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markm@eros.cs.jhu.edu
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Digital Path:<font size="5"><br>
Smart Contracts and the Third World<br>
<br>
- <font size="4">by Mark S. Miller and Marc Stiegler</font></font><!-- #EndEditable --></FONT>
+ <font size="4">by Mark S. Miller and Marc Stiegler<br>
+ CTO and COO, Combex, Inc.</font></font><!-- #EndEditable --></FONT>
</TD>
</TR>
</TABLE>
@@ -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 <i>smart contracts</i>? 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? </p>
<h3>Overview</h3>
- <p><font color="#FF0000">***to be written</font></p>
- <ul>
- <li>Networks of Trust
- <ul>
- <li>The Special Roles of Title and Law</li>
- <li>The Governmental Path</li>
- <li>The Conflict: Local Knowledge <i>vs.</i> Global Transferability</li>
- <li>The Digital Path</li>
- </ul>
- </li>
- <li>Smart Contracts
- <ul>
- <li>Contracts as Games</li>
- <li>Assets + Contracts x Time + ?? = Capital</li>
- <li>Networks of Games</li>
- <li>Resolving the Conflict</li>
- </ul>
- </li>
- <li>Backing and Legitimacy
- <ul>
- <li>Ratings</li>
- <li>Video Contracts</li>
- </ul>
- </li>
- <li>Why the Third World First?
- <ul>
- <li>Comparative Legitimacy</li>
- <li>Homogenization Costs</li>
- <li>Cell Phones in Eastern Europe</li>
- <li>Saving the First World</li>
- <li>The Rule of Law and Not of Men</li>
- </ul>
- </li>
- <li>Conclusions</li>
- </ul>
+ <blockquote>
+ <p><b>Networks of Trust</b> synthesizes ideas from de Soto and Francis
+ Fukuyama to suggest the strong role played by widely trusted intermediary
+ institutions, or <i>trust hubs</i>, in forming working large scale trust
+ networks, especially the institutions of title and law. </p>
+ <blockquote>
+ <p><b>The Governmental Path</b> - 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.
+ </p>
+ <p><b>The Conflict: Local Knowledge <i>vs.</i> Global Transferability</b>
+ - makes explicit the conflict identified by de Soto, between the
+ <i>people's law, </i>pre-existing negotiated arrangements and diverse
+ traditional law <i>vs.</i> the uniformity required by trade through
+ widely recognized institutions.</p>
+ <p><b>The Digital Path</b> - 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.</p>
+ </blockquote>
+ <p><b>Smart Contracts</b> - are contracts as program code, where the terms
+ of the contract are enforced by the logic of the program's execution.
+ </p>
+ <blockquote>
+ <p><b>Contracts as Games</b> - 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.</p>
+ <p><b>Assets + Contracts x Time + ?? = Capital</b>. Capital, like
+ mortgage, are derivatives. They are new abstract rights derived
+ by contracts about simpler underlying assets, where these contracts
+ unfold over time.</p>
+ <p><b>Networks of Games</b>. 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.</p>
+ <p><b>Resolving the Conflict</b> - 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.</p>
+ </blockquote>
+ <p><b>Backing and Legitimacy</b>. 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? </p>
+ <blockquote>
+ <p><b>Ratings</b> - are independent estimates of the likelihood that
+ a title listing would be honored. Like credit reports for systems
+ of local law.</p>
+ <p><b>Video Contracts</b> - 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.
+ </p>
+ </blockquote>
+ <p><b>Why the Third World First?</b> Why may the third world lead the
+ first in the transition to such smart contract mediated global commerce? </p>
+ <blockquote>
+ <p><b>Comparative Legitimacy</b>. Because of differences in the nature
+ of legitimacy in these two worlds.</p>
+ <p><b>Homogenization Costs</b>. Because the first world has already
+ paid the homogenization costs. It has already lost the diversity
+ the digital path could have preserved.</p>
+ <p><b>Cell Phones in Eastern Europe</b>. 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.</p>
+ <p><b>Saving the First World</b>. If these predictions prove accurate,
+ and the third world succeeds first at the digital path, how should
+ we expect the first world to react?</p>
+ </blockquote>
+ <p><b>Conclusion: The Rule of Law and Not of Men</b>. 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.</p>
+ </blockquote>
<h1><a name="nohubs"></a>Networks of Trust</h1>
<p>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? </p>
<p>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 <i>the people's
- law</i>. Instead, the formals approach to the situation was <i>We have
- a legal system. You don't. Here's ours. </i>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.</p>
+ and idiosyncratic village by village. These systems are sometimes called
+ <i>the people's law</i>. Instead, the formals' approach to the situation
+ was <i>We have a legal system. You don't. Here's ours. </i>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.</p>
<h3><a name="conflict"></a>The Conflict: Local Knowledge <i>vs. </i>Global
Transferability</h3>
<p> The difficulty comes from an inherent conflict between <i>local knowledge</i>
@@ -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?</p>
- <h3>The Rule of Law and Not of Men</h3>
+ <h1> The Rule of Law and Not of Men</h1>
<p>Surprisingly perhaps, the character of the digital path may best be described
as a pure form of the classical liberal ideal -- <i>the rule of law and
not of men</i>. 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.</p>
- <p>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. </p>
- <h1>Conclusion</h1>
- <p><font color="#FF0000">*** to be written</font></p>
+ <p>The third world could rise on an enhanced version of the principles on
+ which the West grew rich.</p>
<h3><a name="acks"></a>Acknowledgments</h3>
<p>These ideas have formed over much time and many valuable conversations,
for which we thank Darius Bacon, Greg Burch, K. Eric Drexler, Charles