[cap-talk] Capability accounting

[Ian G]

Norman Hardy wrote:

>>>I am extremely enthusiastic about introducing money into the system.
>>>DSR <http://cap-lore.com/Economics/DSR/> even includes a 32 bit
>>>money amount in most network packets.

>>DSR almost certainly will not work.  I'd have to
>>read it in full to be clear, but here are a few
>>issues I spotted.


I should point out that I'm normally down
on payment systems, including my own :)  The
theory that we have predicts in all academic
seriousness that they should all fail.  So
hats off to anyone who pulls it off, I myself
have failed so far.

( Paypal should have failed a dozen times, and
remains interesting *because it survived*.
The inside story will only be gathered
slowly, as the PR angle took over very early.
e-gold was sound, but failed to migrate, and
theory predicts it should have failed by now.
Webmoney also was subject to massive fraud
problems, but they escaped. )

>>1. It has no security built in.  So it is in
>>effect an accounting system where everyone has
>>to participate and rely on everyone else.
> 
> 
> Yes, it has no security, except  for the ability to observe
> the fidelity of participants and share those observations.
> This, being tedious, must evolve into a service.
> Also critical is the ability to choose those with whom
> you do business.
> Coins evolved amid much counterfeiting.
> Today's banks are indeed quite reliable, but
> they evolved to that state.
> Crypto helps vastly for it helps those who want to know,
> who cheated, whether or not there are police to call.


Fraud has an interesting relationship with
security.  There is a contrasting view to
what I wrote above, that indicates that we
should not put any protection in a system
at all, we should let the fraudsters do the
work of pointing us to which things to plug.

 From the perspective of security practitioners
it feels dangerous, but from the perspective
of risk managers, it feels fine.  It's natural.


>>2. Reputation doesn't cut it when it comes to
>>money, the defrauders are way smarter than that,
>>and can basically game any system.
> 
> 
> There is fraud in the real world yet it works.
> DSR is not proposed for buying a car.

Right, see later comments about specialised
purpose.  I am pretty much assuming that this
is a killer.

> Passing such a sum thru DSR would indeed tempt
> those without a long term business plan.
> Buying a book is marginal.
> Buying packet delivery or an article seems just fine
> for those who pass the money have much more to gain
> by playing by the rules.
> Frequent cheating leads to quickly to bad reputation
> and no business, just like the real world.


Sure.  Just speaking from experience of
payment systems.  Typically, people say
"oh, reputation can be used to stop that!"

As a matter of observation, few systems have
got far with reputation (eBay, perhaps) and
many many payment systems have had themselves
ripped apart from fraud (e.g., most of the
latin american LETS-style schemes collapsed
due to fraud, and these things involved tens
of thousands of people and commensurate value
and commensurate "reputation" requirements.

>>3. there is no mechanism whereby DSR "arises";
>>it is a description of "there" without the route
>>map of how to get from "here" to "there".
> 
> 
> There is indeed no map provided in the foundation architecture,
> just as DNS is outside the IP addressed infrastructure of Internet.
> There is actually competition to DNS roots, but the main player
> happens go be good enough that the alternatives have little traffic.
> Routing in DSR is more complex for a path must be chosen
> on the basis not only of distance but fidelity of players.
> Also location is not built into the IP address structure.
> When road systems evolved, no central routing system was necessary
> to tell travelers how to choose the roads; they asked around.
> That is how markets work.


Sorry, to clarify, by here and there I meant
"here" as today with no nodes in the network,
and "there" as the future with a million nodes.

>>4. It relies on everyone, but offers little
>>until everyone is on board - so it cannot grow.
> 
> 
> This is alas largely true.
> Of course internet began to grow before everyone was on it.


Yes.  It did it because anyone who could get in
was allowed in for no charge.


>>5. it is only useful for a tiny area of transactions
>>(small amounts, ones of a special type).  This
>>assumes a supply before a supply, see 3. above.
> 
> 
> Mechanisms for larger amounts are indeed already in place,
> and would be presumably used to settle DSR accounts.
> (I don't know what you mean by "special type".)


OK, to clarify this point, what I was referring
to here was not the higher layer settlement issue,
but the broad capability of the infrastructure in
question.

In general, if we are going to put in place a
system that does, say, payments, then we want to
make those payments as broadly useful as possible.

So, for example, my own payments are deliberately
designed to be extremely broad value - from 0.1 c
to $1000000 or so.  With some tuning we can push
it further, or we can strengthen the claims to
those numbers.

So that means that I can leverage the infrastructure,
it is possible for me to do micropayments (whatever
they are) as well as securities trading.

In DSR, it is deliberately designed for one small
range of payments, from node to node, for packet
settlement, etc.  Now, if a new application turned
up, say, payment for email and the amounts were
instead of 0.01c but 1c - 100c, then it would be
less likely to easily switch.

This ability to switch from high to low is critical
to payment systems.  e-gold and webmoney both show
this, and Paypal to a lesser extent.  It allows them
to serve many markets -- a key requirement in a field
were you don't actually have a clue about the market
that you will end up serving (it's a little bit like
Granovetter's theory of weak links).


>>6. no mechanism by which the money's value is
>>independently established.
> 
> 
> Why need that be centralized?

"independent" != "centralized."

There is an issuer of the money.  Then there
is the seller and the buyer.  If I as a party
get stuck holding the stuff, there is no
mechanism there that says how I get out.

That is, if for some reason, I end up holding
a bunch of these things, and I need USD because
the reason I hold them all is because my node
is smoking from the load and I need to buy a
new node ... how do I *know* that the bunch I
have can be converted into something useful?

And if I don't have any way of knowing, why
did I enter into the market in the first place?

"Because everyone is doing it" is a common answer,
which leads back to the evolution thing.  Cracking
the journey from nothing to everything is a fun
game.  But in the meantime, the early adoptors
will generally insist on knowing how they can
get out and get USD.

So in general one would look for something like
a buyback promise.  "I will buyback 1000 of them
and send you $10."  And, especially, how you tie
that back to the user's holdings.


> Who establishes exchange rates between currencies?
> The market.
> Some governments try but can do so only by entering the
> market themselves.
> 
> 
>>Etc etc.
>>
>>...
> 
> 
> There is an admitted libertarian bias here. (no central authority)

Sure.  One tends to need that just to absorb
the Chaumian lesson that this is something that
we *can* do :)

> There is also an embracing of chaos of unreliable components,
> something that was perhaps introduced to the computing world
> most forcefully by the noise and lost circuits of telecommunications.
> This taught many computer people the reliable systems could
> emerge upon unreliable foundations.
> vonNeumann and Hamming showed this earlier, of course.

Music to my ears!

> DSR is not a "computer science" solution.
> I put it in the "economics" section of my site.
> DSR includes dishonest people as obstacles to be routed around.
> There was much trade before there were police.
> In DSR you are at risk from only those who you choose to do business  
> with.
> Admittedly some tasks can be done only by risking your business with
> shady characters.
> Computer science won't change that.


Right.  I'd like to think that DSR is financial
cryptography, a term coined by Robert Hettinga.
I define it as a group of disciplines.  By way
of example, I put Computer Science (with the
label of Software Engineering) at layer 2, and
capabilities falls in there, with a nod to layer
3, Rights, as coined by Mark Miller.

Financial Cryptography in 7 Layers
http://iang.org/papers/fc7.html

I suppose it is asking a lot to suggest that
people need to learn accounting, governance,
marketing, etc, in order to build these things...

iang