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Please comment.</i></p>
<h3>Abstract</h3>
<p><font color="#FF0000">*** To be written</font></p>
- <h3>Introduction </h3>
+ <h3><a name="intro"></a>Introduction</h3>
<p>As Hernando de Soto explains in The Mystery of Capital [<a href="#deSoto00">deSoto00</a>],
- the people of the third world do not suffer from, in his terminology,
- a lack of <i>assets</i>; rather, they suffer from a lack of <i>capital</i>.
- De Soto's focus is on the <i>informal</i> sector -- that sphere of economic
+ the poor of the third world (including much of the former communist world)
+ do not suffer from, in his terminology, a lack of <i>assets</i>; rather,
+ they suffer from a lack of <i>capital</i>. The poor around the world do,
+ surprisingly enough, have assets. In a simple experiment, in which de
+ Soto's associates drove around neighborhoods in various poor countries,
+ assessing the value of buildings which were not formally titled, de Soto
+ extrapolated that the value of just the informally owned buildings in
+ the third world amounted to $9.3 trillion -- more than half the combined
+ value of all publicly traded U.S. companies.</p>
+ <p>De Soto's focus is on the <i>informal</i> sector -- that sphere of economic
activity that occurs outside of the official <i>formal</i> legal system.
Most of the economic activity of the third world's poor occurs in the
informal sector. Despite the non-official status of the informal systems
of laws and property in this sector, they are nevertheless quite real,
and form the foundations on which these informal economies function. However,
the formal and informal sectors are not otherwise equivalent. The poor
- pay a great price for informality -- most of all the lack of capital.</p>
+ pay a great price for informality -- most of all in the difficulty of
+ capital formation.</p>
<p>As a simple example, the house you live in, from which no one would attempt
to evict you, is an asset. The recognition and sense of legitimacy in
your local community of your claim to the house makes this asset effectively
@@ -83,196 +91,226 @@
that have become rich, mortgages in particular have been a major source
of highly decentralized investment, seeding many family businesses. Do
Soto documents well both the high comparative costs of operating formally,
- and the difficulty of bringing out the transition, but successfully makes
- the case that the benefits outweigh the costs. Today, there are only these
- two choices -- informal <i>vs.</i> governmental. Given only these choices,
- we believe de Soto is advocating the right one, we wish him great luck
- on his program, and we do not wish to distract those who are able to this
- transition successfully. Indeed, we can imagine few more effective programs
- for improving the overall condition of humanity.</p>
+ and the difficulty of bringing about the transition, but successfully
+ makes the case that the benefits outweigh the costs. Today, there are
+ only these two choices -- informal <i>vs.</i> governmental. Given only
+ these choices, we believe de Soto is advocating the right one, we wish
+ him great luck with his program, and we do not wish to distract those
+ who are able to make this transition successfully. Indeed, we can imagine
+ few more effective programs for improving the overall condition of humanity.</p>
<p>Despite our admiration, this paper takes a different approach; it explores
- a third alternative.</p>
- <p>Because binding contracts for ownership transfer lie at the heart of
- capital formation, if traditional contracts were supplemented and/or supplanted
- with smart contracts, which leverage the Internet and cryptography for
- mediating disputes and enabling cooperation among suspicious parties,
- could such instruments dramatically increase capital liquidity, spawning
- a flood of new wealth in the poorest areas of the world?</p>
- <h3>The Wealth of Poor Nations</h3>
- <p>The poor around the world do, surprisingly enough, have assets. In a
- simple experiment, in which Hernando de Soto's associates drove about
- the countryside, assessing the value of buildings which were not formally
- a part of any formal title registry, de Soto extrapolated that that the
- value of just the extralegal buildings in the third world amounted to
- $9.3 trillion.</p>
- <p> Moreover, it is not a lack of laws or markets that holds these assets
- in frozen unusability either. Each village has a clearly understood set
- of rules about who owns what, and how they may interact and exchange the
- property they own. A deeper and subtler failure is at work here. There
- is another brick to be identified and removed.</p>
- <h3><img src="images/1-engelbart.gif" width="365" height="168" align="right">The
- Brick</h3>
- <p>In the early days of computers, Doug Englebart, who was fascinated with
- augmentation of the human mind, was asked, what does augmentation mean
- exactly? What is an example? Realizing that it is very hard to visualize
- an augmentation until it is already in common use, Doug created an artificially
- de-augmented system for comparison: he created the pencil with a brick
- attached to it. When two groups of comparable students were asked to write
- essays, one group with ordinary pencils, and one group with brick pencils,
- the quality of the essays written by students with normal pencils was
- superior to that of the students with bricks. Removing the brick from
- the pencil, then, is an augmentation. The goal of augmentation, then,
- is to identify, and remove, the next brick.</p>
- <h3>The Bricks of the 20th Century</h3>
- <p>Difficult as it is to visualize augmentation of the human mind, augmentation
- of society is perhaps even more difficult to perceive beforehand. Fortunately
- (or unfortunately, for those who were involved), the 20th Century was
- in many respects a massive experiment in brick handling. Fascism and Communism,
- both bricks of monolithic proportions, were tied to societies. On the
- day the Berlin Wall fell, the per capita ownership of automobiles in the
- Soviet Union was lower than the per capita ownership of automobiles among
- blacks under <i>apartheid</i> in South Africa. Comparing these closed
- societies to the open societies of democratic capitalism,we can see the
- weight of an enormous brick removed; it is hard to imagine another brick
- hiding there as well. In fact, there are two other bricks that have been
- identified, one of which is in the process of being lifted in America
- as we speak, a brick that takes this nominally open society to an extreme
- new level of openness. <img src="images/2-soviet.gif" width="381" height="145" align="right"></p>
- <p>The right of free speech, which underpins so much of the strength of
- western civilization, is being transformed by the Net. In today's Web-enhanced
- society, freedom of speech is no longer a right which is to be negotiated
- between citizen and state; rather, it is a technological fact that accepts
- no compromise. This new Web-empowered right to free speech is effectively
- a law, but is completely jurisdiction free--even if all the nations of
- the world agreed that free speech should be constrained, no constraint
- would prevail. </p>
- <h3>Technological, Jurisdiction-Free Law</h3>
- <p>The advent of technologically imposed, jurisdiction-free law has several
- ramifications. Even in the US, where free speech has historically been
- not merely respected, but rather worshipped, free speech was by common
- consent constrained. The common example was the duty not to shout "Fire!"
- in a movie theater, but the enduring example has been copyright law Historically
- America had a good balance between copyright and free speech. But a technological
- fact has no ability to compromise: there is no one to negotiate a compromise
- with. So copyright is destroyed even though it has universal support through
- all the world's major jurisdictions. </p>
- <p>Technological facts are morally neutral. why should we in general expect
- technological laws to be either good or bad? In fact, interaction through
+ a third alternative, one openned up by new technologies. Because binding
+ contracts for ownership transfer lie at the heart of capital formation,
+ if traditional contracts were supplemented and/or supplanted with smart
+ contracts, which leverage the Net and cryptography for mediating disputes
+ and enabling cooperation among suspicious parties, could such instruments
+ dramatically increase capital liquidity, spawning a flood of new wealth
+ in the poorest areas of the world? (Given the exponential rate at which
+ the cost of electronics is falling, the cost of the tecnology itself should
+ rapidly become a non-issue, even for the world's poorest.)</p>
+ <h3><a name="personal-bricks"></a><img src="images/1-engelbart.gif" width="365" height="168" align="right">Removing
+ the Next Brick</h3>
+ <p>The new technologies of the Net and cryptography present tremendous opportunities
+ for improving the nature of society. But improving society is a difficult
+ task. More generally, improving complex systems is a difficult task. If
+ you cannot figure out which way is up, see if you can figure out which
+ way is down. Doug Engelbart, back in the early 1960s [<a href="#Engelbart62">Engelbart62</a>],
+ wanted to explain to people why interactive systems would make a significant
+ difference to their lives, and augment their ability to express ideas.
+ </p>
+ <p>In Figure 1, the origin on the axis is what people were doing at the
+ time--writing with pencil and paper. When he found himself unable to communicate
+ to people how much better things could be, he contrasted their current
+ experiences with how much <i>worse </i>things could be. He tied a pencil
+ to a brick, handed it to people and said, "Okay, now write."
+ People found it very difficult. The unwieldy nature of the tool interfered
+ with their ability to express ideas. With the pencil and brick for contrast,
+ he effectively asked two questions: "What made the difference?"
+ and, "How can we move further in the other direction?" This
+ experiment showed people how important their tools and their media were
+ to their effectiveness, and helped them start to see the next brick to
+ remove. This thought experiment led directly to seminal work responsible
+ for much of the modern world of interactive systems that we now take for
+ granted.</p>
+ <p>The 20th century performed a similar experiment on a grand scale, tying
+ large bricks to large societies with the best of intentions, but with
+ vastly tragic consequences. Only by learning from this experiment may
+ our good intentions have better results, and this vast human tragedy will
+ at least not have been in vain. Once we see the bricks that were tied
+ to these societies, and understand how they precipitated these tragic
+ outcomes, we may see clearly the bricks that remain, and start to imagine
+ their removal as well. Not just to bring the rest of the world up to the
+ standard enjoyed at the origin of the axis, but to move past that point
+ as well.
+ <h3><a name="openness"></a>The Brick of Constrained Speech</h3>
+ <p><img src="images/2-soviet.gif" width="381" height="145" align="right">The
+ most apparent contrast between these two societies is summed up by their
+ common labels: <i>closed societies</i> and <i>open societies</i>. Knowledge
+ evolves well only through a process of open discourse and criticism, in
+ which no <i>official truth</i> is held beyond skeptical re-examination
+ [<a href="#Bartley62">Bartley62</a>]. Economic activities spontaneously
+ organize through a process of decentralized plan coordination. Open discourse
+ is a crucial part (together with prices) of the means by which economic
+ agents coordinate their plans with each other [<a href="#Lavoie01">Lavoie01</a>].
+ Constraints on speech in the closed societies placed a burden not only
+ on the individuals in those societies -- this brick made those societies
+ as a whole stupider. When authority can be used to prevent open questioning
+ or negotiation, simple disbelief of officials truths is all that remains.</p>
+ <p>The brick of constrained speech is in the process of being removed yet
+ again as we speak. The right of free speech, which underpins so much of
+ the strength of western civilization, is being transformed by the Net.
+ In today's Web-enhanced society, freedom of speech is no longer a right
+ which needs to be negotiated between citizen and state; rather, it is
+ a technological fact that accepts no compromise. This new Net-empowered
+ right to free speech is effectively a law, but is a completely <i>jurisdiction
+ free law</i>--even if all the nations of the world agreed that speech
+ should be constrained, no constraint would prevail, as none would be enforceable
+ [<a href="#Kelsey99">Kelsey99</a>].</p>
+ <h3><a name="tech-law"></a>Technological, Jurisdiction-Free Law</h3>
+ <p>The advent of technologically-based, jurisdiction-free law has many ramifications
+ [<a href="#Lessig99">Lessig99</a>]. Even in the US, where free speech
+ has historically been not merely respected but worshipped, free speech
+ was by common consent still somewhat constrained. The obvious example
+ was the duty not to shout "Fire!" in a movie theater, but the
+ enduring example has been copyright law. Historically America had a good
+ balance between copyright and free speech. But a technological fact has
+ no ability to compromise: there is no one to negotiate a compromise with.
+ So copyright becomes unenforceable even though it has the universal support
+ of all the world's major jurisdictions.</p>
+ <p>Technological facts would seem to be morally neutral. Should we expect
+ technological laws in general to be either good or bad? Taken by itself,
+ the loss of copyright is probably an example of a bad consequence. Copyright
+ addresses a genuine externality problem in the creation of new knowledge.
+ Although copyright addresses the problem imperfectly, all the alternatives
+ that remain enforceable seem much worse. The world will probably be poorer
+ for the loss of copyright. (Though it's worth noting that the Net seems
+ to be vastly accelerating the creation and disemmination of knowledge,
+ even as it destroys the conventional incentives for engaging in these
+ activities.)</p>
+ <p>Despite this negative example, we can expect the new technological laws
+ produced by the Net to be, on the whole, beneficial. Interaction through
the Net is inherently coercionless: no one can point a gun at you through
your monitor screen. You could send someone a virus, and under today's
- law that would be considered a use of force. But sending viruses is also
- a form of free speech, and under the technological law of the Net, ultimately
- cannot be compromised. The good news is that computer viruses and large-scale
- computer cracking is not a technological fact nor a technological law:
- computer security is possible (<font color="#0000ff">ref something about
- capabilities</font>). Consequently, the correct response to computer viruses
- is akin to John Stuart Mill's assertion about bad speech: just as the
- only way to cope with bad speech is with more better speech, so the only
- way to cope with bad bits (computer viruses) is with better bits (capability
- secure infrastructures).</p>
- <h3>The First Brick of the 21st Century</h3>
- <p>We have removed so many bricks, how can third world poverty remain as
- persistently intractable as ever? Free speech is not enough. The end of
- Communism is not enough. The universal desire for capitalism has proven
- to be not enough. The naive view held by many people including this author
- when the Berlin Wall fell was that, once government was out of the way,
- the market would take care of the people. This has proven tragically wrong.
- What else is missing, what other bricks must be removed?</p>
- <p><b><img src="images/3-hubs.gif" width="347" height="212" align="right"></b>It
- seems clear that another brick is the one that distinguishes low-trust
- from high-trust societies (Fukiyama). Trust relationships directly impact
- what types of business relationships are possible. It is not so much the
- absence of direct trust between individual participants that holds a society
- back, but rather the absence of widely respected trustworthy intermediaries
- (widely trusted third parties, or WTTPs) that makes business difficult
- to undertake. It is through these WTTPs that, in advanced societies, strangers
- can engage in cooperative enterprise. This enables "trust at a distance".
- </p>
- <p>However, Western-style WTTP infrastructures are the result of slow growth
- processes; they build slowly over time. These WTTP institutions can be
+ law that would be considered a use of force. After all, the virus does
+ cause harm to the recipient. But sending viruses is also a form of free
+ speech, and under the technological law of the Net, ultimately cannot
+ be constrained. The logic of John Stuart Mill's defense of free speech
+ [<a href="#Mill69">Mill69</a>] applies perfectly to this situation.</p>
+ <p>John Stuart Mill never claimed that "bad" speech could not
+ harm the listener. Rather, he observed a crucial difference between the
+ harm done by speech and the harm done by force. Speech does harm only
+ by virtue of how the listener reacts to the speech. If the speaker learns
+ to react differently to a certain pattern of speech, that pattern is rendered
+ harmless. After all, it's only information; it cannot by itself cause
+ damage. The only effective answer to bad speech is more speech, as only
+ this enables gullibility and cynicism to grow into skepticism.</p>
+ <p>Likewise, the Net only transmits information -- including viruses. A
+ virus can only do harm based on the reaction -- the means of processing
+ and operation -- of the computer receiving the virus [<a href="#Hardy99">Hardy99</a>],
+ and its user [<a href="#Stiegler98">Stiegler98</a>, <a href="#Walker">Walker</a>].
+ The good news is that the damage done by computer viruses (or any malicious
+ bit pattern) is not a technological law, since computer security is possible.
+ Since the disemmination of viruses cannot be prevented, the only response
+ to their bad bits are other bits -- the software of virus-invulnerable
+ secure operating systems [<a href="#Hardy85">Hardy85</a>, <a href="#Shapiro99">Shapiro99</a>],
+ programming languages [<a href="#Hewitt73">Hewitt73</a>, <a href="#Tribble95">Tribble95</a>,
+ <a href="#Rees96">Rees96</a>, <a href="#Stiegler98">Stiegler98</a>], and
+ user interfaces [<a href="#Walker">Walker</a>]. Only such software enables
+ our computers to grow from fatal gullibility or safe-but-useless seclusion
+ into rich cooperation-without-vulnerability with the rest of the electronic
+ world. This growth in turn will enable the removal of the next brick.</p>
+ <p>(In contrast to a common misunderstanding, the cited systems demonstrate
+ that secure systems need not be less capable or harder to use than insecure
+ systems. Indeed, it seems the only significant comparative cost paid for
+ security is incompatibility with the installed base. Although this cost
+ is not to be underestimated, the current situation, in which 13 years
+ old easily compromise hundreds of fatally gullible computers used by others,
+ may not be stable, once knowledge of an alternative becomes widespread.)</p>
+ <h3><b><img src="images/3-hubs.gif" width="347" height="212" align="right"></b><a name="nohubs"></a>The
+ Brick of Missing Hubs</h3>
+ <p>So many bricks have been removed, how can third world poverty remain
+ as persistently intractable as ever? Free speech is not enough. The end
+ of Communism is not enough. The universal desire for capitalism has proven
+ to be not enough. The naive view held by many people, including this author
+ when the Berlin Wall fell, was that, once government was out of the way,
+ the market would bloom and take care of the people. This has proven tragically
+ wrong. What else is missing, what other bricks must be removed?</p>
+ <p>It seems clear that another brick is the one that distinguishes low-trust
+ from high-trust societies [<a href="#Fukuyama95">Fukuyama95</a>]. Trust
+ relationships directly impact what types of business relationships are
+ possible. Fukuyama makes many highly perceptive observations about different
+ <i>cultural</i> attitudes and proclivities towards trust, and shows how
+ these differences seem to explain some of the observed differences in
+ the patterns of businesses that arise in these cultures.</p>
+ <p>To understand how first world societies can function requires something
+ more than Fukuyama's analysis. After all, in the first world strangers
+ can meet, trade, do business, negotiate and sign contracts, despite lack
+ of any prior knowledge of each other. How is this possible?</p>
+ <p></p>
+ <p>De Soto's earlier book, <i>The Other Path</i> [<a href="#deSoto89">deSoto89</a>],
+ tells a complementary story. De Soto can also be understood as explaining
+ differences in economic organization according to differences in the ability
+ to engage in economic activities that require trust. However, de Soto's
+ emphasis is not culture but institutions, or their lack. De Soto's portrayal
+ of the poor of the third world is not one of culturally-based low trust.
+ Rather, it is the painful lack of the various widely trusted intermediate
+ institutions (or WTIIs) that catalyze commerce at a distance in the first
+ world, and that we normally take for granted.</p>
+ <p>Trust relationships can be thought of as analogous to the airport hub
+ and spoke pattern (Figure 3). Many small local networks are interconnected
+ on the wider scale through major hubs. Although this pattern is a partial
+ centralization, it is not a hierarchy -- there is, for example, no central
+ hub of hubs. Logically, it is peer to peer, but it is built with a backbone
+ architecture due to the economics of the system. The Net itself has mostly
+ the same architecture, as does the highway system. In all cases, a sparsely
+ connected actual network acts for most purposes like a densely connected
+ network. From any airport you can fly to any other airport, almost as
+ if there were flights between every pair of airports.</p>
+ <p>Similarly, in the first world, two strangers can meet and conduct business
+ as if they had prior knowledge of and trust in each other, by virtue of
+ their reliance on a mutually recognizing backbone of WTIIs. These WTIIs
+ are both in the business of securing these relationships to minimize the
+ risks that these strangers face from each other, sometimes requiring it
+ to absorb some of these risk onto itself. The economies of scale available
+ to a WTII can help tremendously with these risks. Historically, western
+ societies have developed specialized WTIIs that bundle trust with another
+ other expertise: one trusts Citibank not only because Citibank has a demonstrated
+ history of reliably backing their loans, but also because they are experts
+ in loan and risk management, which are necessary elements of reliability
+ in that field: an organization that attempted to engage in banking without
+ expertise in these fields could not be trustworthy no matter how honorable
+ the employees and executives of the organization might be.</p>
+ <p>Other examples of familiar WTIIs include title companies, insurance,
+ escrow, exchanges and auction houses, underwriters, Consumer Reports,
+ Roger Ebert, courts and police, etc... The list is endless. </p>
+ <p><img src="images/4-low-trust.gif" width="350" height="218" align="right">From
+ a simple graph-theoretic point of view, we can analyze the Fukiyama low-trust
+ world (in which the fanout from each node is small) and the de Soto missing-WTII
+ world (in which the hubs are absent), and immediately recognize which
+ one has the greater impact on a society's effectiveness: it is the absence
+ of the WTIIs that ultimately prevent society-wide trust relationships
+ from forming. No matter what the culture, cognitive limitations prevent
+ each of us from even knowing about, much less trusting, most of the members
+ of our society. Even with high cultural proclivity for individual-to-individual
+ trust, in the absence of hubs, the resulting virtual network would at
+ best form small islands of densely connected networks, only loosely connected
+ to each other. This resembles both Fukuyama's picture of familial trust
+ societies, and de Soto's picture of the networks of villages of informals.</p>
+ <p>But shouldn't this be an ideal growth medium for WTIIs? Indeed, this
+ is the medium in which the WTII backbone spontaneously grew in the west.
+ Absent government oppression we should indeed expect it to grow here.
+ However, Western-style WTII infrastructures are the result of slow growth
+ processes; they build slowly over time. These WTII institutions can be
seen as a form of capital that takes a long time to accumulate. One of
the depressing features of the pictures painted by both Fukiyama and de
Soto is that the only hope they see for these societies is home-grown,
with each individual third world nation bootstrapping itself through all
- these steps, including the evolution of their own WTTPs. Well, it took
+ these steps, including the evolution of their own WTIIs. Well, it took
a long time for us to do it. If they must do it on their own, it will
take them a long time, a time during which desperate poverty will remorselessly
- prevail. Can we accelerate them through this part of the process of capital
- formation?</p>
- <h3>Patterns of Trust</h3>
- <p>Trust relationships can be thought of as analogous to the airport hub
- and spoke pattern (see picture). Many small local networks are interconnected
- on the wider scale through major hubs. Yet there is not a central hub
- of hubs that is the top of a hierarchy. Logically, it is peer to peer,
- but it is built with a backbone architecture due to the economics of the
- system.</p>
- <p>In the system of trust relationships, these hubs are the WTTPs. As in
- the airport analogy, the costs are too high for every airport to have
- a direct relationship with every other. In the case of trust, the cost
- is the excessive amounts of information that need to be understood--human
- beings have the cognitive power to form direct trust relationships with
- only a very tiny fraction of the number of people in the society; the
- WTTPs enable us to have indirect trust relationships with virtually everyone.</p>
- <p><img src="images/4-low-trust.gif" width="350" height="218" align="right">From
- a simple graph-theoretic point of view, we can analyze the Fukiyama low-trust
- world (in which the local networks are small) and the de Soto missing-WTTP
- world (in which the hubs are absent), and immediately recognize which
- one has the greater impact on a society's effectiveness: it is the absence
- of the WTTPs that ultimately prevent society-wide trust relationships
- from forming. </p>
- <h3>Types of Trust</h3>
- <p>Historically, western societies have developed specialized WTTPs that
- bundle trust with another other expertise: one trusts Citibank not only
- because Citibank has a demonstrated history of reliably backing their
- loans, but also because they are experts in loan and risk management,
- which are necessary elements of reliability in that field: an organization
- that attempted to engage in banking without expertise in these fields
- could not be trustworthy no matter how honorable the employees and executives
- of the organization might be. One broad demarcation of trusted organizations
- is the distinction between government institutions and private institutions;
- examples of each category can be seen in Table 1.</p>
- <div align="center">
- <table cellpadding="6">
- <tbody>
- <tr>
- <td><b>Trusted Government Institutions</b>
- <hr>
- </td>
- <td><b>Trusted Private Institutions</b>
- <hr>
- </td>
- </tr>
- <tr>
- <td>Courts</td>
- <td>Title Companies</td>
- </tr>
- <tr>
- <td>Police</td>
- <td>Insurance</td>
- </tr>
- <tr>
- <td>Treasury/Central Bank/Currency Managers</td>
- <td>Escrow</td>
- </tr>
- <tr>
- <td></td>
- <td>Financial Instrument Exchanges</td>
- </tr>
- <tr>
- <td></td>
- <td>Underwriters</td>
- </tr>
- <tr>
- <td></td>
- <td>Consumer Report</td>
- </tr>
- <tr>
- <td></td>
- <td>Roger Ebert</td>
- </tr>
- </tbody>
- </table>
- </div>
+ prevail. What enablers are available now that were unavailable when the
+ west made this transition? How might these be used to help accelerate
+ them through this part of the process of capital formation?</p>
<h3>The Crucial Trust Specialty</h3>
<p>In fact, while all these trust institutions are valuable to the construction
of advanced societies, not all are equally crucial. de Soto's analysis
@@ -284,7 +322,7 @@
at a distance</i>: people who have never met one another and probably
never will can engage in asset transfers and capital formation with the
confidence that they will acquire the goods specified in the contract.</p>
- <h3>The Government Solution</h3>
+ <h3><a name="govt"></a>The Government Solution</h3>
<p>The obvious--though not necessarily most trustworthy--organization to
fill this crucial titling role in a nation is the government itself. This
is the strategy de Soto has adopted, converting extra-legal assets, village
@@ -317,21 +355,20 @@
The process never becomes easy: each village is another major upheaval
in the perceptions and preferences of entrenched groups dedicated to protecting
the status quo. </p>
- <h3><img src="images/5-bootstrap.gif" width="366" height="214" align="right">The
+ <h3><a name="bootstrapping"></a><img src="images/5-bootstrap.gif" width="366" height="214" align="right">The
Digital Path</h3>
- <p>How can we sidestep this brutally painful process? Perhaps with the Internet.</p>
+ <p>How can we sidestep this brutally painful process? Perhaps with the Net.</p>
<p><font color="#000000">For goods that can be exchanged electronically,
- the Internet has wiped out geography and jurisdiction. If the function
- provided by WTTPs can be supplied as a purely electronic service, then
- the existing first world trust hubs--especially first world title agencies--can
- bootstrap the third world on a global scale through the new medium. (See
- Picture).</font></p>
+ the Net has wiped out geography and jurisdiction. If the function provided
+ by WTIIs can be supplied as a purely electronic service, then the existing
+ first world trust hubs--especially first world title agencies--can bootstrap
+ the third world on a global scale through the new medium. (See Picture).</font></p>
<p><font color="#000000">Many first world trust hubs are already trusted
in the third world because of the frenetic distribution efforts of the
traditional broadcasting media such as television: shows ranging from
CNN to Dallas and Baywatch have granted an aura of respectability to first
world organizations that most third world governments can only envy. Using
- first world WTTPs, villages on a global scale can in principle become
+ first world WTIIs, villages on a global scale can in principle become
part of a global trust network. For example, if a person in village A
wants to sell a tractor to a person in village D, a couple of villages
away, they could in principle use a title registry run by Citibank in
@@ -343,9 +380,9 @@
world join this global village, it is much easier to grow the "local"
(i.e., national) high-trust hubs as well: an entity becomes high-trust
simply by consistently performing in accordance with the contracts being
- managed by first-world WTTPs. </font></p>
- <h3><font color="#000000">Smart Contracts</font></h3>
- <p>How would such WTTPs deal with the idiosyncracies of local village tradition,
+ managed by first-world WTIIs. </font></p>
+ <h3><font color="#000000"><a name="smart-contracts"></a>Smart Contracts</font></h3>
+ <p>How would such WTIIs deal with the idiosyncracies of local village tradition,
the idiosyncracies that sabotage traditional governmental attempts to
capitalize village assets? By the use of smart contracts.</p>
<p><font color="#000000">In smart contracts, the program code is an operational
@@ -360,8 +397,7 @@
directly enforces the terms of the contract; as in the vending machine
example, it provides an inescapable arrangement rather than a set of penalty
clauses which require separate enforcement after contract breach, as is
- typical in traditional contracts. </font><font color="#ff0000">(ref Nick
- Szabo and Ode)</font><font color="#000000">. </font></p>
+ typical in traditional contracts [<a href="#Szabo97">Szabo97</a>, <a href="#Miller00">Miller00</a>].</font></p>
<p><font color="#000000"><img src="images/6-exchange.gif" width="390" height="247" align="right">The
basic metaphor for the composition of smart contracts is the board game.
When two people negotiate a contract, they are jointly designing the rules
@@ -403,13 +439,13 @@
<p>One feature of contract hosts that is particularly important in the context
of idiosyncratic local village property laws is this: embodying the contract
in a smart contract is that the trust is "outsourced" from the
- specialized contract knowledge needed in traditional WTTPs: The owners
+ specialized contract knowledge needed in traditional WTIIs: The owners
of the computer that is acting as a smart contract host do not know, and
do not need to know, anything about the nature of the contract. </p>
<p><img src="images/9-layering.gif" width="324" height="304" align="right">As
a consequence, the local village's unique definition of property rights
can in principle be embodied in a smart contract, which can be executed
- with perfect integrity on a WTTP contract server on a different continent,
+ with perfect integrity on a WTII contract server on a different continent,
where no one has ever even heard of the village that created this set
of property rights. Even the most eccentric of contracts will be executed
correctly.</p>
@@ -418,7 +454,7 @@
enormous homogenization costs of integrating with a national body of law.
They would leapfrog into the world of nonjurisdictional coercionless legal
systems made possible by the Web. And they can make this jump at Web speeds.</p>
- <h3>Smart Contracting for the First World</h3>
+ <h3><a name="blockbuster"></a>Smart Contracting for the First World</h3>
<p>Smart Contracting is not just a good idea for the third world. In technological
western civilization as well, smart contracts can wring new efficiencies
from the economy. An example can be seen in the way a new special-purpose
@@ -441,12 +477,12 @@
giving the rental stores movies at nominal prices, encouraging the rental
stores to maintain quantity and quality at dramatically higher levels.
</p>
- <h3>The Rule of Law, Not Of Men</h3>
+ <h3><a name="ruleoflaw"></a>The Rule of Law, Not Of Men</h3>
<p>What does smart contracting do to the next brick? The next brick that
must be removed from the world is the brick that prevents the long-distance
credible right of property transfer. We remove this brick by moving the
- village to Cyberspace: placing the local village on the Internet, adjacent
- to the globally recognized WTTPs already present there, and enabling the
+ village to Cyberspace: placing the local village on the Net, adjacent
+ to the globally recognized WTIIs already present there, and enabling the
implementation of smart contracts filled with local knowledge on an impartial
contract host continents away. Once this transition takes place, we will
see that jurisdiction-based law, even when nation-wide, is crippled in
@@ -459,17 +495,19 @@
to the high-efficiency, low friction, strongly impartial, extremely corruption-resistant,
non-jurisdictional legal systems of the future. It will bring us a giant
step closer to a world governed by the rule of law, not of men.</p>
- <h3>Acknowledgements</h3>
+ <h3><a name="acks"></a>Acknowledgements</h3>
<p>These ideas have formed over much time and many valuable conversations,
- for which we thank K. Eric Drexler, Charles Evans, Robin Hanson, Doug
- Jackson, Don Lavoie, Zooko (Bryce Wilcox-O'Hearn), Gayle Pergamit,
+ for which we thank K. Eric Drexler, Charles Evans, Ian Grigg, Robin Hanson,
+ Doug Jackson, Don Lavoie, Zooko (Bryce Wilcox-O'Hearn), Gayle Pergamit,
Chris Peterson, Terry Stanley, Nick Szabo, E-Dean Tribble, Bill Tulloh,
Ka-Ping Yee, and the members of the e-lang mailing list.</p>
- <h3>References</h3>
+ <h3><a name="refs"></a>References</h3>
+ <p><a name="Bartley62"></a>[Bartley62] William W. Bartley, III, <i><b>The
+ Retreat to Commitment</b> </i>Open Court Publishing, 1962.</p>
<p><a name="deSoto89"></a>[deSoto89] Hernando de Soto, "<b>The Other
Path</b>", Harper & Row, 1989.</p>
<p><a name="deSoto00"></a>[deSoto00] Hernando de Soto, "<b>The Mystery
- of Capital</b>", Basic Books, 2000. See <a href="http://www.rcp.net.pe/ild/f-newbook.htm">http://www.rcp.net.pe/ild/f-newbook.htm</a>.</p>
+ of Capital</b>", Basic Books, 2000. Chapter 1 online at <a href="http://www.ild.org.pe/tmoc/language.htm">http://www.ild.org.pe/tmoc/language.htm</a>.</p>
<p><a name="Engelbart62"></a>[Engelbart62] Doug Engelbart "<b>Augmenting
Human Intellect: A Conceptual Framework</b>", SRI Project no. 3578,
October 1962.</p>
@@ -478,21 +516,54 @@
<p><a name="Granovetter73"></a>[Granovetter73] Mark Granovetter, "<b>The
Strength of Weak Ties</b>", in: American Journal of Sociology (1973)
Vol. 78, pp.1360-1380.</p>
+ <p><a name="Hardy85"></a>[Hardy85] Norm Hardy, "<b>The KeyKOS Architecture</b>",
+ Operating Systems Review, September 1985, pp. 8-25. Updated at <a href="http://www.cis.upenn.edu/%7EKeyKOS/OSRpaper.html">http://www.cis.upenn.edu/~KeyKOS/OSRpaper.html</a>.</p>
<p><a name="Hardy99"></a>[Hardy99] Norm Hardy, "<b>Computer Security,
the Very Idea</b>". Online at <a href="http://www.cap-lore.com/Dual.html">http://www.cap-lore.com/Dual.html</a>.</p>
+ <p><a name="Hewitt73"></a>[Hewitt73] Carl Hewitt, Peter Bishop, Richard
+ Stieger, "<b>A Universal Modular Actor Formalism for Artificial Intelligence</b>",
+ Proceedings of the 1973 International Joint Conference on Artificial Intelligence,
+ pp. 235-246.</p>
<p><a name="Kelsey99"></a>[Kelsey99] John Kelsey, Bruce Schneier, "<b>The
Street Performer Protocol and Digital Copyrights</b>", First Monday,
vol 4, no 6, 1999. Online at <a href="http://www.firstmonday.dk/issues/issue4_6/kelsey/index.html">http://www.firstmonday.dk/issues/issue4_6/kelsey/index.html</a>.</p>
+ <p><a name="Lavoie01"></a>[Lavoie01] Don Lavoie, "<b>Subjective Orientation
+ and Objective Wealth: Entrepreneurship and the Convergence of Groupware
+ and Hypertext Capabilities</b>", Proceedings of <i><a href="http://panoramix.univ-paris1.fr/AHTEA/colloques.html">Austrian
+ Perspective on the New Economy</a></i>, 2001.</p>
+ <p><a name="Lessig99"></a>[Lessig99] Larry Lessig, "<b>Code, and Other
+ Laws of Cyberspace</b>", Basic Books, 1999. Excepts online at <a href="http://code-is-law.org/">http://code-is-law.org/</a>.</p>
<p><a name="Mill69"></a>[Mill69] John Stuart Mill, "<b>On Liberty</b>",
London: Longman, Roberts & Green, 1869. Online at <a href="http://www.bartleby.com/130/2.html">http://www.bartleby.com/130/2.html</a>.</p>
+ <p><a name="Miller95"></a>[Miller95] Mark S. Miller, E. Dean Tribble, Ravi
+ Pandya, Marc Stiegler, "<b>The Open Society and its Media</b>",
+ in Prospects in Nanotechnology, ed. Markus Krummenacker, James Lewis;
+ Wiley, 1995. Proceedings of the 1992 <i>First General Conference on Nanotechnology:
+ Development, Applications, and Opportunities</i>.</p>
<p></p>
<p><a name="Miller00"></a>[Miller00] Mark S. Miller, Chip Morningstar, Bill
Frantz, "<b>Capability-based Financial Instruments</b>", Proceedings
of Financial Cryptography 2000, Springer Verlag. Online at <a href="http://www.erights.org/elib/capability/ode/index.html">http://www.erights.org/elib/capability/ode/index.html</a>.</p>
+ <p><a name="Rees96"></a>[Rees96] Jonathan Rees, "<b>A Security Kernel
+ Based on the Lambda-Calculus</b>", (MIT, Cambridge, MA, 1996) MIT
+ AI Memo No. 1564. http://mumble.net/jar/pubs/ secureos/</p>
+ <p><a name="Shapiro99"></a>[Shapiro99] Jonathan S. Shapiro, "<b>EROS:
+ A Capability System</b>", Ph.D. thesis, University of Pennsylvania,
+ 1999. Online at <a href="http://www.cis.upenn.edu/%7Eshap/EROS/thesis.ps">http://www.cis.upenn.edu/~shap/EROS/thesis.ps</a></p>
+ <p><a name="Steckbeck01"></a>[Steckbeck01] Mark Steckbeck, Peter Boettke,
+ "<b>Akerlof Problems, Hayek Solutions: Local Knowledge and self-enforcement
+ in E-Commerce</b>", Proceedings of <i><a href="http://panoramix.univ-paris1.fr/AHTEA/colloques.html">Austrian
+ Perspective on the New Economy</a>, </i>2001.</p>
+ <p><a name="Stiegler98"></a>[Stiegler98] Marc Stiegler, "<b>Introduction
+ To Capability Based Security</b>", Online at <a href="http://www.skyhunter.com/marcs/capabilityIntro/index.html">http://www.skyhunter.com/marcs/capabilityIntro/index.html</a>.</p>
<p><a name="Szabo97"></a>[Szabo97] Nick Szabo, "<b>Formalizing and
Securing Relationships on Public Networks</b>", First Monday, vol
2 no 9, 1997. Updated copy at <a href="http://www.best.com/%7Eszabo/formalize.html">http://www.best.com/~szabo/formalize.html</a>.</p>
- <p> </p>
+ <p><a name="Tribble95"></a>[Tribble95] Eric Dean Tribble, Mark S. Miller,
+ Norm Hardy, Dave Krieger, "<b>Joule: Distributed Application Foundations</b>",
+ http://www.agorics.com/joule.html, 1995.</p>
+ <p><a name="Walker"></a>[Walker] Miriam Walker, Ka-Ping Yee, "<b>Interaction
+ Design for End-User Security</b>", in preparation.</p>
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