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[markm@eros.cs.jhu.edu]

markm       02/01/06 18:55:28

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         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 
+        so is the "real" contract -- the game is only a lighter weight 
         approximation for typical non-disputed cases.</p>
+      <p>Another form of split would be by layers. Whereas the logic of a mortgage 
+        game may be fully automated, the rights being put up as collateral are 
+        limited to those held by the original property holder according to the 
+        governing village's law. The contracts needed to represent these latter 
+        may often remain mostly non-automated. In Figure 7, contract host #1 would 
+        provide Fred as well with the text or video, and the identity of the agreed 
+        arbiter. Fred would then take these into account as well in assessing 
+        the value of Alice's chair. </p>
+      <h3><a name="capture"></a>Regulatory Capture <i>vs.</i> Regulatory Arbitrage</h3>
+      <div align="center"></div>
+      <p>Well before the Net, the growth of widely trusted large scale institutions 
+        in the West -- the partial concentration of economic activity into the 
+        backbone -- made possible the rise of the large regulatory state. This 
+        concentration, despite its benefits, also dramatically lowered the cost 
+        of regulation, as there were far fewer places in the network that needed 
+        monitoring. These concentrations made economic activities of various sorts 
+        subject to <i>regulatory capture</i>.</p>
+      <p>Although the Net has allowed the consumers of electronic goods and services 
+        to escape limitations of geography and jurisdiction, but has so far not 
+        provided the same escape for producers, especially those with worldwide 
+        name recognition. These remain tied to some government, and subject to 
+        its decrees. </p>
+      <p>On de Soto's governmental path, the informals come to be dependent on 
+        the integrity of their own governments, in danger of local regulatory 
+        capture. On the digital path, by having their contracts rely on the trustworthiness 
+        of first world trust hubs, haven't we just transfered this vulnerability 
+        from their own governments to those of the first world, over which they 
+        have even less influence? </p>
+      <div align="center"> 
+        <table cellpadding="12">
+          <tr> 
+            <td> 
+              <p align="center"><i>The Net treats censorship as damage and routes 
+                around it.</i></p>
+              <p align="right"><i>--John Gilmore</i></p>
+            </td>
+          </tr>
+        </table>
+      </div>
+      <p>The nature of the dangers depends on the nature of the architecture. 
+        The architectures in which the first generation of electronic media were 
+        deployed -- radio and television -- amplified censorship and diminished 
+        free speech. The Net has dramatically turned this around, creating actual 
+        rights of free speech vastly in excess of even the best constitutional 
+        attempts. Might a decent architecture for distributed smart contracting 
+        treat regulation as damage and route around it? </p>
+      <p>The most powerful answer is already implicit in the architecture of the 
+        digital path -- a diversity contract hosts, spread across competing jurisdictions, 
+        themselves competing to establish a reputation for operating honestly. 
+        Any one government going bad would endanger many contracts, but will cause 
+        a flight of business towards climates expected to remain freer. This dynamic 
+        is already seen for international money flows.</p>
+      <p><i>Fault tolerant computing</i> studies how to build reliable systems 
+        from unreliable components. Because of the dangers of regulatory capture, 
+        an actual first-world contract host can be seen as an unreliable component. 
+        From a set of these we may build a reliable virtual contract host in a 
+        variety of ways. For example, we can use a <i>voting protocol</i> in which 
+        a <i>quorum</i> of, let's say, 5 out of 7 actual contract hosts have to 
+        agree on an outcome in order for the issuers to honor the outcome.</p>
       <h3></h3>
       <h1><a name="thirdfirst"></a>Why the Third World First?</h1>
       <p>This new world of Net-based jurisdiction-free coercionless smart contracting