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markm@eros.cs.jhu.edu
Thu, 3 Jan 2002 00:08:19 -0500
markm 02/01/03 00:08:19
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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>
- <blockquote>
+ <p>The rest of the paper is organized as follows:</p>
+ <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.
+ networks, especially the institutions of title and law. We explain de
+ Soto's program, which we call <i>the governmental path</i>, 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 <i>local knowledge</i> and <i>global transferability</i>.
</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>We propose an alternate jurisdiction-free <i>digital path</i>, 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.</p>
+ <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.
+ In a series of steps, from the basic metaphor of <i>contracts as board
+ games</i>, through the nature of contract-created <i>derivative rights</i>,
+ to <i>compositions of games</i> 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.</p>
<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>
+ the non-coercive digital path address these issues instead? By <i>ratings</i>
+ -- independent estimates of the likelihood that a title listing would
+ be honored; like credit reports for systems of local law. And by <i>video
+ contracts</i> 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. </p>
<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>
+ first in the transition to smart contract mediated global commerce?
+ Because of differences in the nature of <i>legitimacy</i> in these two
+ worlds.<b> </b>Because the first world has already paid the <i>homogenization
+ costs</i> -- it has already lost the diversity the digital path could
+ have preserved. And because the third world lacks a working <i>installed
+ base</i> of law and property, which could lead to the leapfrogging seen
+ with cell phones in Eastern Europe.</p>
+ <p>Besides being first through this transition, the third world's success
+ may cause the first world to follow along.</p>
+ <p><b> 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?
@@ -251,8 +223,8 @@
their reliance on a mutually recognizing backbone of widely trusted intermediary
institutions, or <i>trust hubs</i>. 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 @@
<a href="#Tribble95">Tribble95</a>, <a href="#Rees96">Rees96</a>, <a href="#Miller00">Miller00</a>]
and operating systems [<a href="#Hardy85">Hardy85</a>, <a href="#Shapiro99">Shapiro99</a>]
able to run hostile code safely <i>and flexibly</i>. Describing how existing
- incentives and new technologies <i>could</i> 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 <i>Video Contracts</i> 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