opt out of their crony capitalist, anti-American sandbox for the free market — which is rapidly settling on bitcoin as the new global reserve currency in over 45 different countries. They can incorporate anywhere and their computers and staff don’t have to be in any particular place at all. No one has to or will choose to put up with this, unless they want to.

Here we go …

In the definitions section is the evil seed and root of the problem that started this absurd and deeply offensive nonsense. There is no such thing as a “Digital Asset.” That is an analogy used to contextualize bitcoin for computer illiterates, and not a real thing at all.

Many tools in software can be used to confer economic, proprietary (closed source) or access rights or powers. PGP/GPG (Pretty Good Privacy/GNU Privacy Guard) does this, and is not considered an asset, but under this definition, it can be classed as such — as can a plaintext username and password — because both of these things and many others confer access rights or powers. In the case of public-key encryption, access to plaintext and the power to decrypt.

Usernames and passwords are cryptographically secured when they are stored in databases, so they are captured by this definition also. This bad logic and computer illiteracy is what powered the insane non-fungible token (NFT) craze. It is obvious that the people who wrote this bill are totally ignorant when it comes to how computers and software works; otherwise they would have been more precise in their language to capture exactly what Bitcoin does, but of course if they did that, they could not have drafted this daft legislation at all. Lying is an absolute prerequisite here.

Similarly, the line, “any similar analogue” captures literally anything that can record data in an ordered manner, like an abacus or score in a video game. They probably thought they were being funny when they used the word “analogue” here. It’s not funny at all.

“Virtual currency” is a vague term that can mean literally any number on a screen where the viewer is led to believe he is looking at a balance that is allocated to him. That means any score in a video game, like “Super Mario Land 2: 6 Golden Coins,” where you literally collect coins.

Now, an unintelligent person would say that because that Game Boy game is not networked and the coins are not transferable, it is not “crypto” or “virtual currency,” but what they don’t understand is that the cartridge itself is the “digital wallet” which can be handed over for cash at any time, and the Game Boy device is the wallet viewer that anyone can use to confirm how many of the six golden coins are in the game.

If you don’t know anything about video games, have never played Super Mario Land, don’t know what cartridges are or how scores are kept in games, you should not be drafting legislation that touches bitcoin.

Stablecoins are of no interest and should not be conflated with bitcoin. That they are bundling all of these different tools and services into one piece of legislation further displays their total ignorance. Stablecoins are nothing more than contracts that don’t rely on mythical “blockchain technology,” but on the soundness of the companies issuing them and making the promises that their offering is backed, for which no new legislation is required.

If a company fraudulently claims that its proprietary database has one dollar per entry held in trust and that turns out not to be true, the directors have lied and committed fraud. No new law is required to cover that circumstance simply because they’re using a novel database and sales language to perpetrate the fraud.

“Other securities and commodities,” which ones?

Anyone writing video games could be forced to register because they’re keeping score in a game with a database and would be captured by this legislation. It is insane.

This definition makes it clear that the authors are computer illiterate, and that they do not understand how anything works in the 21st century. Every database on Earth that has replication, MySQL-NDB or other such capabilities is captured by this. What does “participate” mean here? How much of the database is “partial” enough to trigger this definition to return “true?” All databases in multiple nodes are synchronized by default. How can they not know this? How is it that they have no one on their staff who knows, or who knows which person or what question to ask?

Data is always appended to databases following consensus rules of the database engine. By this definition, Wikipedia falls under this because it has all the attributes of “distributed ledger technology.” Wikipedia,

• Is shared across a set of distributed nodes that participate in a network and store a complete or partial replica of the database.
• Is synchronized between the nodes.
• Has data appended to it by following the specified consensus mechanism of the Wikipedia moderators.
• May be accessible to anyone or restricted to a subset of participants.
• May require participants to have authorization to perform certain actions or require no authorization.

By the definition in this shabby, ridiculous and shameful bill, Wikipedia is a “distributed ledger technology” and is fully captured by the law, so it will be compelled to register with the Securities and Exchange Commission (SEC) or some other incompetent authority. If not, then why not? There is no “carve-out” that is possible here either, because the entire world’s biggest services (and small ones) all run on top of the principles Lummis and Gillibrand are trying to carve out for themselves and their anti-American cronies.

The term “digital asset intermediary” captures anyone who provides database services or collects information to be added to a database via a proprietary interface. “Digital asset activities” literally means rolling dice. Do you think I’m being absurd by saying this? I’m very serious.

Example one.

Example two.

Example three.

All of these would be considered “digital asset activities,” meaning that the manufacturers of the tools that facilitate the activities would fall under this legislation … and then what? Are they going to license the possession of dice? Sounds ridiculous, doesn’t it, but it is no more ridiculous than this absurd piece of draft legislation. It is ridiculous to claim that a mathematical operation done with dice is materially different to one done in a computer. By this logic, the First Amendment is constrained only to text written by hand, but not by a typewriter or on a computer.

The device you use to write with is immaterial, inconsequential and totally separate to your fundamental right to write and publish.

No American lawmaker should be unaware of this. Also, there is no exception in the First Amendment for writing that is math. Math is protected speech according to the First Amendment.

This ridiculous passage applies to Folding at Home, the distributed protein-folding project, BitTorrent and any tool where more than one computer is connected to another that splits the work or monitor system state. “Any similar analogue” means that Folding at Home is captured — heaven help them if they offer a financial reward to whoever finds the solution to a protein-folding problem because it could be seen as a “block reward” for finding the solution to a hard biology problem — which is exactly what bitcoin miners do!

When a Folding at Home participant finds a solution, that solution is sent to Folding at Home headquarters, where it has a monetary value to pharmaceutical companies. They are taking control of a unique “digital asset” that was mined and then transferred to them. All participants in Folding at Home and the discovery of solutions to the folding problem are captured by this law.

And now … Here it comes …

Oh dear.

There is no such thing as a “digital asset,” therefore the rest of this section falls. They’re building a tower of lies, layering lie upon lie upon lie. Why is a balance on a banking app not a “digital asset?” If you have the Chase Bank iPhone app, you can send money instantly to other Chase app users in the same way that you can send Lightning payments to anyone using a Lightning app. Chase uses distributed ledger technology underpinned by the COBOL programming language, so they’re 100% captured by this legislation. If not, why not?

The digital assets in a Chase app are not legal tender; it is “a digital representation of legal tender.” It is not backed by anything; Chase promises to pay legal tender to the sum shown in your Chase app; it is a form of contractual promise only, and not money. Chase certainly makes a statement in the form of a promise to pay U.S. dollars on demand to the account holder, and there is a hard peg of 1:1 for every digitally represented dollar in your Chase app. For all intents and purposes, and as defined in this draft legislation, the Chase banking app is a stablecoin app.

Does it immediately follow that Chase is now under these absurd and irrational “cryptocurrency” rules, or is there a carve-out exemption for the crony capitalists and vested interests set to be obliterated by the Bitcoin ecosystem?

“Used primarily as a medium of exchange.” This is, of course, totally absurd. The writers of software can have no knowledge of how a tool is used in the future, and burdening companies with rules borne of assumptions like this is irrational. What if the minority uses it to simply count anything, like how numbers are normally used? Should the fact that they are counting on a “blockchain” expose them to regulation? Why is counting money a regulatable act whereas counting a herd of ostriches is not? Or are ostriches not money? There are people who think that anything can be money, so in the confused minds of the people who think bitcoin is money, ostriches can be money too and should, quite naturally, be regulated.

Ostrich breeders are not really “breeders”; they’re ostrich miners. Ostrich sellers are not selling huge birds, they’re money transmitters. They are these things because I am a senator and I say so. This is exactly the type of logic that you’re seeing in this ill-advised bill.

This section specifies that it must not be legal tender. But bitcoin is legal tender in El Salvador, so therefore it is totally exempt from this bill, correct? If not, why not? If you’re going to say that the laws and definitions used in El Salvador have no force in the USA, then the opposite is also true and U.S. law cannot infect other countries. I think most non-U.S. citizens would be happy with that arrangement. Keep your odd, parochial ideas locked inside U.S. borders while we forge ahead into the future.

Bitcoin is a database administered by tens of thousands of people and incorporations all over the world. The Commodity Futures Trading Commission (CFTC) cannot be granted jurisdiction by fiat over foreigners and the software they’re running on their machines. This land grab, this power grab, will be rejected by all non-U.S. persons, sovereign nations and the foreign corporations wherever they are incorporated. The U.S. legislature cannot seize the intellectual property of foreigners or demand anything of any kind from them. This is hubris and ugly American chest-beating of the kind that has made America into a hated nation around the globe.

This section is interesting, because it shows how the State is scrambling to keep up with the myriad ways software developers come up with new market ideas. The very silly “digital collectible” or “NFT” fad is what is being obliquely referenced in line 26. By the time this bad legislation is rejected by both houses or is challenged by SCOTUS and purged, the NFT fad — like the ICO fad before it — will be dead and forgotten for some other shiny new distraction, and this language is totally irrelevant. “Hey Kidz. I see wut ur doin and ima legulize dat 4U.”

In this section, the legislators are carving out a legal requirement to use a licensed or chartered or registered entity subject to the rules they’ve already laid out for entities in the legacy system, in an attempt to open the door for those legacy entities to find a place in the new ecosystem, guaranteed by legislation. It is very unlikely and onerous if attempted, for any new incorporation to pass muster and act as a peer to deliver the service of holding “digital assets” (which don’t exist at all), and so the legacy incumbents are in a perfect position to continue to dominate with the blessings of the State.

Obviously, anyone in any jurisdiction other than the USA can ignore all of this and build a world-changing challenger company that can dominate globally. And they’re going to do it. This legislation can’t protect the legacy system from competition, as is its intention.

As for the line,

“(v) An appropriate foreign governmental authority in the home country of the custodian.”

U.S. law can’t determine what is and is not “appropriate” for foreigners to do, or the standards they should adhere to, if any. Who do these people think they are? Many awake Americans have the means and knowledge to use the great advantages that foreign jurisdictions bring to the market. They are not going to be dissuaded, corralled, coerced or shamed into capitulating to this anti-American drivel, should it even become law.

Also, the cancerous tentacles it inserts into other legislation over its 60-plus pages represents a maze of pure filth that will be very difficult to untangle should anyone try to salvage this unspeakable garbage. Even if they do, it is an absolute certainty that the interns tasked with doing it will be Ivy League computer illiterates with the worst human characteristics and tendencies, i.e., crony capitalism, hubris, superiority complex, sociopathy, socialism, etc., and will be diametrically opposed to Bitcoin and everything to do with it out of the gates.

Bitcoin is permissionless, and companies that work with it should not require advance permission to use that database for any purpose. Since it is a (soon to be acknowledged as) First Amendment Protected Activity (FAPA), this will be struck down as prior restraint. The U.S. government cannot stop a person from publishing anything in advance because they simply believe it may cause harm. This all goes back to what Bitcoin actually is and how it works.

People making Bitcoin transactions are publishing text to a public database that anyone can read, even machines. As you’ve seen above, all the operations required to use Bitcoin can be done manually. They are done by machines for convenience and speed, but the acts being done are without question acts protected by the First Amendment.

Whether or not some computer illiterate understands this is irrelevant. The SCOTUS will be made to understand it and they will strike this bill down with furious anger, should the majority of Congress be corrupt enough to vote it into law.

It is absurd that this section is inserted. They’re saying that it is unlawful unless the customer waives his protections (nota bene: “protection” not “right”) with the CFTC. It should not be a requirement that a consumer needs to do this. By dint of going into contract with the company they’re getting service from, they can waive their mafia “protection” upon signature. Why do these people believe that individuals should write letters that will never be read or relied upon to them? Who do they think they are that they believe they can put onerous and obnoxious burdens on anyone? Why are the contracts that people voluntarily engage in sufficient in other areas to waive all sorts of other “rights” but are insufficient in this particular matter, requiring that an additional supplementary letter must be sent? This is entirely illogical and an artificial burden on consumers that serves no purpose and protects no one.

If the acts they’re trying to prevent are really worth preventing, surely they should not allow them at all, and not allow people to put themselves at risk, if it really is the task of the CFTC to keep people safe from themselves. Why not, then, allow people to opt out of all CFTC rules entirely, by simply writing a letter proclaiming:

“I want none of your protections nor anything to do with you. I waive all protections afforded and offered by CFTC in perpetuity.”

Why not?

Once again, there is no such thing as a “digital asset.” Keeping this in mind, why is it that the Hollywood Stock Exchange (HSX), created by the genius Max Keiser, was not deemed to be under CFTC/SEC jurisdiction? No one has an answer for this. Those that have considered these matters who are determined to etch their names in the legislative rolls are not concerned. All they desire is to be famous, and to have their names immortalized in a bill.

HSX is called, “a game” but why is it a game? Why aren’t bitcoin exchanges considered “games?” They are indistinguishable from HSX. Is it the case that if any bitcoin exchange called itself a game that none of these crazy new rules would apply? No one can answer this, obviously, and this is the crux of the problem.

If the HSX decided to swap out its MySQL database and use Solana or Bitcoin, would the function of HSX suddenly change? Of course, it would not, but saying this exposes the entire thought process of this bill for the nonsense that it is, and this perfectly sound, irrefutable argument will be used in the SCOTUS case to destroy the possibility all new Bitcoin regulation in the USA, and force the removal of existing regulation.

People with limited intellectual resources will prattle off “blockchain speak” to describe why MySQL isn’t the same as Bitcoin, but they are only able to think in analogies that have been spoon-fed to them, and can’t deal with reality and facts. Even when you demonstrate how their thinking is totally wrong, they refuse to accept it because they’re members of what is effectively a brainwashing cult, with the added incentive of financial investment and greed up to the neck, to keep them fully enslaved and in thrall to the blockchain cult narratives, speech patterns and blathering.

In the drafting of this daft nonsense, the drafters subconsciously know that what they’re doing is 100% wrong. This is why in this section, it says:

“IN GENERAL. — Any trading facility that offers or seeks to offer a market in digital assets may register with the Commission as a digital asset exchange…”

They may register or they may not register. It doesn’t say they must register. Why not? Under what exact circumstances is a service to be exempted from registration? Obviously, the Hollywood Stock Exchange is not a “real” stock exchange because everything in it is made up, but so is everything on any “crypto exchange” where people have simply decided that they want to play that game and take the consequences. No, just because people pay for a game service doesn’t mean it is “financial activity” analogous to real stock exchanges, genius.

The reason why these misguided and dangerous people can’t say with absolute certainty which agency or rule applies to databases is that they have no understanding of how anything works or what anything really is. They are victims of their own lies, narratives and concoctions. This is why they’re equivocal, uncertain and leaving it up to the applicants, using gestures, rules of thumb, analogies and false definitions to circumscribe a fake territory for themselves to rule over.

If no one chooses to register with the CFTC because the context is a paid-for game in their terms of service, under what pretext is the CFTC authorized to act? There is no legal restriction on the use of financial terms in any game, so entrepreneurs are free to make 1:1 copies of any financial system service, exchange or trading desk. Like the Hollywood Stock Exchange, with all of its related terms, graphs, tools and ephemera, in a perfect simulation that is not real, they have the absolute right to charge for access to their game on whatever terms the players will accept. And no, putting an upper cap on how much people can charge for a service is not an option. And no, gambling laws would not capture these sites recontextualized as games because they don’t quote odds and will explicitly disclaim that gambling is the activity in which users are engaging.

This is the true nature of what is going on with fictitious “digital assets” and the entire field that the power-mad fame-seekers have been gulled into believing was real. Now requiring “rules of the road” concocted by them and their misguided band of anonymous crony capitalists, ignorant interns and anti-American suicide squad saboteurs.

By this section, Ethereum and all altcoins the drafters mistakenly considered to be “digital assets” cannot be traded on the basis of this new law. All altcoins in proof-of-stake systems or with super-node controllers or any system with a central company that can change rules, stop a system entirely or do anything unilaterally, cannot be used under this proposed law.

Manipulation is undefined here; who is to say moving from proof-of-work mining to proof-of-stake consensus is not manipulation? Proof-of-stake immediately puts those with stake above those with no stake, creating a multi-tiered and provably unfair system. It is also arguably a breach of promise, depending on the terms and conditions of the “blockchain” making the changes.

You all know that “Faketoshi” is trying to reverse ancient transactions to have money allocated to himself. Were he to succeed in doing this, bitcoin and all its derivatives would be captured by this crazy rule. And of course, super-node gatekeeper controllers fulfill the criteria of “…functionality or operation of the digital asset can be materially altered by any person or group of persons under common control.”

Since so many “coins” fall afoul of this, it is obvious that game sites that mimic commodity and stock exchanges using them should not and cannot fall under CFTC remit, but instead are just game points on a new database. They all escape these irrational rules if the rules become law. Otherwise, all game point systems fall under the rules and must be stopped.

The networks that mediate the databases used in what these ill-informed characters call “digital assets” all rely upon and are built on other people using the work put into managing the network to preserve network integrity and keep the network running and viable. To say that these businesses cannot use the tool they are using (use of which is required to keep the tool viable) is irrational and illogical. The most simple example of this is “mining fees” which must be paid to make transactions on the network, or in proof-of-stake, using the fact that stake is held that may be allocated to customers as part of the proof.

Once again, they are saying that any customer who agrees to be exempted from these rules may be exempted through a waiver … so then, why stipulate the rule in the first place? All the business has to do is make the waiver part of the terms and conditions and then the rule is instantly nullified by default.

What they’re saying here is that companies are to be compelled to publish proprietary market data that may advantage their foreign competitors. Efficient market mechanisms emerge from the market, not by command of the State, which is a first-class blundering, stumbling, incompetent meddler.

Similarly, you can’t compel people to enforce a nebulous idea of “rules” that are not explicitly codified. Also, “protect” doesn’t mean anything in this context either; protect who from what, exactly? And what does “abusive” mean? Making excessive profit, no doubt; many of the people behind this bill are socialists in all but name. “Fair” doesn’t mean anything either.

The rest of this section is full of twaddle. All betraying the absurd idea that these new exchange services are analogues of the existing stock and commodities markets, and that similar rules should be applied to these nascent markets, unchanged without any new assumptions, correct assumptions, new thinking or any thinking at all. The requirement to have a back door open to the CFTC however is galling and insulting, and enshrines privacy violation. Absolutely horrible and utterly anti-American.

Once again, only a maniacal despot would demand this intrusion, disruption, violation and invasion of private businesses by the CFTC (or any other agency), and the power to liquidate positions at the CFTC’s command or even suspend service at their orders. Of course, should this insulting drivel be passed into law, the spur will have been heeled into the side of the donkey to produce more exchanges like Bisq that the CFTC can’t touch.

Why? Why should anyone be compelled to divulge proprietary business information to the CFTC? If no breach of contract or lawsuit is underway, and no criminal act is accused and no warrants issued, why should evidence be forced out of anyone? That isn’t how America works. Before you can be compelled to divulge information a warrant must be issued. That’s the Fourth Amendment to the U.S. Constitution, geniuses. Did you know that? How can legislators not know this?

As for making trading volume public, that’s proprietary information. Price information is already published so that the market can work, genius. Why doesn’t the CFTC collect this information itself on its own equipment? Because they’re incompetent, that’s why. What is “other trading data?” If you don’t specify, anyone who is sane won’t provide anything not explicitly requested. That should be the default, should this vile and evil law be passed.

First of all, exchanges do not want to be over capacity, ever. Stipulating this is absurd and insulting. No one wants to ever have incomplete records due to overcapacity events. What is demanded here is a strictly technical requirement that the CFTC has no business asking for. The shareholders of every company working with Bitcoin demand fine-grained information and reporting, as do the users of the trading systems. If any company does not produce rich data, consumers will move to services that do. The market takes care of this. CFTC is not needed at all and their interference is un-American and unwelcome by real Americans.

Record keeping is a business operation that should only be done to the satisfaction and requirements of the business owners, shareholders and their clients, and not for the needs of the CFTC. If they want people to do the record-keeping work, they should ask politely and then pay for the records to be maintained, since they are being kept for the CFTC and no one else.

Compulsory reporting of information should be under warrant only and not from a blanket demand of “anything we want, any time.” Who do these people think they are? And the same goes for the SEC, tagged along here.

Of course, you would expect these agencies to abuse your information and spread it across all branches of the American government, including NSA, CIA and all the other secret agencies. It’s wrong and can be prevented. What is astonishing here is that they’re making it law that the CFTC will share the information of American corporations and citizens with foreign ministries. How can anyone calling themselves a “Republican” draft such an outrageous and sovereignty-violating statute? It’s breathtaking and shocking. Absolutely, purely anti-American.

There is only one conflict of interest on display here: the conflict of interest between the CFTC and American entrepreneurs and citizens with this abusive, anti-competitive, irrational, ridiculous, onerous nonsense.

How is any business going to have financial resources on hand to serve customers when they’re being blackmailed into spending money to satisfy the unquenchable thirst of the CFTC? Why does the wind-down clause not come with an opt-out for users who want to take the risk of dealing with a company that doesn’t make the promise to hold wind-down contingency funds? They allow an opt-out for other things. Why not this? Why not allow an opt-out for the whole shabby bill and its scandalous provisions?

All of these are business and software requirements full of words that the drafters clearly don’t understand. For example, what does “reliable” mean in terms of … anything? As for risk analysis, complex systems that interact in office and over APIs have multiplicative error scenarios and failure modes that can’t be predicted very easily. Trying to war-game these out in advance is an entirely unreasonable requirement, and in any case, the people who build these systems know what they’re doing in general and understand that they have to maintain uptime, a word these drafters are clearly not familiar with in this context.

Testing and other technical measures, techniques, procedures and the myriad tasks that system administrators do should not be a part of any law. All technical measures and specifications are private matters for companies, who can buy insurance against faults if they want. Similarly with backups: Backups are only one way of ensuring continuity. If users have their own private keys, no backup is required at the company level. This shows the drafters are in fact computer illiterate and don’t have the necessary imagination to draft legislation — were it legitimate in the first place — that covers all possible arrangements of software in a business.

The line about the audit trail is similarly absurd. They don’t like Bitcoin, but want a perfect audit trail — which Bitcoin provides out of the box. Bitcoin is the audit trail by design, but if they concede this, they have to acknowledge that bitcoin isn’t money, but an audit-trail database.

Tough times for the computer illiterate!

These people seem to understand that everything they’ve drafted could be horribly wrong and destructive to America’s dominance in this new field. This is why they’ve put in this trapdoor to exempt any company that is doing well from these ignorant and ill-advised rule proposals, which can be revoked retroactively, meaning that if a company becomes a trillion-dollar service serving people globally, they’re making a provision so that that company can be left unmolested because it is part of the critical infrastructure — like the banks they bailed out, who were exempted from the rules due to the threat of systemic risk.