Original post here: https://x.com/NuclearHerbs/status/1795487261515284485
#PulseChainLawSchool is back in session.
Today’s lesson is a practical exercise interpreting a statute. Consider this FIT 21, part 1 of who-the-hell-knows how many I feel like writing.
I have to break this into different parts, because it’s really fucking long, so I’ll focus just on some of the definitions in this first lesson and explain why and how lawyers look at this stuff.
Never assume you know what something means when it comes to a law. Almost every significant law passed by Congress has a “definitions” section that is routinely overlooked by normies. Yet this part is almost always critical to interpreting a statute and determining how your issue will be decided, or even if it applies to you.
For example, if Congress wants to, for the purposes of a particular statute, they can define an apple as a “a long, curved fruit which grows in clusters and has soft pulpy flesh and yellow skin when ripe.” For purposes of interpreting any part of that statute, that is how an apple will be decided forever in court. You could literally bring in an apple tree with apples growing on it and have an expert testify that it’s an apple tree with apples on it, but if the issue involves this particular statute, a judge won’t be able to agree with you, no matter how stupid that seems.
Defining things this way is both good and bad. Obviously, the bad part is that Congress can wildly distort the definition of things, such as an apple. The good part is that Google and Webster can go fuck themselves, because no matter how many times they feel like changing the definition of something (like “recession” or “woman”), it doesn’t matter in court. An apple is still yellow and grows in bunches whenever it’s an issue under this particular statute, and it will until that law is changed.
Want a real life example? Fine. Read the definition of “new automobile” in the pic below. Here’s the relevant part for this discussion:
(d) The term “new automobile” means an automobile the equitable or legal title to which has never been transferred by a manufacturer, distributor, or dealer to an ultimate purchaser.
So, if Ford delivers a Mustang to a dealership, and that dealership uses that Mustang for 2 years and drives that Mustang for 250,000 miles without ever transferring title to a purchaser, it’s still a “new automobile”? According to this statute, yes. Won’t that buyer be surprised when he buys that “new” vehicle? What’s worse, the term “new automobile” can be defined 20 different ways in 20 different statutes, both at the state and federal level, and you’ll have to figure out whether any of those definitions apply to your particular issue.
Given the above, I’m sure it will come as no surprise that we’ll be surprised by some of the definitions in the FIT21 wording. Let’s dive into a few of them. I’ll try not to make this too long, but you have to learn the alphabet before you can win your first Spelling Bee, so let’s get some of the boring shit out of the way so we can have more fun in the next class.
The first definition is “affiliated person.” And it’s defined as “a person (including a related person) that with respect to a digital asset issuer, directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such digital asset issuer; or was described under clause (i) at any point in the previous 3-month period; or with respect to any digital asset beneficially owns 5 percent or more of the units of such digital asset that are then outstanding; or was described under clause (i) at any point in the previous 3-month period.” (I cleaned this up by removing the headers to make it easier to read.) Read the original here: https://rules.house.gov/sites/republicans.rules118.house.gov/files/RCP_H4763_xml%20%28003%29.pdf…
Looking at this, you can’t determine a damn thing without knowing what a “related person” is, or who is considered a “digital asset issuer” under this statute, or what “beneficial ownership” is. Hell, you don’t even know how a “digital asset” is defined yet in this statute.
So you have a long, long way to go before you can tell whether you’re an “affiliated person” or not, or if this section applies to your particular case. And this statute has 36(!) pages of definitions. The fun part is that “beneficial ownership” isn’t defined at all. It just requires a disclosure if you “beneficially” own more than 5% of a digital asset at some point in the future after the SEC gets around to making a way to disclose that ownership. There’s no timeframe for that either in the statute. Fun stuff.
Client: How do I know if I’m in compliance?
Lawyer: You’ll know when you get sued, I guess. That’ll be $1,000.
Let’s dig deeper. Remember in law, the words “and” and “or” are critically important. If you have to do A and B and C and D in order to be in violation of a statute, it’s a hell of a lot different than having to just do A or B or C or D. So pay very close attention to what the actual text says.
Example: The term “Blockchain” is defined as any technology:
(A) where data is:
(i) shared across a network to create a public ledger of verified transactions or information among network participants;
(ii) linked using cryptography to maintain the integrity of the public ledger and to execute other functions; and
(iii) distributed among network participants in an automated fashion to concurrently update network participants on the state of the public ledger and any other functions; ***and***
(B) composed of source code that is publicly available.
Wat?
That’s an “and” between sections A and B. Wait, so it’s not a blockchain for purposes of FIT21 if the source code isn’t “publicly available”? It would appear so. That’s interesting, isn’t it? Seems like an interesting thought experiment: figuring out a way to exclude your blockchain from being a blockchain by making the source code not “publicly available.”
I guess you’ll have to figure out what “publicly available” means and go from there. It’s not defined in this law, so have fun figuring it out. If you get it right, you’re probably free from a whole lot of regulations. If you get it wrong, you’ll probably go bankrupt.
If it’s not a blockchain for purposes of this particular law, then nothing else in this law applies to it. My mind goes to the following question: What if the source code is publicly available now, but gets taken private later on? This is not unlike what Elon Musk did with Twitter when he bought it and turned it from a public company into a private company. Since the company no longer issued securities, he was now exempt from a whole pile of laws. Could this be done with blockchain code to exclude it from this law entirely? How the fuck would I know? I’m a lawyer, not a dev. This is a question for smart people.
The term “decentralized system” gets real complicated, real fast, but the key takeaways appear to be:
1. For section (A), someone has to have “unilateral authority” in the past 12 months in order to be covered by that section, meaning that if someone doesn’t have “unilateral authority,” the section doesn’t apply.
2. For section (B), a “digital asset issuer or affiliated person” has to, in the past 12 months, own 20% or more of the “digital asset” or have “unilateral authority” to direct voting of more than 20%, or the digital asset did not include voting power.
3. For section (C), we drop down to the previous 3 months, but add digital asset issuer, affiliated persons, and related persons together, and basically require that they didn’t update the code to alter functionality unless it was to fix a problem or vulnerability or if it was adopted through consensus.
4. For section (D), we again stick to 3 months, keep digital asset issuer and affiliated persons, but drop related persons, and require only that those two didn’t market the digital asset “as an investment” during that time.
5. Finally, for section (E), we jump back to 12 months, and require that “all issuances of units of such digital asset through the programmatic functioning of the blockchain system were end user distributions.”
Anyone else asking: “12 months from when?” because you should be. It’s kind of an important question, isn’t it? Is it 12 months from when the legislation is signed into law? Or when certain regulations get passed in the future? Or from when some filing is required? Or from some arbitrary date set by some government agency at some point down the road? Kinda important, no?
Lastly, we’ll explore the definition of “digital asset” which, for purposes of this legislation only, means “any fungible digital representation of value that can be exclusively possessed and transferred, person to person, without necessary reliance on an intermediary, and is recorded on a cryptographically secured public distributed ledger.”
OK, so is a validator an “intermediary” or not? You can’t technically transfer jack shit to Mr. Jack Schitt without the block being proposed by a validator. I mean, I can’t just give someone some PLS by meeting them in a dark alley, opening the trunk of my car, and handing them a pile of it. That transaction requires a validator or it doesn’t happen. So is that considered going through an “intermediary”? Asking questions like this is what lawyers do most of the day. The rest involves day drinking and figuring out who we can bill for the shit we thought about while we were supposed to be listening to a lecture on DEI.
tl;dr: Is this FIT21 act a good thing or a bad thing for #PLS, #PLSX, and #HEX? How the fuck should I know? I have no idea what some of this shit means, what regulations are going to be issued as a result if this becomes law, or what’s even feasible from a dev standpoint. All I can tell you at this point is that there are a lot of questions that would have to be answered before knowing that answer. And this law, like many others, is just a set of instructions requiring other regulations and procedures to be written and implemented at some point in the future by someone else, like the SEC or CFTC.
So maybe it applies (or will apply) to one or more of them, maybe it doesn’t/won’t. Maybe you can change the answer by changing something to specifically exclude it from the act, like changing who owns 20% or more of something. I mean, what if 5 separate legal entities own 18% each? Would that be sufficient even if the same person owns or has majority ownership of all 5 of them? Who the hell knows. But if nobody asks these questions, nobody finds out the answers.
But this is how you go about analyzing statutes. You can’t just assume you know what something means just because it’s used a term used in everyday life, like “new automobile,” “apple,” or “blockchain.”
Again, nothing I say is legal advice, it’s just me thinking out loud.
