Why are some societies so much better able to generate wealth than others? During the great oppressions of the twentieth century, many people, including @@ -245,7 +281,7 @@ by the institution of title transfer.

While all these hubs are valuable for the formation of wealth creating societies, not all are equally crucial. De Soto's analysis suggests that - the institution most needed to get the ball rolling, and which are most + the institutions most needed to get the ball rolling, and which are most painfully absent in the informal sectors of the third world, are credible systems of title transfer. It is through widely trusted title registries that banks can become confident that the collateral against which they @@ -281,7 +317,7 @@ formal legal system -- all the obviously necessary ingredients. Why did these previous attempts all fail?

Because the formals did not appreciate that the informals already had - worked out system of law, rights, and obligations, negotiated over time + worked out systems of law, rights, and obligations, negotiated over time and idiosyncratic village by village, sometimes called the people's law. Instead, the formals approach to the situation was We have a legal system. You don't. Here's ours. Although the title listings @@ -326,7 +362,7 @@ incentives and new technologies could give rise to new wealth-creating institutions may help us coordinate our activities to move the world in this direction. We describe these possibilities in mostly abstract terms - until the section Video Contracts below, in which we introduce + until the section on Video Contracts below, in which we introduce another technological ingredient -- one for connecting this abstract world to the concrete lives of the poor.

@@ -377,8 +413,8 @@

How might such hubs deal with the idiosyncrasies of each village's people's law, the idiosyncrasies that sabotage traditional governmental attempts to capitalize village assets, without taking on the impossible burden - of learning all this local knowledge itself, without imposing the costs - of homogenization? By the use of smart contracts.

+ of learning all this local knowledge itself, and without imposing the + costs of homogenization? By the use of smart contracts.

In smart contracts, a software program is the operational embodiment of a contract [Szabo97]. A drink vending machine is a very primitive example of a smart contract, being executed @@ -423,7 +459,7 @@ the electronic systems of title (called issuers below), in this paper we assume systems that provide for instant settlement [e-gold]. Although delayed settlement may substantially reduce capital costs [Selgin01], - they turn smart contracts into explosions of complexity.

+ they would turn smart contracts into explosions of complexity.

Contracts as Games

A basic metaphor for smart contracts is the board @@ -434,16 +470,17 @@ changes the board state, changing which moves are legal during the next turn.

For example, Figure 4 shows the six possible board - states of a simple negotiation and exchange game. Let's say Alice is playing - the left side of the board and Bob the right. In the initial board state, - A, neither of the pieces is on the board. The gold bar, representing money, - is off the board on the left, which portrays its possession by Alice at - this time. For concreteness, let's say the knight represents stock. Bob - might offer a certain amount of stock to Alice by placing it on the right - square of the board, taking us to board state B. Alice might not respond - soon enough, in which case Bob may withdraw his offer by taking back the - knight, bringing us back to state A. That's why the first transition arrow - is shown as bi-directional.

+ states of a simple negotiation and exchange game, derived from Dean Tribble's + and Randy Farmer's work for the American Information Exchange. Let's say + Alice is playing the left side of the board and Bob the right. In the + initial board state, A, neither of the pieces is on the board. The gold + bar, representing money, is off the board on the left, which portrays + its possession by Alice at this time. For concreteness, let's say the + knight represents stock. Bob might offer a certain amount of stock to + Alice by placing it on the right square of the board, taking us to board + state B. Alice might not respond soon enough, in which case Bob may withdraw + his offer by taking back the knight, bringing us back to state A. That's + why the first transition arrow is shown as bi-directional.

Or Alice may respond to Bob's offer with a certain amount of money, by placing it on the left square of the board, taking us to state D. At this point, either party may still decide they're unsatisfied, @@ -457,20 +494,20 @@ to trust whom with what? To answer these questions, we must start by explaining what is happening on whose computer. We assume that each player trusts their own computer (a dangerous assumption, but we cannot proceed without - it). We also assume that player X cannot not trust player Y's computer - any more or less than they trust player Y. Under these assumptions, we - can treat a computer and its proprietor as a single unit for purposes - of analysis.

+ it). We also assume that player X cannot trust player Y's computer any + more or less than they trust player Y. Under these assumptions, we can + treat a computer and its proprietor as a single unit for purposes of analysis.

The execution of this game actually involves five parties, as illustrated in Figure 5. The two players of course, Alice and Bob. The contract host serves the same role as our vending machine -- it is the third party mutually trusted to execute the contract/program faithfully. The contract can be - any program Alice and Bob mutually agree on, written in a capability language - (a secure programming language suitable for writing smart contracts), - that functions as the board manager for the game they have agreed - to play. (A board manager for, for example, chess, is a program - that enables two people to play with each other, maintains the board state, + any program Alice and Bob mutually agree on, written to run on a capability + system -- a secure programming language or operating system suitable + for writing smart contracts [Miller00]. This contract/program + functions as the board manager for the game they have agreed to + play. (A board manager for, for example, chess, is a program that + enables two people to play with each other, maintains the board state, and only allows legal moves. A board manager does not itself play the game.)

Unlike the vending machine, the contract host need @@ -500,33 +537,32 @@ still shows well the logic by which the system operates, without needing to speculate on the possible organization of the market for smart contract creation.)

The "$-Issuer" and the "Stock-Issuer" transforms - the movement of pieces into a transfer of third-party-assayable transferable - electronic rights, or erights. A $-Issuer, or more conventionally - a bank, is effectively a title company for money. For money on record - at the bank, the rights to the money changes hands by the transfer of - quantity between accounts -- shown above as purses within the issuers. - When Alice places the gold bar on the board, her computer, the $-Issuer, - and the contract host engage in a three-way cryptographic transaction - that bring about the transfer of title, at the $-Issuer, of that much - money from Alice to the contract host. An honest contract host would consider - this money to be only a piece on the board, which can be picked up (transferred - to the possession of a player) according to whatever may be the rules - of the game. We refer to this as oblivious escrow -- the contract - host, merely by running the contract, ensures that erights in escrow can - only be released under the agreed conditions, without needing to understand - those conditions or those erights.

The two remaining players, the "$-Issuer" and the "Stock-Issuer", + transform the movement of pieces into a transfer of third-party-assayable + transferable electronic rights, or erights. A $-Issuer, or + more conventionally a bank, is effectively a title company for money. + For money on record at the bank, the rights to the money changes hands + by the transfer of quantity between accounts -- shown above as purses + within the issuers. When Alice places the gold bar on the board, her computer, + the $-Issuer, and the contract host engage in a three-way cryptographic + transaction that bring about the transfer of title, at the $-Issuer, of + that much money from Alice to the contract host. An honest contract host + would consider this money to be only a piece on the board, which can be + picked up (transferred to the possession of a player) according to whatever + may be the rules of the game. We refer to this as oblivious escrow + -- the contract host, merely by running the contract, ensures that erights + in escrow can only be released under the agreed conditions, without needing + to understand those conditions or those erights.

A dishonest contract host could abscond with the money instead, which - is why contract hosts needs to be widely trusted. A widely trusted contract - host presumably has a valuable reputation at stake, and this risk helps - secure honest behavior. (More sophisticated cryptographic protocols are - possible which further limit a player's vulnerability to a dishonest contract - host or issuer, but these are beyond the scope of this paper.)

+ is why contract hosts need to be widely trusted. A widely trusted contract + host presumably has a valuable reputation at stake, which helps secure + its honest behavior. (More sophisticated cryptographic protocols are possible + which further limit a player's vulnerability to a dishonest contract host + or issuer, but these are beyond the scope of this paper.)

The money is an eright in part because it is third-party assayable. Even though Bob does not currently possess this eright, Bob, through the contract host, can determine which issuer backs this eright, and what - the value of this eright is according to this issuer, even though the - contract host does not understand this eright. With such assayability, + the value of this eright is according to this issuer. With such assayability, the $-Issuer, the Stock-Issuer, and the contract host need not have any prior knowledge or trust of any of the other four players. For the game to be meaningful, Alice and Bob must have prior knowledge and trust in @@ -536,7 +572,7 @@ can transact with each other as if they fully trust each other.

Assets + Contracts x Time + ?? = Capital

The - Smart Contracts explained so far, the vending machine and the exchange + smart contracts explained so far, the vending machine and the exchange game, cannot turn assets into capital. To do so requires contracts that unfold over time, like a mortgage. To explain how such unfolding creates ever more abstract forms of property, a simple clear example is the covered @@ -566,9 +602,9 @@ moves are for Alice to pick up the stock, and for Bob to pick up the money.

What is so different about this contract? During the interval of time from the start of the game until the game leaves state A (whether by expiration - or exercise) Alice a something valuable. During this interval, Alice has - the option to buy this stock for a given price. This is a very different - kind of value than having the stock or money themselves. The value of + or exercise) Alice has something valuable. During this interval, Alice + has the option to buy this stock for a given price. This is a very different + kind of value than the value of stock or money themselves. The value of this new right derives from the value of the stock and the money, but whereas they are very simple literal kinds of rights, this new right is somehow more abstract. In Wall Street terminology, the new right is @@ -577,7 +613,7 @@ then abstract rights derived by contracts about these instruments are a step towards being capital.

But there's something missing from this picture. Through the system so - far depicted, Alice can trade those rights managed by issuers -- money + far depicted, Alice can trade those erights managed by issuers: money and stock. The contract host, despite its complete ignorance that it has done so, has created a new valuable right, owned by Alice. But in the picture so far, Alice has no ability to trade this new right. This needs @@ -588,17 +624,18 @@ -- the creation of yet more forms of capital.

Networks of Games
-
What we need, quite simply, to turn this new electronic right Alice holds - -- the right to sit in the left chair, i.e., the right to play the left - side of this ongoing game -- into an eright, a third-party-assayable transferable - electronic right. To do so requires an issuer for this new right. Since - the contract host is already managing access to this chair, we may as - well have it double as the issuer for the eright to sit in this chair. - Just as Alice could tell the $-Issuer to transfer some of her money from - her purse to some else's, we can enable Alice to tell the contract host - to transfer her eright to sit in this chair to someone else. The contract - host would then revoke Alice's access to the chair, and issue fresh access - to the new player, much as the $-Issuer would with Alice's money.
+
What we need, quite simply, is to turn this new electronic right Alice + holds -- the right to sit in the left chair, i.e., the right to play the + left side of this ongoing game -- into an eright, a third-party-assayable + transferable electronic right. To do so requires an issuer for this new + right. Since the contract host is already managing access to this chair, + we may as well have it double as the issuer for the eright to sit in this + chair. Just as Alice could tell the $-Issuer to transfer some of her money + from her purse to some else's, we can enable Alice to tell the contract + host to transfer her eright to sit in this chair to someone else. The + contract host would then revoke Alice's access to the chair, and issue + fresh access to the new player, much as the $-Issuer would with Alice's + money.

With this ability to compose networks of games, it seems we have the ability to express the full range of contract layering used in modern finance. Not that modern finance is directly relevant to the needs of @@ -617,7 +654,7 @@ situation -- while the options game is in state A -- she encounters Fred, who would also find this situation valuable. Fred, were he convinced that Alice's chair sitting rights mean what Alice says they mean, would be - willing to play a different game on contract host #3, perhaps our original + willing to play a different game on contract host #2, perhaps our original negotiation game, in which this right, issued by contract host #1, would appear as a movable piece. Unfortunately, having just met, Fred and Alice don't trust each any more than Alice and Bob do. Fortunately, Fred does @@ -680,60 +717,59 @@
The actual control of the physical assets in question is determined, not by their title listing, but by consensus of the governing community in question. Why wouldn't the digital path fail in the same way the pre-de - Soto governmental attempts fail? Why would these communities consider + Soto governmental attempts failed? Why would these communities consider these title transfers legitimate and honor them?

The governmental path has an advantage here. Governments employ a vast - apparatus of coercive enforcement to enforce the outcomes they cliam are - legitimate, such eviction following a title transfer. Still, even with - this advantage, in the previous failed attempts these title transfers - were not seen as legitimate and not honored. Under these circumstances, - even governments mostly understood that coercive enforcement would have - had too terrible a cost. De Soto documents well the repeated victories - of squatters over governmental law.
+ coercive apparatus to enforce the outcomes they claim are legitimate, + such as eviction following a title transfer. Still, even with this advantage, + the previous attempts failed when title listings not locally seen as legitimate + were not honored. Under these circumstances, even governments mostly understood + that coercive enforcement would have had too terrible a cost. De Soto + documents well the repeated victories of squatters over governmental law.

The missing ingredient was the need to accomodate pre-existing local arrangements. These are the source of the legitimacy governing current control of the property, and any new system can only be seen as legitimate if it incorporates and build on the old. On this issue, the digital path - has a huge advantage over the governmental one. But what of the disadvantage? - The Net is a purely non-coercive medium, it transmits only information - -- effectively speech -- but cannot transmit force. Smart contracts can - change their electronic representations about the world -- such as title - -- but they cannot force the world to come along. Unlike government-based - title transfer, these changes of title are not backed by a coercive - enforcement apparatus. How may we compensate for this lack? For concretenness, - in order to establish possibility, we propose here two complementary techniques, - but we do not presume to forsee what the actual outcome of the market - discovery process will be. This should be an area ripe for entrepreneurial - invention.
+ has the huge advantage over the governmental one explained above. But + what of the disadvantage? The Net is a purely non-coercive medium, it + transmits only information -- effectively speech -- but cannot transmit + force. Smart contracts can change their electronic representations about + the world -- such as title -- but they cannot force the world to come + along. Unlike government-based title transfer, these changes of title + are not backed by a coercive enforcement apparatus. How may we + compensate for this lack? For concretenness, in order to establish possibility, + we propose here two complementary techniques, but we do not presume to + forsee what the actual outcome of the market discovery process will be. + This should be an area ripe for entrepreneurial invention.

Ratings
-
The issue of credibility does not require all title listings to have - high credibility. Rather, it is adequate for distant traders, that have - no knowledge of a particular governing village, to nevertheless have some - reliable basis for judging the credibility of particular title listings. - An obvious answer is to introduce another trusted intermediary institution - into this market -- title insurance. Once the digital matures, this solution - may be ideal, but as a way to get started it has a fatal problem -- it - requires a crippling up front capital investment, in order to cover the - massive potential liabilities. Rather, another familiar form of intermediary - may be adapted to this situation.
-
Bond rating agencies provide the market with an estimate of how likely - it is that a business or government will actually meet the obligations - represented by its outstanding bonds. The rating agency does not attempt - to estimate what the price of the bond should be -- that is left to the - market, which takes these likelihoods into account. A bond rating agency - does not put its money where its mouth is -- it does not issue bond insurance - to back its likelihood estimates. Rather, it backs its estimates with - its reputation, which can become quite valueable, but is still cheaper - than issuing insurance.
-
Similarly, in our situation, we can imagine of third party raters that - post judgements of the likelihood that transfer of a given title will - actually be honored [Stanley01]. Simply recording - each village's track record of honoring past title transfers, and assuming - the future will be like the recent past, is a low overhead procedure that's - plausibly adequate. And it places each villiage in an iterated game with - the system as a whole, providing it an incentive to treat these titles - as legitimate claims. We can think of this as a credit report, not for - an individual, but for a village and its system of local law.
+
The issue of credibility does not require all title listings to + have high credibility. Rather, it is adequate for distant traders, that + have no knowledge of a particular governing village, to nevertheless have + some reliable basis for judging the credibility of particular title + listings. An obvious answer is to introduce another trusted intermediary + institution into this market -- title insurance. Once the digital path + matures, this solution may be ideal, but as a way to get started it has + a fatal problem -- it requires a crippling up front capital investment, + in order to cover the massive potential liabilities. Rather, another familiar + form of intermediary may be adapted to this situation.
+
Bond rating agencies provide the market with an estimate of the likelihood + that a business or government will actually meet the obligations represented + by its outstanding bonds. The rating agency does not attempt to estimate + what the price of the bond should be -- that is left to the market, which + takes these likelihoods into account. A bond rating agency does not put + its money where its mouth is -- it does not issue bond insurance to back + its likelihood estimates. Rather, it backs its estimates with its reputation, + which can become quite valueable, but is still cheaper than issuing insurance.
+
Similarly, in our situation, we can imagine a market of third party raters + that post judgements of the likelihood that transfer of a given title + will actually be honored [Stanley01]. Simply + recording each village's track record of honoring past title transfers, + and assuming the future will be like the recent past, is a low overhead + procedure that's plausibly adequate. And it places each villiage in an + iterated game with the system as a whole, providing it an incentive to + treat these titles as legitimate claims. We can think of this as a credit + report, not for an individual, but for a village and its system of local + law.

Video Contracts

But legitimacy is more than just preserving local arrangements, and it is more than just incentives or force. It is knowing in your bones what @@ -808,18 +844,18 @@ of local arrangements that need to be expressed. The people's law of each individual village, being largely unwritten, must be extremely simple compared to formal law. Also, the very informality of these systems allows - it to compromise. As long as an adequate spirit of the arrangements is - uploaded, imperfect expressions can often be judged to be good enough. - This lets the transition get started incrementally, village by village, - and imperfectly.
+ it to compromise. As long as an adequate spirit of the law is uploaded, + imperfect expressions can often be judged to be good enough. This + lets the transition get started incrementally, village by village, and + imperfectly.

By contrast, although there are far fewer separate systems of formal - law, each is a vast cancerous growth of complexity that no one even pretends - to understand; the U.S. tax code alone probably exceeds the aggregate - complexity of all informal law taken together. However, because of the - formality with which this law is administered, and the absence of competitive - pressures, this system brooks no compromise except through politically-driven - change. This is a high enough bar that a smart contract system, legitimate - by this standard, might emerge so slowly as to be a non-issue.
+ law, each is a vast growth of complexity that no one even pretends to + understand; the U.S. tax code alone plausibly exceeds the aggregate complexity + of all informal law taken together. However, because of the formality + with which this law is administered, and the absence of competitive pressures, + this system brooks no compromise except through politically-driven change. + This is a high enough bar that a smart contract system, legitimate by + this standard, might emerge so slowly as to be a non-issue.

Homogenization Costs

The costs of rule homogenization discussed above, to be paid on the governmental path, is a cost that has already been paid and largely forgotten in the @@ -852,16 +888,16 @@ legal-legitimate. This is an unpeasant choice both for them and their governments. The pressures will be great to legalize trade with these jurisdiction-free networks of commerce. Once such unregulatable trade - is made legitimate, the damn will have burst. What will be the character + is made legitimate, the dam will have burst. What will be the character of the resulting world?
-
The Rule of Law and Not of Men
+
The Rule of Law and Not of Men

Surprisingly perhaps, the character of the digital path may best be described as a pure form of the classical liberal ideal -- the rule of law and - not of men. Indeed, the digital path could more literally realizes + not of men. Indeed, the digital path could more literally realize the meaning of those words than anything the original classical liberals could possibly have conceived.

However, this is not just a cheap play on words. The ideal they were - describing was of a neutral simple framework of rules, enforced impartially +

This is not just a cheap play on words. The ideal they were describing + was of a neutral simple framework of rules, enforced impartially and justly, providing for cooperation without vulnerability -- protecting individuals from each other while enabling them to cooperate with each other. A key means of enabling cooperation was the original @@ -879,16 +915,19 @@ pressure on these hosts is reputation for acting in a mechanically and auditably honest manner, providing a vastly stronger and fully decentralized system of checks and balances.

Conclusion

*** to be written

Acknowledgments

These ideas have formed over much time and many valuable conversations, - 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, Jonathan Shapiro, Terry Stanley, Nick Szabo, E-Dean Tribble, - Bill Tulloh, Ka-Ping Yee, and the members of the e-lang mailing list.

+ for which we thank Darius Bacon, Greg Burch, K. Eric Drexler, Charles + Evans, Ian Grigg, Robin Hanson, Doug Jackson, Don Lavoie, Ted Nelson, + Zooko (Bryce Wilcox-O'Hearn), Gayle Pergamit, Chris Peterson, Jonathan + Shapiro, Terry Stanley, Nick Szabo, E-Dean Tribble, Bill Tulloh, Ka-Ping + Yee, and the members of the e-lang mailing list.

References

[Bartley62] William W. Bartley, III, The Retreat to Commitment Open Court Publishing, 1962.

[Birch97] Greg Birch, personal communication.

[Burch97] Greg Burch, personal communication.

[deSoto89] Hernando de Soto, "The Other Path", Harper & Row, 1989.

[deSoto00] Hernando de Soto, "The Mystery From markm@eros.cs.jhu.edu Wed Jan 2 23:10:12 2002 Date: Wed, 2 Jan 2002 18:10:12 -0500 From: markm@eros.cs.jhu.edu markm@eros.cs.jhu.edu Subject: [e-cvs] cvs commit: e/doc/smart-contracts/ertp/images contract-5x2.sdr markm 02/01/02 18:10:12 Modified: doc/smart-contracts index.html doc/smart-contracts/ertp/images contract-5x2.sdr Log: added link Revision Changes Path 1.44 +13 -6 e/doc/smart-contracts/index.html Index: index.html =================================================================== RCS file: /cvs/e/doc/smart-contracts/index.html,v retrieving revision 1.43 retrieving revision 1.44 diff -u -r1.43 -r1.44 --- index.html 2001/11/15 05:08:06 1.43 +++ index.html 2002/01/02 23:10:12 1.44 @@ -136,12 +136,19 @@ at Lex Cybernetoria 2
Smart contracts present new hope for the third world.

-
The Pencil, the Brick, and the - Law To be presented at Austrian - perspectives on the New Economy
- Much improved restatement, thanks to The - Mystery of Capital by Hernando - de Soto. +
+
The Pencil, the Brick, and the + Law, presented at Austrian + perspectives on the New Economy
+ Much improved restatement of Contracting-out Contract Law, thanks + to The Mystery of + Capital by Hernando + de Soto.
+

+
The Digital Path: Smart + Contracts and the Third World. Draft of paper for the previously + mentioned talk. Self contained explanation of much of the other material.
+
1.3 +48 -27 e/doc/smart-contracts/ertp/images/contract-5x2.sdr Index: contract-5x2.sdr =================================================================== RCS file: /cvs/e/doc/smart-contracts/ertp/images/contract-5x2.sdr,v retrieving revision 1.2 retrieving revision 1.3 diff -u -r1.2 -r1.3 Binary files /tmp/cvsjLhNGJ and /tmp/cvsAiBQal differ From markm@eros.cs.jhu.edu Wed Jan 2 23:44:55 2002 Date: Wed, 2 Jan 2002 18:44:55 -0500 From: markm@eros.cs.jhu.edu markm@eros.cs.jhu.edu Subject: [e-cvs] cvs commit: e/doc/talks/pisa/paper index.html markm 02/01/02 18:44:55 Modified: doc/talks/pisa/paper index.html Log: more Revision Changes Path 1.33 +99 -67 e/doc/talks/pisa/paper/index.html Index: index.html =================================================================== RCS file: /cvs/e/doc/talks/pisa/paper/index.html,v retrieving revision 1.32 retrieving revision 1.33 diff -u -r1.32 -r1.33 --- index.html 2002/01/01 00:30:32 1.32 +++ index.html 2002/01/02 23:44:55 1.33 @@ -44,7 +44,8 @@ Digital Path:
Smart Contracts and the Third World

- by Mark S. Miller and Marc Stiegler + by Mark S. Miller and Marc Stiegler
+ CTO and COO, Combex, Inc. @@ -111,48 +112,86 @@ world's poorest. Because binding contracts for ownership transfer lie at the heart of capital formation, what if traditional contracts were supplemented and/or supplanted with smart contracts? Smart contracts - are contracts-as-program-code, in which the terms of the contract are - enforced by the logic of the program's execution. Smart contracts will - enable cooperation among mutually suspicious parties, often without need - for legal recourse. Could such a jurisdiction-free contracting mechanism, + will enable cooperation among mutually suspicious parties, often without + need for legal recourse. Could such a jurisdiction-free contracting mechanism, accessible over the net, dramatically increase capital liquidity, spawning a flood of new wealth in the poorest areas of the world?

Overview
-
***to be written
-
-
Networks of Trust -
-
The Special Roles of Title and Law
-
The Governmental Path
-
The Conflict: Local Knowledge vs. Global Transferability
-
The Digital Path
-
-
-
Smart Contracts -
-
Contracts as Games
-
Assets + Contracts x Time + ?? = Capital
-
Networks of Games
-
Resolving the Conflict
-
-
-
Backing and Legitimacy -
-
Ratings
-
Video Contracts
-
-
-
Why the Third World First? -
-
Comparative Legitimacy
-
Homogenization Costs
-
Cell Phones in Eastern Europe
-
Saving the First World
-
The Rule of Law and Not of Men
-
-
-
Conclusions
-
+
+
Networks of Trust synthesizes ideas from de Soto and Francis + Fukuyama to suggest the strong role played by widely trusted intermediary + institutions, or trust hubs, in forming working large scale trust + networks, especially the institutions of title and law.
+
+
The Governmental Path - explains de Soto's program to address + the lack of these institutions among the third world's informals, + by bringing them into governmental systems of formal law and property. +
+
The Conflict: Local Knowledge vs. Global Transferability + - makes explicit the conflict identified by de Soto, between the + people's law, pre-existing negotiated arrangements and diverse + traditional law vs. the uniformity required by trade through + widely recognized institutions.
+
The Digital Path - proposes that new technologies may be + leveraged to open up a new jurisdition-free path. A path able to + leverage the existing wide recognition of first world institutions + to short circuit the slow growth process of the other paths; and + able to resolve the conflict -- to gain the benefits of global transferability + without sacrificing local knowledge -- by use of smart contracts.
+
+
Smart Contracts - are contracts as program code, where the terms + of the contract are enforced by the logic of the program's execution. +
+
+
Contracts as Games - explains the basics using a familiar + metaphor, in which the parties to a contract are the players, and + the rights at stake are pieces on the board.
+
Assets + Contracts x Time + ?? = Capital. Capital, like + mortgage, are derivatives. They are new abstract rights derived + by contracts about simpler underlying assets, where these contracts + unfold over time.
+
Networks of Games. To be capital, these new derived rights + must also be widely tradable, enabling them to be played in yet + other games. This requires games to be composable.
+
Resolving the Conflict - shows how the above steps, taken + together, enable the creation of widely recognized title, not to + naive physical assets, but to the rights to these assets as recognized + by diverse people's laws.
+
+
Backing and Legitimacy. Why would a change of electronic title + be locally honored as a transfer of control of the actual assets? The + governmental path provides backing by coercive enforcement. How may + the non-coercive digital path address these issues instead?
+
+
Ratings - are independent estimates of the likelihood that + a title listing would be honored. Like credit reports for systems + of local law.
+
Video Contracts - bridge between the above abstract world + and local systems of largely unwritten arrangements. An example + shows how the outcome of a smart contract may gain local legitimacy. +
+
+
Why the Third World First? Why may the third world lead the + first in the transition to such smart contract mediated global commerce?
+
+
Comparative Legitimacy. Because of differences in the nature + of legitimacy in these two worlds.
+
Homogenization Costs. Because the first world has already + paid the homogenization costs. It has already lost the diversity + the digital path could have preserved.
+
Cell Phones in Eastern Europe. Because, unlike the third + world, the first world already has a working installed base of law + and property institutions, lowering the attractiveness of any radical + shift.
+
Saving the First World. If these predictions prove accurate, + and the third world succeeds first at the digital path, how should + we expect the first world to react?
+
+
Conclusion: The Rule of Law and Not of Men. In one respect + at least, the character of life on the digital path may be more familiar + to the past than the present. It would be an almost literal realization + of the classical liberal ideal.
+

Networks of Trust

Why are some societies so much better able to generate wealth than others? During the great oppressions of the twentieth century, many people, including @@ -318,19 +357,19 @@ these previous attempts all fail?

Because the formals did not appreciate that the informals already had worked out systems of law, rights, and obligations, negotiated over time - and idiosyncratic village by village, sometimes called the people's - law. Instead, the formals approach to the situation was We have - a legal system. You don't. Here's ours. Although the title listings - reflected a snapshot of who-owns-what, the legal system governing these - title listing did nothing to reflect the complex informally negotiated - arrangements needed to understand what rights someone actually held to - a particular asset. Given this mismatch, the informals proceeded to ignore - the formal title registries and trade assets in the way they always had. - The title registries were not updated to reflect changes of actual ownership, - and so rapidly became even more irrelevant. De Soto's special insight - in this situation has been that the government must discover and respect - the local laws, and work out, at considerable cost in time and effort, - a way to integrate those local laws with the national systems.
+ and idiosyncratic village by village. These systems are sometimes called + the people's law. Instead, the formals' approach to the situation + was We have a legal system. You don't. Here's ours. Although the + title listings reflected a snapshot of who-owns-what, the legal system + governing these title listing did nothing to reflect the complex informally + negotiated arrangements needed to understand what rights someone actually + held to a particular asset. Given this mismatch, the informals proceeded + to ignore the formal title registries and trade assets in the way they + always had. The title registries were not updated to reflect changes of + actual ownership, and so rapidly became even more irrelevant. De Soto's + special insight in this situation has been that the government must discover + and respect the local laws, and work out, at considerable cost in time + and effort, a way to integrate those local laws with the national systems.

The Conflict: Local Knowledge vs. Global Transferability

The difficulty comes from an inherent conflict between local knowledge @@ -890,7 +929,7 @@ jurisdiction-free networks of commerce. Once such unregulatable trade is made legitimate, the dam will have burst. What will be the character of the resulting world?
-
The Rule of Law and Not of Men
+
The Rule of Law and Not of Men

Surprisingly perhaps, the character of the digital path may best be described as a pure form of the classical liberal ideal -- the rule of law and not of men. Indeed, the digital path could more literally realize @@ -903,20 +942,13 @@ with each other. A key means of enabling cooperation was the original right of contract, where almost any mutually acceptable arrangement could be made binding, with the law serving as the mutually trusted intermediary - for securing the arrangement. The centralized provision of law was not - seen as a virtue, but as a necessary evil. In a world in which coercion - is possible, the only world they could conceive, it's not clear there's - any better alternative; so they created the complex systems of checks - and balances that protects us to this day -- a partial decentralization - within the centralized structure.
-
With smart contracts, the encoded rules themselves becomes the logic - of their own enforcement, subject only to the honesty, not the judgement - or skill, of a diverse market of competing contract hosts. The main competitive - pressure on these hosts is reputation for acting in a mechanically and - auditably honest manner, providing a vastly stronger and fully decentralized + for securing the arrangement. With smart contracts, the encoded rules + themselves becomes the logic of their own enforcement, subject only to + the honesty, not the judgement or skill, of a diverse market of competing + contract hosts. This competition forms a vastly stronger and fully decentralized system of checks and balances.
-
Conclusion
-
*** to be written
+
The third world could rise on an enhanced version of the principles on + which the West grew rich.

Acknowledgments

These ideas have formed over much time and many valuable conversations, for which we thank Darius Bacon, Greg Burch, K. Eric Drexler, Charles From markm@eros.cs.jhu.edu Thu Jan 3 05:08:19 2002 Date: Thu, 3 Jan 2002 00:08:19 -0500 From: markm@eros.cs.jhu.edu markm@eros.cs.jhu.edu Subject: [e-cvs] cvs commit: e/doc/talks/pisa/paper index.html markm 02/01/03 00:08:19 Modified: doc/talks/pisa/paper index.html Log: more Revision Changes Path 1.34 +42 -70 e/doc/talks/pisa/paper/index.html Index: index.html =================================================================== RCS file: /cvs/e/doc/talks/pisa/paper/index.html,v retrieving revision 1.33 retrieving revision 1.34 diff -u -r1.33 -r1.34 --- index.html 2002/01/02 23:44:55 1.33 +++ index.html 2002/01/03 05:08:19 1.34 @@ -117,80 +117,52 @@ accessible over the net, dramatically increase capital liquidity, spawning a flood of new wealth in the poorest areas of the world?

Overview
-

+
The rest of the paper is organized as follows:
+

Networks of Trust synthesizes ideas from de Soto and Francis Fukuyama to suggest the strong role played by widely trusted intermediary institutions, or trust hubs, in forming working large scale trust - networks, especially the institutions of title and law.
-
-
The Governmental Path - explains de Soto's program to address - the lack of these institutions among the third world's informals, - by bringing them into governmental systems of formal law and property. -
-
The Conflict: Local Knowledge vs. Global Transferability - - makes explicit the conflict identified by de Soto, between the - people's law, pre-existing negotiated arrangements and diverse - traditional law vs. the uniformity required by trade through - widely recognized institutions.
-
The Digital Path - proposes that new technologies may be - leveraged to open up a new jurisdition-free path. A path able to - leverage the existing wide recognition of first world institutions - to short circuit the slow growth process of the other paths; and - able to resolve the conflict -- to gain the benefits of global transferability - without sacrificing local knowledge -- by use of smart contracts.
-
-
Smart Contracts - are contracts as program code, where the terms - of the contract are enforced by the logic of the program's execution. + networks, especially the institutions of title and law. We explain de + Soto's program, which we call the governmental path, to address + the absence of these institutions by bringing them into governmental + systems of formal law and property. We make explicit the conflict faced + by this path between local knowledge and global transferability.
-
-
Contracts as Games - explains the basics using a familiar - metaphor, in which the parties to a contract are the players, and - the rights at stake are pieces on the board.
-
Assets + Contracts x Time + ?? = Capital. Capital, like - mortgage, are derivatives. They are new abstract rights derived - by contracts about simpler underlying assets, where these contracts - unfold over time.
-
Networks of Games. To be capital, these new derived rights - must also be widely tradable, enabling them to be played in yet - other games. This requires games to be composable.
-
Resolving the Conflict - shows how the above steps, taken - together, enable the creation of widely recognized title, not to - naive physical assets, but to the rights to these assets as recognized - by diverse people's laws.
-
+
We propose an alternate jurisdiction-free digital path, made + possible by new technologies, that could leverage the existing wide + recognition of first world institutions to short circuit the slow growth + process of the other paths; and could resolve the conflict by use of + smart contracts.
+
Smart Contracts are contracts as program code, where the terms + of the contract are enforced by the logic of the program's execution. + In a series of steps, from the basic metaphor of contracts as board + games, through the nature of contract-created derivative rights, + to compositions of games to turn assets into capital, we explain + how smart contract can resolve the conflict -- to gain the benefits + of global transferability without sacrificing local knowledge.

Backing and Legitimacy. Why would a change of electronic title be locally honored as a transfer of control of the actual assets? The governmental path provides backing by coercive enforcement. How may - the non-coercive digital path address these issues instead?
-
-
Ratings - are independent estimates of the likelihood that - a title listing would be honored. Like credit reports for systems - of local law.
-
Video Contracts - bridge between the above abstract world - and local systems of largely unwritten arrangements. An example - shows how the outcome of a smart contract may gain local legitimacy. -
-
+ the non-coercive digital path address these issues instead? By ratings + -- independent estimates of the likelihood that a title listing would + be honored; like credit reports for systems of local law. And by video + contracts to bridge between the above abstract world and local systems + of largely unwritten arrangements. An example shows how the outcome + of a smart contract may gain local legitimacy.

Why the Third World First? Why may the third world lead the - first in the transition to such smart contract mediated global commerce?
-
-
Comparative Legitimacy. Because of differences in the nature - of legitimacy in these two worlds.
-
Homogenization Costs. Because the first world has already - paid the homogenization costs. It has already lost the diversity - the digital path could have preserved.
-
Cell Phones in Eastern Europe. Because, unlike the third - world, the first world already has a working installed base of law - and property institutions, lowering the attractiveness of any radical - shift.
-
Saving the First World. If these predictions prove accurate, - and the third world succeeds first at the digital path, how should - we expect the first world to react?
-
-
Conclusion: The Rule of Law and Not of Men. In one respect - at least, the character of life on the digital path may be more familiar - to the past than the present. It would be an almost literal realization - of the classical liberal ideal.
+ first in the transition to smart contract mediated global commerce? + Because of differences in the nature of legitimacy in these two + worlds. Because the first world has already paid the homogenization + costs -- it has already lost the diversity the digital path could + have preserved. And because the third world lacks a working installed + base of law and property, which could lead to the leapfrogging seen + with cell phones in Eastern Europe.
+
Besides being first through this transition, the third world's success + may cause the first world to follow along.
+
The Rule of Law and Not of Men. In one respect at least, the + character of life on the digital path may be more familiar to the past + than the present. It would be an almost literal realization of the classical + liberal ideal.

Networks of Trust

Why are some societies so much better able to generate wealth than others? @@ -251,8 +223,8 @@ their reliance on a mutually recognizing backbone of widely trusted intermediary institutions, or trust hubs. These hubs are in the business of securing these relationships to minimize the risks their customers face - from each other, this often requires it to absorb some of these risk onto - itself. The economies of scale available to a hub can help tremendously + from each other; this often requires them to absorb some of these risk + onto themselves. The economies of scale available to a hub can help tremendously with these risks. Historically, western societies have developed specialized hubs that bundle trust with other expertise: one trusts Citibank not only because Citibank has a demonstrated history of reliably backing their @@ -398,7 +370,7 @@ Tribble95, Rees96, Miller00] and operating systems [Hardy85, Shapiro99] able to run hostile code safely and flexibly. Describing how existing - incentives and new technologies could give rise to new wealth-creating + incentives and new technologies could give rise to new wealth-creating institutions may help us coordinate our activities to move the world in this direction. We describe these possibilities in mostly abstract terms until the section on Video Contracts below, in which we introduce @@ -568,7 +540,7 @@ a "boilerplate" contract/program off the shelf and fill in the blanks. These customizable contracts may have been contributed by earlier players who did write their own contract, or they may be created by specialists, - either speculatively or under contract. Or perhaps they will use a simplified + either speculatively or for hire. Or perhaps they will use a simplified contract construction kit, whose user interface might resemble a drawing package specialized for drawing our board-state-transition diagrams. Such an interface may even enable some players to overcome hurdles of language From markm@eros.cs.jhu.edu Thu Jan 3 21:51:43 2002 Date: Thu, 3 Jan 2002 16:51:43 -0500 From: markm@eros.cs.jhu.edu markm@eros.cs.jhu.edu Subject: [e-cvs] cvs commit: e/doc/talks/pisa/paper index.html pencil-brick-law.html markm 02/01/03 16:51:43 Modified: doc/talks/pisa/paper index.html pencil-brick-law.html Log: steps, wording, & typos. Thanks Terry, Darius Revision Changes Path 1.35 +131 -108 e/doc/talks/pisa/paper/index.html Index: index.html =================================================================== RCS file: /cvs/e/doc/talks/pisa/paper/index.html,v retrieving revision 1.34 retrieving revision 1.35 diff -u -r1.34 -r1.35 --- index.html 2002/01/03 05:08:19 1.34 +++ index.html 2002/01/03 21:51:43 1.35 @@ -62,9 +62,9 @@ be surmounted? Country-by-country institutional reform is possible, but inevitably slow. New options based on computer networks and trusted computational agents may provide a shorter path. By leveraging trust in first-world - institutions while enabling the evolution of contractual arrangments that - fit local needs and traditions, this approach could bring advanced property - systems to regions now paralyzed by their absence.
+ institutions while enabling the evolution of contractual arrangements + that fit local needs and traditions, this approach could bring advanced + property systems to regions now paralyzed by their absence.

Introduction

Hernando de Soto, in The Mystery of Capital [deSoto00], shows that the poor of the world have, in his terminology, assets @@ -217,7 +217,8 @@ architecture, as does the highway system. In all cases, a sparsely connected actual network acts for most purposes like a densely connected network. For example, from any airport you can fly to any other airport, almost - as if there were flights between every pair of airports.
+ as if there were flights between every pair of airports. For many purposes, + it acts like the network shown on the right.

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 widely trusted intermediary @@ -242,7 +243,7 @@ we can analyze the Fukuyama low-trust world (in which the fanout from each node is small) and the de Soto missing-hub world, and immediately recognize which effect has the greater impact on a society's effectiveness: - it is the absence of the hubs that ultimately prevent large scale complex + it is the absence of the hubs that ultimately prevents large scale complex cooperative arrangements from forming. 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 @@ -481,17 +482,16 @@ changes the board state, changing which moves are legal during the next turn.

For example, Figure 4 shows the six possible board - states of a simple negotiation and exchange game, derived from Dean Tribble's - and Randy Farmer's work for the American Information Exchange. Let's say - Alice is playing the left side of the board and Bob the right. In the - initial board state, A, neither of the pieces is on the board. The gold - bar, representing money, is off the board on the left, which portrays - its possession by Alice at this time. For concreteness, let's say the - knight represents stock. Bob might offer a certain amount of stock to - Alice by placing it on the right square of the board, taking us to board - state B. Alice might not respond soon enough, in which case Bob may withdraw - his offer by taking back the knight, bringing us back to state A. That's - why the first transition arrow is shown as bi-directional.
+ states of a simple negotiation and exchange game [Amix91]. + Let's say Alice is playing the left side of the board and Bob the right. + In the initial board state, A, neither of the pieces is on the board. + The gold bar, representing money, is off the board on the left, which + portrays its possession by Alice at this time. For concreteness, let's + say the knight represents stock. Bob might offer a certain amount of stock + to Alice by placing it on the right square of the board, taking us to + board state B. Alice might not respond soon enough, in which case Bob + may withdraw his offer by taking back the knight, bringing us back to + state A. That's why the first transition arrow is shown as bi-directional.

Or Alice may respond to Bob's offer with a certain amount of money, by placing it on the left square of the board, taking us to state D. At this point, either party may still decide they're unsatisfied, @@ -580,7 +580,9 @@ both issuers and the contract host, but not in each other. Even if Alice and Bob are both use-once pseudonymous identities with no apparent physical location [Vinge84], under these conditions, they - can transact with each other as if they fully trust each other.
+ can transact with each other as if they fully trust each other. + The hubs -- the issuers and the contract host -- thereby succeed at providing + virtual trust connectivity between their spokes -- Alice and Bob.

Assets + Contracts x Time + ?? = Capital

The smart contracts explained so far, the vending machine and the exchange @@ -635,43 +637,48 @@ -- the creation of yet more forms of capital.

Networks of Games
-
What we need, quite simply, is to turn this new electronic right Alice - holds -- the right to sit in the left chair, i.e., the right to play the - left side of this ongoing game -- into an eright, a third-party-assayable - transferable electronic right. To do so requires an issuer for this new - right. Since the contract host is already managing access to this chair, - we may as well have it double as the issuer for the eright to sit in this - chair. Just as Alice could tell the $-Issuer to transfer some of her money - from her purse to some else's, we can enable Alice to tell the contract - host to transfer her eright to sit in this chair to someone else. The - contract host would then revoke Alice's access to the chair, and issue - fresh access to the new player, much as the $-Issuer would with Alice's - money.
+
To make this new new right Alice holds widely tradable, we need to turn + this right -- the right to continue playing the left side of this ongoing + game -- into an eright, a third-party-assayable transferable electronic + right. To do so requires an issuer for this new right. Since the contract + host is already managing access to this chair, we may as well have it + double as the issuer for the eright to sit in this chair. Just as Alice + could tell the $-Issuer to transfer some of her money from her purse to + some else's, we can enable Alice to tell the contract host to transfer + her eright to sit in this chair to someone else. The contract host would + then revoke Alice's access to the chair, and issue fresh access to the + new player, much as the $-Issuer would with Alice's money.

With this ability to compose networks of games, it seems we have the ability to express the full range of contract layering used in modern finance. Not that modern finance is directly relevant to the needs of the poor, but it is a good test of the generality of our framework.
-
But wait. This structure decouples knowledge in a way quite different - than anything in the financial world. We have the contract host issuing - rights it does not understand, since these rights are produced by games - it runs, but does not understand. The contract host is not in a position - to vouch for any meaningful property of the rights it is issuing, so how - can widespread trust in the contract host translate into credible global - transferability of derived rights? How can this derived right be assayable - if even its issuer doesn't understand it? Let's walk through the example - depicted in Figure 7.
+
But wait. In order to resolve our conflict, this structure decouples + knowledge in a way quite different than anything in the financial world. + We have the contract host issuing rights it does not understand, since + these rights are produced by games it runs, but does not understand. The + contract host is not in a position to vouch for any meaningful property + of the rights it is issuing, so how can widespread trust in the contract + host translate into credible global transferability of derived rights? + How can this derived right be assayable if even its issuer doesn't understand + it? Let's walk through the example depicted in Figure 7.

Alice starts out simply as a player of the original options game, hosted - by contract host #1. While Alice finds herself in the resulting valuable - situation -- while the options game is in state A -- she encounters Fred, - who would also find this situation valuable. Fred, were he convinced that - Alice's chair sitting rights mean what Alice says they mean, would be - willing to play a different game on contract host #2, perhaps our original - negotiation game, in which this right, issued by contract host #1, would - appear as a movable piece. Unfortunately, having just met, Fred and Alice - don't trust each any more than Alice and Bob do. Fortunately, Fred does - have prior knowledge and trust of contract host #1. Unfortunately, contract - host #1 has no idea if the right to sit in this chair of this game means - what Alice claims it means, or anything else.
+ by contract host #1, whose five participants are enclosed in the horizontal + rectangle. While Alice finds herself in the resulting valuable situation + -- while the options game is in state A -- she encounters Fred, who would + also find this situation valuable. Fred, were he convinced that Alice's + chair sitting rights mean what Alice says they mean, would be willing + to play a different game on contract host #2, perhaps our original negotiation + game, in which this right, issued by contract host #1, would appear as + a movable piece. Alice appears in the same role in both these games -- + as a player. Contract host #1 also appears in both these games -- it appears + as the contract host in game #1 (the horizontal rectangle), and it appears + as an issuer in, game #2, of the right to sit in the left chair of game + #1. Hence the tilted overlap of the rectangles.
+
Unfortunately, having just met, Fred and Alice don't trust each any more + than Alice and Bob do. Fortunately, Fred does have prior knowledge and + trust of contract host #1. Unfortunately, contract host #1 has no idea + if the right to sit in this chair of this game means what Alice claims + it means, or anything else.

Fortunately, with Alice's consent, Fred can ask contract host #1 for the text of the contract (the source code of the program), the current state of the board, and the assays of all the pieces presently on the @@ -685,37 +692,52 @@ access, he may not find the derived rights comprehensible at reasonable cost and move on. More commonly, if the contract is understandable to some number of others, including some Fred trusts, Fred may turn to them - for advice on the contract's meaning -- the computational analog of legal - advice.
+ for advice on the contract's meaning -- the analog of legal advice. With + this step, derived right become erights about which other contracts can + be written, deriving further erights.

Resolving the Conflict
-
The above scenario, applied to informally owned assets, could resolve - the conflict de Soto explains, but without resort to procrustean homogenization - of legal systems. The informally owned assets are not the literal physical - objects themselves, they are rights derived from these objects according - to informal local laws and negotiated arrangements. To the extent the - logic of these arrangements can be successfully expressed in the new language - of smart contracts -- with more literal physical objects represented as - underlying assets, as if these had once been separately owned -- - then the smart contract will have preserved this local knowledge in a - form that can be uploaded to widely trusted contract hosts, transforming - them into capital. The contract hosts would specialize in providing the - trust connectivity needed for global transferability. Each smart contract - would specialize in providing the local knowledge. Using our new technological - enablers -- the ability to safely and faithfully run rights-handling programs - one neither trusts nor understands -- these two specialties can be smoothly - combined without homogenizing the knowledge or imposing an impossible - learning burden on the contract host.
-
There will remain pressures for homogenizing capital-creating-contracts - -- normal market pressures. In the above scenario, Alice will no longer - lose the sale to Fred through Fred's lack of trust in Alice. But she is - still in danger of losing the sale through Fred's inability to understand - the contract's meaning. Further, only standardized contracts can create - fungible assets tradable on large exchanges. However, these pressures - can gradually work themselves out over time, and in competition with the - benefits provided by custom contracts, well after starting on the digital - path. This is to be contrasted with the governmental path, in which pervasive - rule homogenization is the necessary first step, and therefore also a - major barrier to starting on the governmental path.
+
The above steps, applied to informally owned assets, could resolve the + conflict de Soto explains, providing global transferability without resort + to procrustean homogenization of legal systems.
+
The first step, the separation of the contract from the contract host, + allows the contract to specialize in capturing local knowledge, while + the contract host specializes in providing the trust connectivity needed + for global transferability. Our new technological enablers -- the ability + of the contract host to safely and faithfully run rights-handling code + it neither trusts nor understands -- allows these two specialties to be + combined without conflict.
+
Our second step is contracts that unfold over time, creating derived + rights. This step would be applied twice. First, to model the base rights + as if they were derived from prior simpler rights to more literal + physical objects. Informally owned assets are not literal physical objects + themselves, they are rights derived from these objects according to informal + local laws and negotiated arrangements. To the extent the logic of these + arrangements can be successfully expressed in the new language of smart + contracts -- with more literal physical objects represented as underlying + assets, as if these had once been separately owned -- then the + smart contract will have preserved this local knowledge in a form that + can be uploaded to widely trusted contract hosts.
+
The third step enables the local-knowledge embodying rights created in + the previous steps to be widely tradable erights. This step allows these + three steps to applied repeatedly, creating complex networks of contracts + that build on each other. This allows the second step to be applied yet + again to create yet more abstract erights, like mortgage, setting loose + the power of capital formation. The collateral would be, not the physical + property itself, but the rights to the property held by the original property + holder, according to customary law in that community, as recorded at the + time of titling.
+
Although the conflict is resolved in this scenario, there will remain + pressures for homogenizing capital-creating-contracts; but there are normal + market pressures. In the above scenario, Alice will no longer lose the + sale to Fred through Fred's lack of trust in Alice. But she is still in + danger of losing the sale through Fred's inability to understand the contract's + meaning. Further, only standardized contracts can create fungible assets + tradable on large exchanges. However, these pressures can gradually work + themselves out over time, and in competition with the benefits provided + by custom contracts, well after starting on the digital path. This is + to be contrasted with the governmental path, in which pervasive rule homogenization + is the necessary first step, and therefore also a major barrier to starting + on the governmental path.

Backing and Legitimacy

For purely electronic assets, like fiat money and stock, at this point we have, perhaps, an adequate picture. The title listing for these assets @@ -737,10 +759,10 @@ were not honored. Under these circumstances, even governments mostly understood that coercive enforcement would have had too terrible a cost. De Soto documents well the repeated victories of squatters over governmental law.
-
The missing ingredient was the need to accomodate pre-existing local +
The missing ingredient was the need to accommodate preexisting local arrangements. These are the source of the legitimacy governing current control of the property, and any new system can only be seen as legitimate - if it incorporates and build on the old. On this issue, the digital path + if it incorporates and builds on the old. On this issue, the digital path has the huge advantage over the governmental one explained above. But what of the disadvantage? The Net is a purely non-coercive medium, it transmits only information -- effectively speech -- but cannot transmit @@ -748,9 +770,9 @@ the world -- such as title -- but they cannot force the world to come along. Unlike government-based title transfer, these changes of title are not backed by a coercive enforcement apparatus. How may we - compensate for this lack? For concretenness, in order to establish possibility, + compensate for this lack? For concreteness, in order to establish possibility, we propose here two complementary techniques, but we do not presume to - forsee what the actual outcome of the market discovery process will be. + foresee what the actual outcome of the market discovery process will be. This should be an area ripe for entrepreneurial invention.

Ratings

The issue of credibility does not require all title listings to @@ -770,17 +792,16 @@ takes these likelihoods into account. A bond rating agency does not put its money where its mouth is -- it does not issue bond insurance to back its likelihood estimates. Rather, it backs its estimates with its reputation, - which can become quite valueable, but is still cheaper than issuing insurance.
+ which can become quite valuable, but is still cheaper than issuing insurance.

Similarly, in our situation, we can imagine a market of third party raters - that post judgements of the likelihood that transfer of a given title - will actually be honored [Stanley01]. Simply - recording each village's track record of honoring past title transfers, - and assuming the future will be like the recent past, is a low overhead - procedure that's plausibly adequate. And it places each villiage in an - iterated game with the system as a whole, providing it an incentive to - treat these titles as legitimate claims. We can think of this as a credit - report, not for an individual, but for a village and its system of local - law.
+ that post judgments of the likelihood that transfer of a given title will + actually be honored [Stanley01]. Simply recording + each village's track record of honoring past title transfers, and assuming + the future will be like the recent past, is a low overhead procedure that's + plausibly adequate. And it places each village in an iterated game with + the system as a whole, providing it an incentive to treat these titles + as legitimate claims. We can think of this as a credit report, not for + an individual, but for a village and its system of local law.

Video Contracts

But legitimacy is more than just preserving local arrangements, and it is more than just incentives or force. It is knowing in your bones what @@ -791,7 +812,7 @@ were true, Bob would have heard about it from Sam. The evidence presented by these disembodied strangers are impersonal electronic records Bob can hardly understand, much less verify. Perhaps Bob is told the veracity - of these records can be verfied by cryptographic means. Why should Bob + of these records can be verified by cryptographic means. Why should Bob believe them? Absent coercive power to evict, why should Bob even take them seriously? Why not just stay in his home?

Bob's community does have power of various sort over him, probably including @@ -804,7 +825,7 @@ minds, but complex lawyer-written contracts on paper no longer plausibly meet this standard. Verbal contracts often do at the moment of the handshake -- both parties have just had a rich conversational interaction, full - of all the concious and subconcious cues we use to understand what each + of all the conscious and subconscious cues we use to understand what each other understands -- so they plausibly have a good sense of what they jointly mean to agree to. However, memory is fleeting, so people turned instead to paper to record agreements, trading away richness, sincerity, @@ -841,14 +862,14 @@ coupled to legality. With the exception of Italy, for a business in these countries to be judged legitimate by the culture, and for others to consider their dealings with this business to be legitimate, the business must - be legal -- it must be operate within the formal legal system. By contrast, + be legal -- it must operate within the formal legal system. By contrast, in Italy and among the informals, the formal legal system has no monopoly on legitimacy -- many extralegal institutions enjoy widespread popular legitimacy.

As explained above, a new system of law will only be seen as legitimate - if it accomodates, incorporates, and builds on pre-existing systems of - legitimacy. The pre-existing formal and informal systems each have a very - different kind of great complexity; and the effort to accomodate this + if it accommodates, incorporates, and builds on preexisting systems of + legitimacy. The preexisting formal and informal systems each have a very + different kind of great complexity; and the effort to accommodate this complexity, to express these rules in the language of smart contracts, can seriously impede these transitions.

Among the informals the great complexity comes from the sheer number @@ -893,10 +914,10 @@ bloom, creating vast wealth, how would this effect the first world?

Formal laws in the first world do change under political pressure. One of the more effective sources of pressure are those who stand to gain - from large scale commerce with the rest of the world. Once a signicant - part of the world's economy is occuring in the digital path, first world + from large scale commerce with the rest of the world. Once a significant + part of the world's economy is occurring in the digital path, first world businesses would then face a choice -- trade with these networks or stay - legal-legitimate. This is an unpeasant choice both for them and their + legal-legitimate. This is an unpleasant choice both for them and their governments. The pressures will be great to legalize trade with these jurisdiction-free networks of commerce. Once such unregulatable trade is made legitimate, the dam will have burst. What will be the character @@ -916,7 +937,7 @@ be made binding, with the law serving as the mutually trusted intermediary for securing the arrangement. With smart contracts, the encoded rules themselves becomes the logic of their own enforcement, subject only to - the honesty, not the judgement or skill, of a diverse market of competing + the honesty, not the judgment or skill, of a diverse market of competing contract hosts. This competition forms a vastly stronger and fully decentralized system of checks and balances.

The third world could rise on an enhanced version of the principles on @@ -929,6 +950,8 @@ Shapiro, Terry Stanley, Nick Szabo, E-Dean Tribble, Bill Tulloh, Ka-Ping Yee, and the members of the e-lang mailing list.

References
+
[Amix91] Derived from work done by Dean Tribble + and Randy Farmer for AMIX, The American Information Exchange, circa 1991.

[Bartley62] William W. Bartley, III, The Retreat to Commitment Open Court Publishing, 1962.

[Burch97] Greg Burch, personal communication.
@@ -940,8 +963,9 @@
[Engelbart62] Doug Engelbart "Augmenting Human Intellect: A Conceptual Framework", SRI Project no. 3578, October 1962.
-
[Fukuyama95] Francis Fukuyama, "Trust", - Free Press Paperbacks, 1995.
+
[Fukuyama95] Francis Fukuyama, "Trust: + The Social Virtues and the Creation of Prosperity", Free Press + Paperbacks, 1995.

[Granovetter73] Mark Granovetter, "The Strength of Weak Ties", in: American Journal of Sociology (1973) Vol. 78, pp.1360-1380.
@@ -984,8 +1008,7 @@ Antropology of Law: a comparative theory", Harper and Row, 1971.

[Rees96] Jonathan Rees, "A Security Kernel Based on the Lambda-Calculus", (MIT, Cambridge, MA, 1996) MIT - AI Memo No. 1564. http://mumble.net/jar/pubs/ - secureos/.
+ AI Memo No. 1564. http://mumble.net/jar/pubs/secureos/.

[Selgin01] George Selgin, personal communication.

[Shapiro99] Jonathan S. Shapiro, "EROS: A Capability System", Ph.D. thesis, University of Pennsylvania, @@ -999,7 +1022,7 @@ To Capability Based Security", Online at http://www.skyhunter.com/marcs/capabilityIntro/index.html.

[Szabo97] Nick Szabo, "Formalizing and Securing Relationships on Public Networks", First Monday, vol - 2 no 9, 1997. Updated copy at http://www.best.com/~szabo/formalize.html.
+ 2 no 9, 1997. Updated copy at http://szabo.best.vwh.net/formalize.html.

[Szabo98] Nick Szabo, "Video Contracts", 1998. Online at http://szabo.best.vwh.net/video.html.

[Tribble95] Eric Dean Tribble, Mark S. Miller, 1.2 +1 -1 e/doc/talks/pisa/paper/pencil-brick-law.html Index: pencil-brick-law.html =================================================================== RCS file: /cvs/e/doc/talks/pisa/paper/pencil-brick-law.html,v retrieving revision 1.1 retrieving revision 1.2 diff -u -r1.1 -r1.2 --- pencil-brick-law.html 2001/12/28 14:44:30 1.1 +++ pencil-brick-law.html 2002/01/03 21:51:43 1.2 @@ -846,7 +846,7 @@ To Capability Based Security", Online at http://www.skyhunter.com/marcs/capabilityIntro/index.html.

[Szabo97] Nick Szabo, "Formalizing and Securing Relationships on Public Networks", First Monday, vol - 2 no 9, 1997. Updated copy at http://www.best.com/~szabo/formalize.html.
+ 2 no 9, 1997. Updated copy at http://szabo.best.vwh.net/formalize.html.

[Tribble95] Eric Dean Tribble, Mark S. Miller, Norm Hardy, Dave Krieger, "Joule: Distributed Application Foundations", http://www.agorics.com/joule.html, 1995.
From markm@eros.cs.jhu.edu Thu Jan 3 22:08:24 2002 Date: Thu, 3 Jan 2002 17:08:24 -0500 From: markm@eros.cs.jhu.edu markm@eros.cs.jhu.edu Subject: [e-cvs] cvs commit: e/doc/talks/pisa/paper index.html markm 02/01/03 17:08:24 Modified: doc/talks/pisa/paper index.html Log: more Revision Changes Path 1.36 +4 -5 e/doc/talks/pisa/paper/index.html Index: index.html =================================================================== RCS file: /cvs/e/doc/talks/pisa/paper/index.html,v retrieving revision 1.35 retrieving revision 1.36 diff -u -r1.35 -r1.36 --- index.html 2002/01/03 21:51:43 1.35 +++ index.html 2002/01/03 22:08:24 1.36 @@ -316,11 +316,10 @@ into officially acknowledged parts of the formal economy. The strategy has been wildly successful in bringing the poor into the modern world. Working with the government of Peru, over four years, de Soto's organization - has formalized ??? worth of assets for a quarter of a million people, - creating ??? amount of capital and $2.1 billion of new tax revenues for - the government of Peru. One may hope and expect that these demonstrated - tax revenues, if nothing else, will tempt other governments to follow - suit.
+ helped a quarter of a million people formalize many of their assets, creating + new capital, and producing $2.1 billion of new tax revenues for the government + of Peru. One may hope and expect that these demonstrated tax revenues, + if nothing else, will tempt other governments to follow suit.

De Soto's isn't the first attempt to title the informals' property and bring them into the formal sector, but it is the first such attempt in the third world to work. De Soto documents previous well intentioned efforts, From markm@eros.cs.jhu.edu Thu Jan 3 22:34:44 2002 Date: Thu, 3 Jan 2002 17:34:44 -0500 From: markm@eros.cs.jhu.edu markm@eros.cs.jhu.edu Subject: [e-cvs] cvs commit: e/domains/philsalin patents.html markm 02/01/03 17:34:44 Modified: domains/philsalin patents.html Log: fixes, signatures. Thanks John Gilmore Revision Changes Path 1.2 +47 -4 e/domains/philsalin/patents.html Index: patents.html =================================================================== RCS file: /cvs/e/domains/philsalin/patents.html,v retrieving revision 1.1 retrieving revision 1.2 diff -u -r1.1 -r1.2 --- patents.html 2001/10/15 05:38:49 1.1 +++ patents.html 2002/01/03 22:34:44 1.2 @@ -6,7 +6,7 @@ -Freedom od Speech in Software +Freedom of Speech in Software @@ -37,7 +37,7 @@ it appears in this message by John Gilmore. In this message, Gilmore says about this article
-
+
Phil Salin opposed software patents on free speech grounds, claiming a government monopoly over the use of certain ideas in software was exactly equivalent to censorship of literary ideas. This was the first @@ -236,8 +236,8 @@ discussion of the dangers of broadly interpreted copyrights should take place elsewhere.
-
3. Patents on Writings Discourage Trial and Error Perfection of Important - Ideas. +
3. Patents on Writings Discourage Trial and Error Perfection of Important + Ideas.

Whenever a patent is granted on a particular expression of an idea in software, it will have a chilling effect on everyone who is considering writing software to solve similar problems. They must now tread gingerly @@ -345,6 +345,49 @@ that patents should not be applied to any form of writing, including the writing of computer software.
---Phil Salin, July 14, 1991. +
Further signatures
+
Eric Drexler
+ President
+ Foresight Institute
+
Roger Gregory
+ Chief Scientist
+ Xanadu Operating Company
+
Robin Hanson
+ Artificial Intelligence Researcher
+ NASA Ames Research Center
+
Chris Hibbert
+ Manager of Software Development
+ Xanadu Operating Company
+
Richard J. Mascitti
+ Manager, Hypermedia Software Development
+ Autodesk, Inc.
+
Michael McClary
+ Software Quality Control Tools
+ Xanadu Operating Company
+
Mark S. Miller
+ Co-Architect
+ Xanadu Operating Company
+ Co-Director
+ The Agorics Project
+ George Mason University
+
Chip Morningstar
+ Vice-President of Software Development
+ American Information Exchange
+
Ravi Pandya
+ Co-Architect
+ Xanadu Operating Company
+
Gayle Pergamit
+ Manager
+ American Information Exchange
+
Chris Peterson
+ Director
+ Foresight Institute
+
Bob Schumaker
+ Macintosh Programmer
+ American Information Exchange
+
Eric Dean Tribble
+ Co-Architect
+ Xanadu Operating Company
From markm@eros.cs.jhu.edu Thu Jan 3 22:36:12 2002 Date: Thu, 3 Jan 2002 17:36:12 -0500 From: markm@eros.cs.jhu.edu markm@eros.cs.jhu.edu Subject: [e-cvs] cvs commit: e/domains/philsalin patents.html markm 02/01/03 17:36:12 Modified: domains/philsalin patents.html Log: more Revision Changes Path 1.3 +1 -1 e/domains/philsalin/patents.html Index: patents.html =================================================================== RCS file: /cvs/e/domains/philsalin/patents.html,v retrieving revision 1.2 retrieving revision 1.3 diff -u -r1.2 -r1.3 --- patents.html 2002/01/03 22:34:44 1.2 +++ patents.html 2002/01/03 22:36:12 1.3 @@ -345,7 +345,7 @@ that patents should not be applied to any form of writing, including the writing of computer software.
---Phil Salin, July 14, 1991. -
Further signatures
+
Further signatures

Eric Drexler
President
Foresight Institute
From markm@eros.cs.jhu.edu Thu Jan 3 22:58:29 2002 Date: Thu, 3 Jan 2002 17:58:29 -0500 From: markm@eros.cs.jhu.edu markm@eros.cs.jhu.edu Subject: [e-cvs] cvs commit: e/doc/talks/pisa/paper index.html markm 02/01/03 17:58:29 Modified: doc/talks/pisa/paper index.html Log: typo Revision Changes Path 1.37 +1 -1 e/doc/talks/pisa/paper/index.html Index: index.html =================================================================== RCS file: /cvs/e/doc/talks/pisa/paper/index.html,v retrieving revision 1.36 retrieving revision 1.37 diff -u -r1.36 -r1.37 --- index.html 2002/01/03 22:08:24 1.36 +++ index.html 2002/01/03 22:58:29 1.37 @@ -726,7 +726,7 @@ holder, according to customary law in that community, as recorded at the time of titling.

Although the conflict is resolved in this scenario, there will remain - pressures for homogenizing capital-creating-contracts; but there are normal + pressures for homogenizing capital-creating-contracts; but these are normal market pressures. In the above scenario, Alice will no longer lose the sale to Fred through Fred's lack of trust in Alice. But she is still in danger of losing the sale through Fred's inability to understand the contract's From markm@eros.cs.jhu.edu Sat Jan 5 18:17:00 2002 Date: Sat, 5 Jan 2002 13:17:00 -0500 From: markm@eros.cs.jhu.edu markm@eros.cs.jhu.edu Subject: [e-cvs] cvs commit: e/doc/elib/concurrency event-loop.html markm 02/01/05 13:16:59 Modified: doc/elib/concurrency event-loop.html Log: message from Darius Revision Changes Path 1.14 +76 -11 e/doc/elib/concurrency/event-loop.html Index: event-loop.html =================================================================== RCS file: /cvs/e/doc/elib/concurrency/event-loop.html,v retrieving revision 1.13 retrieving revision 1.14 diff -u -r1.13 -r1.14 --- event-loop.html 2001/11/15 05:08:02 1.13 +++ event-loop.html 2002/01/05 18:16:59 1.14 @@ -61,8 +61,8 @@
Optional: Add a message dispatch mechanism. Pure lambda calculus is great at defining one-method objects, but your users want to create objects that respond to several different types of request. E provides - for this directly in the kernel, but Scheme, KeyKOS, and EROS show that - it need not be primitive. + for this directly in the kernel, but Actors, Scheme, KeyKOS, and EROS + show that it need not be primitive.

Add object-local mutable memory and side-effects. Bob can now retain @@ -99,8 +99,9 @@ we have to come to terms with these issues. Solutions that enable us, not only to avoid confusing ourselves with our own side-effects, but to create computation that can interact with an ongoing concurrent world, - are termed concurrency-control (ref ?? on Transformational vs. Reactive - computation). + are termed concurrency-control. [See also On + the development of reactive systems by Harel and Pnueli for a similar + distinction between transformational and reactive systems.]

@@ -125,7 +126,7 @@ for organizing large scale economic activity parallels the rationale for encapsulation in object-oriented systems: to provide a domain (an object�s encapsulation boundary) in which an agent (the object) can execute plans - (the object�s methods) that use of resources (an object�s private state), + (the object�s methods) that use resources (an object�s private state), where the proper functioning of these plans depends on these resources not being used simultaneously by conflicting plans. By dividing up the resources of society (the state of a computational system) into separately @@ -135,10 +136,9 @@
Concurrency introduces a new kind of plan-interference: plan interleaving. Pre-object sequential programs got into trouble just from changes to assumptions between one procedure call and the next. While - a procedure call is in progress, the delicacy of the assumptions in the - air is often much greater. Concurrency means other procedures executing - simultaneously can interfere with these delicate assumptions. A simple - example in Java: + a procedure call is in progress, the delicacy of assumptions in the air + is often much greater. Concurrency means other procedures executing simultaneously + can interfere with these delicate assumptions. A simple example in Java:

public class CounterExample { @@ -151,11 +151,11 @@

The code compiled from myCounter++ makes micro-assumptions. It reads the value of myCounter into a register, increments - the register, and writes the new value back out. In two threads call incr() + the register, and writes the new value back out. If two threads call incr() simultaneously, one may overwrite the effect of the other, breaking the counter.
A plan with a stale assumption may proceed to cause damage - because its proper functioning depended on facts which are no longer true. + because its proper functioning depends on facts which are no longer true. Classically, the consistency problem is phrased in terms of preserving object invariants, but it is better to focus on avoiding stale assumptions. Since the plan assumptions most likely to be broken by plan interleaving @@ -236,6 +236,71 @@ supposed to resolve it, you forget to call "resolve" in all applicable cases. Of course, actual lost signal bugs may be arbitrarily more complicated than this.
+
Further Discussion
+
The following message + by Darius Bacon is a good summary of some further points, with links in + its header to a discussion of this topic on the "Lambda" weblog, + and links in its body to some good messages on this topic on our own e-lang + list.
+ + + + +
+
Re: E - secure,distributed, pure OOP and p2p scripting language
+ + + + + + + + + + + + + + + + + + + + + + + + + + + + +
Author: Darius + Bacon
Posted: 1/4/2002; 10:36:20 PM
Topic: E + - secure,distributed, pure OOP and p2p scripting language
Msg #: 2404 + (in response to 2361)
Prev/Next: 2403/2405
Reads: 18
+
+ The referenced tutorial is aimed at typical working programmers; I + think language hackers would get more out of the main erights.org + site. This particular issue is discussed at http://erights.org/elib/concurrency/event-loop.html + and pages linked from there. +
I think the claim of eliminating deadlock bugs is like the claim + functional languages make to eliminate side-effect bugs. You can + still write code such that the same kind of interference occurs + (in both cases), but the language leads you naturally away from + it. If this analogy is right, using event-loop concurrency instead + of threads should be a good idea a lot of the time even in languages + that don't support it, just like avoiding side effects can improve + your C code. Zooko wrote about his Mojo Nation experiences along + those lines: http://www.eros-os.org/pipermail/e-lang/2001-July/005410.html + Jonathan Rees seems to be the first to make this analogy: http://www.eros-os.org/pipermail/e-lang/2001-August/005585.html +
I've never written any concurrent code in E, so my own opinion + isn't worth much. Mark Miller gave a list of other relevant posts: + http://www.eros-os.org/pipermail/e-lang/2001-May/005287.html + http://www.eros-os.org/pipermail/e-lang/2001-July/005418.html + http://www.eros-os.org/pipermail/e-lang/2001-July/005427.html +
From markm@eros.cs.jhu.edu Sun Jan 6 22:43:00 2002 Date: Sun, 6 Jan 2002 17:43:00 -0500 From: markm@eros.cs.jhu.edu markm@eros.cs.jhu.edu Subject: [e-cvs] cvs commit: e/doc/talks/pisa/paper index.html markm 02/01/06 17:42:59 Modified: doc/talks/pisa/paper index.html Log: more Revision Changes Path 1.38 +83 -57 e/doc/talks/pisa/paper/index.html Index: index.html =================================================================== RCS file: /cvs/e/doc/talks/pisa/paper/index.html,v retrieving revision 1.37 retrieving revision 1.38 diff -u -r1.37 -r1.38 --- index.html 2002/01/03 22:58:29 1.37 +++ index.html 2002/01/06 22:42:59 1.38 @@ -54,7 +54,7 @@
Draft paper to be submitted to "Austrian Perspectives on the New Economy".
Please comment.
-
Abstract
+
Abstract

Inadequate and ill-adapted property institutions in the third world prevent the extralegal assets of the poor from serving as capital. In particular, the absence of credible systems of title transfer makes real estate holdings @@ -70,7 +70,7 @@ shows that the poor of the world have, in his terminology, assets vastly in excess of their capital. In one study, de Soto's associates surveyed neighborhoods in various poor countries, assessing the value - of buildings which were not formally titled; the extrapolated value of + of buildings which were not formally titled. The extrapolated 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. In identifying a crucial mystery -- the failure of these assets @@ -88,7 +88,7 @@
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 - your property. A mortgage on that house would be capital. (In the countries + your property. A mortgage on that house would be capital. (In countries that have become rich, mortgages in particular have been a major source of highly decentralized investment, seeding many family businesses.) But just because no one can evict you from your house, this does not mean @@ -114,31 +114,30 @@ supplemented and/or supplanted with smart contracts? Smart contracts will enable cooperation among mutually suspicious parties, often without need for legal recourse. Could such a jurisdiction-free contracting mechanism, - accessible over the net, dramatically increase capital liquidity, spawning + accessible over the Net, dramatically increase capital liquidity, spawning a flood of new wealth in the poorest areas of the world?
-
Overview
+
Overview

The rest of the paper is organized as follows:

Networks of Trust synthesizes ideas from de Soto and Francis Fukuyama to suggest the strong role played by widely trusted intermediary - institutions, or trust hubs, in forming working large scale trust + institutions, or trust hubs, in forming working large-scale trust networks, especially the institutions of title and law. We explain de Soto's program, which we call the governmental path, to address - the absence of these institutions by bringing them into governmental + the absence of these institutions by bringing the informals into governmental systems of formal law and property. We make explicit the conflict faced by this path between local knowledge and global transferability.

We propose an alternate jurisdiction-free digital path, made possible by new technologies, that could leverage the existing wide recognition of first world institutions to short circuit the slow growth - process of the other paths; and could resolve the conflict by use of - smart contracts.
+ process of the other paths.

Smart Contracts are contracts as program code, where the terms of the contract are enforced by the logic of the program's execution. In a series of steps, from the basic metaphor of contracts as board games, through the nature of contract-created derivative rights, to compositions of games to turn assets into capital, we explain - how smart contract can resolve the conflict -- to gain the benefits + how smart contracts can resolve the conflict -- gaining the benefits of global transferability without sacrificing local knowledge.

Backing and Legitimacy. Why would a change of electronic title be locally honored as a transfer of control of the actual assets? The @@ -422,21 +421,22 @@ accumulate its own reputation-capital.

Smart Contracts

How might such hubs deal with the idiosyncrasies of each village's people's - law, the idiosyncrasies that sabotage traditional governmental attempts - to capitalize village assets, without taking on the impossible burden + law -- the idiosyncrasies that sabotage traditional governmental attempts + to capitalize village assets -- without taking on the impossible burden of learning all this local knowledge itself, and without imposing the costs of homogenization? By the use of smart contracts.

In smart contracts, a software program is the operational embodiment of a contract [Szabo97]. A drink vending - machine is a very primitive example of a smart contract, being executed - on a contract host -- the machine hardware. This contract/host combination - is a partially trusted intermediary between the drink manufacturer and - the purchaser. It escrows drinks and money, and performs an exchange of - those goods when both have been presented. There is even a rollback process, - in which it returns the money if the drink cannot be delivered. Traditional - contracts are understood to be backed by a coercive enforcement system - made of courts and cops. However, the vending machine does not have the - option of such recourse following a breach. In what sense is it a contract?
+ machine is a very primitive example of a smart contract being executed + on a contract host -- the vending software executing on the vending machine + hardware. This combination of contract and contract host is a partially + trusted intermediary between the drink manufacturer and the purchaser. + It escrows drinks and money, and performs an exchange of those goods when + both have been presented. There is even a rollback process, in which it + returns the money if the drink cannot be delivered. Traditional contracts + are understood to be backed by a coercive enforcement system made of courts + and cops. However, the vending machine does not have the option of such + recourse following a breach. In what sense is it a contract?

The vending-machine-as-contract would indeed require separate enforcement if it dispensed the drink first and then demanded payment. However, by escrowing both drinks and payment before dispensing either, it also dispenses @@ -445,8 +445,7 @@ from walking away before the game is over, but a customer who walks away from a contract in progress leaves behind any assets escrowed by the contract at that point [Miller00]. - The terms of the contract are enforced by the contract itself -- by the - behavior of the contract when executed as a program.
+

(The vending machine is partially and asymmetrically trusted, as both parties know that it is ultimately an agent only of the drink manufacturer. Other smart contract scenarios involve more symmetric @@ -516,7 +515,7 @@ system -- a secure programming language or operating system suitable for writing smart contracts [Miller00]. This contract/program functions as the board manager for the game they have agreed to - play. (A board manager for, for example, chess, is a program that + play. (For example, a board manager for chess is a program that enables two people to play with each other, maintains the board state, and only allows legal moves. A board manager does not itself play the game.)
@@ -555,14 +554,14 @@ by the transfer of quantity between accounts -- shown above as purses within the issuers. When Alice places the gold bar on the board, her computer, the $-Issuer, and the contract host engage in a three-way cryptographic - transaction that bring about the transfer of title, at the $-Issuer, of - that much money from Alice to the contract host. An honest contract host - would consider this money to be only a piece on the board, which can be - picked up (transferred to the possession of a player) according to whatever - may be the rules of the game. We refer to this as oblivious escrow - -- the contract host, merely by running the contract, ensures that erights - in escrow can only be released under the agreed conditions, without needing - to understand those conditions or those erights.
+ transaction that brings about the transfer of title, at the $-Issuer, + of that much money from Alice to the contract host. An honest contract + host would consider this money to be only a piece on the board, which + can be picked up (transferred to the possession of a player) according + to whatever may be the rules of the game. We refer to this as oblivious + escrow -- the contract host, merely by running the contract, ensures + that erights in escrow can only be released under the agreed conditions, + without needing to understand those conditions or those erights.

A dishonest contract host could abscond with the money instead, which is why contract hosts need to be widely trusted. A widely trusted contract host presumably has a valuable reputation at stake, which helps secure @@ -581,11 +580,11 @@ location [Vinge84], under these conditions, they can transact with each other as if they fully trust each other. The hubs -- the issuers and the contract host -- thereby succeed at providing - virtual trust connectivity between their spokes -- Alice and Bob.
-
Assets + Contracts x Time + ?? = Capital
+ virtual trust connectivity between their spokes: Alice and Bob.
+
Assets + Contracts x Time + ?? = Capital

The - smart contracts explained so far, the vending machine and the exchange - game, cannot turn assets into capital. To do so requires contracts that + smart contracts explained so far -- the vending machine and the exchange + game -- cannot turn assets into capital. To do so requires contracts that unfold over time, like a mortgage. To explain how such unfolding creates ever more abstract forms of property, a simple clear example is the covered call option. (Such instruments are kindergarten finance for many, @@ -645,8 +644,8 @@ could tell the $-Issuer to transfer some of her money from her purse to some else's, we can enable Alice to tell the contract host to transfer her eright to sit in this chair to someone else. The contract host would - then revoke Alice's access to the chair, and issue fresh access to the - new player, much as the $-Issuer would with Alice's money.
+ then revoke Alice's access to the chair and issue fresh access to the + other player, much as the $-Issuer would with Alice's money.

With this ability to compose networks of games, it seems we have the ability to express the full range of contract layering used in modern finance. Not that modern finance is directly relevant to the needs of @@ -670,9 +669,9 @@ game, in which this right, issued by contract host #1, would appear as a movable piece. Alice appears in the same role in both these games -- as a player. Contract host #1 also appears in both these games -- it appears - as the contract host in game #1 (the horizontal rectangle), and it appears - as an issuer in, game #2, of the right to sit in the left chair of game - #1. Hence the tilted overlap of the rectangles.
+ as the contract host in game #1, and it appears as an issuer in, game + #2, of the right to sit in the left chair of game #1. Hence the tilted + overlap of the rectangles.

Unfortunately, having just met, Fred and Alice don't trust each any more than Alice and Bob do. Fortunately, Fred does have prior knowledge and trust of contract host #1. Unfortunately, contract host #1 has no idea @@ -692,7 +691,7 @@ cost and move on. More commonly, if the contract is understandable to some number of others, including some Fred trusts, Fred may turn to them for advice on the contract's meaning -- the analog of legal advice. With - this step, derived right become erights about which other contracts can + this step, derived rights become erights about which other contracts can be written, deriving further erights.

Resolving the Conflict

The above steps, applied to informally owned assets, could resolve the @@ -736,7 +735,7 @@ by custom contracts, well after starting on the digital path. This is to be contrasted with the governmental path, in which pervasive rule homogenization is the necessary first step, and therefore also a major barrier to starting - on the governmental path.
+ on that path.

Backing and Legitimacy

For purely electronic assets, like fiat money and stock, at this point we have, perhaps, an adequate picture. The title listing for these assets @@ -775,7 +774,7 @@ This should be an area ripe for entrepreneurial invention.

Ratings

The issue of credibility does not require all title listings to - have high credibility. Rather, it is adequate for distant traders, that + have high credibility. Rather, it is adequate for distant traders, who have no knowledge of a particular governing village, to nevertheless have some reliable basis for judging the credibility of particular title listings. An obvious answer is to introduce another trusted intermediary @@ -840,10 +839,33 @@ with Sam about the meaning of the contract. For most communities, seeing Sam explain clearly what rights he's trading away will be enough to establish legitimacy. After all, that's Sam talking, not some outsider making dry - claims about Sam's past intentions. Such records should also help overcome + claims about Sam's past intentions. Such recordings should also help overcome barriers of language and literacy.
+
Limitations and Hazards
+
Incorporating Human Language, Perception, and Judgement
+
Many preexisting and desired arrangements will not be expressible purely + as smart contracts. Conventional contracts make use of the rich expressiveness + of human language, perception, and judgement, all of which are vastly + more subtle and sophisticated than any currently automated alternative. + Between the poles of fully human contracts and fully automated contracts + there is a spectrum of arrangements we call split contracts -- + the contract is split between automated and non-automated parts. The first + smart contracting system, AMIX [Walker89, Miller99] + demonstrates well some of the ways such split contracts can be designed, + so the two parts can play together well, enabling us to take advantages + of the strengths of both.
+
For example, a split contract could consist of an automated game, adequate + if a dispute does not arise; natural language text expressing what the + game could not, relevant only during a dispute; and an agreement on which + person or institution should read the text and arbitrate the outcome of + a dispute. From a game-centric perspective, the ability to declare the + outcome in dispute is only another move in the game, and the arbitrator + is only another player. From a paper-contract-centric perspective, the + text as interpreted by the arbiter is the outcome of last resort, and + so is the "real" contract. The game is only a lighter weight + approximation for typical non-disputed cases.

-
Why the Third World First?
+
Why the Third World First?

This new world of Net-based jurisdiction-free coercionless smart contracting -- the digital path -- is an option for the first world as well as the third. Both groups stand to gain tremendously by this transition. Virtually @@ -851,7 +873,7 @@

Overview

Networks of Trust

Contracts as Games

Assets + Contracts x Time + ?? = Capital

Networks of Games

Ratings

Video Contracts

Homogenization Costs

The Rule of Law and Not of Men

The Rule of Law and Not of Men

Conclusion

Acknowledgments

References

Overview

Networks of Trust

The Conflict: Local Knowledge vs. Global Transferability

The Rule of Law and Not of Men

The Rule of Law and Not of Men

Conclusion

Acknowledgments

Overview

Networks of Trust

Introduction

Assets + Contracts x Time + ?? = Capital

Networks of Games

Resolving the Conflict

Backing and Legitimacy

Ratings

Video Contracts

References

3. Patents on Writings Discourage Trial and Error Perfection of Important + Ideas.

Further signatures

Further signatures

Further signatures

Further Discussion

Re: E - secure,distributed, pure OOP and p2p scripting language

Abstract

Abstract

Overview

Overview

Smart Contracts

Assets + Contracts x Time + ?? = Capital

Assets + Contracts x Time + ?? = Capital

Resolving the Conflict

Backing and Legitimacy

Ratings

Limitations and Hazards

Incorporating Human Language, Perception, and Judgement

Why the Third World First?

Why the Third World First?