The Pencil, the Brick, and the Law Mark S. Miller CTO, Combex Inc. Open Source Coordinator, ERights.org Director, Extropy Institute Co-Director, Agorics Projects, GMU

Removing the Next Brick

How Many Bricks in This Picture? ?

Next Bricks Past: Free Speech From legal right to technological fact Jurisdiction-free universal “law” Has costs: Destruction of copyright despite universal support of jurisdictional law No one can negotiate compromises Inherently coercionless (J.S. Mill) Vast amplification of extended orientation

What Went Wrong in the 3 rd & former communist worlds? End of communism, desire for capitalism Great liberation from oppression New leaders included many free market folk Vaclav Klaus, Miseans in the Baltics, Poland, etc. $9.3 trillion in “extra-legal” assets Soros, others, eager to help “It is easy to turn an aquarium into fish soup, but not so easy to turn fish soup back into an aquarium.” –Lech Walesa

Low-Trust Societies From Fukuyama, de Soto, E. Dyson Absence of oppression isn’t enough Complex extended cooperation requires trust Besides culture, what? Accumulated “capital” of widely trusted intermediary institutions Secures property, relationships, & contracts

Hubs of High Trust ActualVirtual

Low-Trust Tragedy Not no trust. No trust hubs. ActualVirtual

Hubs: Trusted Intermediaries Title, Insurance, Escrow, Exchanges, Arbitrators, Banks, Notaries, Visa, Underwriters, Lloyd’s, Brokers, Funds, Consumer Reports, Roger Ebert, …, Courts, Law, Enforcement, Money not great, but much better than their absence

Bits Without Borders Can now purchase e-goods & e-services from across the world as easily as next door. Escape old limits of geography & jurisdiction. Can trust-hubs escape too? Can they be made purely electronic? Mostly independent of physical interaction Many 1 st world hubs are trusted worldwide

Remote Trust Bootstrapping 1 st World3 rd World

Smart Contracts Contract as Program Code Terms enforced by program’s execution Inescapable arrangement vs. punishment. Contract host == trusted escrow & enforcer Local knowledge of the “People’s Law” provides private law per-contract Nick Szabo’s Lessig’s “Code and other Laws of Cyberspace” Our “Capability-based Financial Instruments” at FC’00

Contracts as Games Players make moves, but only “legal” ones Move changes state of board Board-state determines move “legality” ERights are “pieces” placed on board Game escrows pieces, Pieces/ERights released only by play

A Simple Exchange Game

Separation of Duties

World Isn’t Purely Electronic Can eTitles establish popular legitimacy? Opens new opportunities Extra-legal: local consensus Incentives on corrupt cops 10/10 th of law Net+Crypto: Jurisdiction Coercionless Incentives on corrupt courts Jurisdictional: public records lawyers, cops Behavior is 9/10 th of law. Split contracts Purely Electronic Rights: (money, stock) Public eTitle in physical goods (tractor, land)

A Covered Call Option

Contracts -> Virtual Property

The Game Design Game Contract Negotiation as Game Design Framework as the Game of Game Design Design rules for game all are willing to play Write “board manager” for that game Agree on a mutually trusted host Pay host to run the board manager Host verifies everyone agreed on same game

Local Knowledge vs Global Transferability Contract Host trusted only to execute games faithfully despite lack of prior knowledge to create transferable title to a game seat “People’s Law” stays in the people’s hands Formalizes de Soto’s “extra-legal” rules, without centralization or Procrustean beds Homogenization only required for fungibility

Next Bricks Future Reach of title-transfer-credibility Extent of Property (vs Territory) Village -> Jurisdiction -> Internet Requires credibility rating service or insurance Cost of operating formally Crushing Bureaucracy -> Lawyers -> Moore's Law Security Mafia protection -> Gov't protection -> Crypto protection

Why the 3 rd World First? Haven't already paid homogenization costs Less burden of installed base Like cell-phones in Eastern Europe. Where legal system isn’t thought legitimate, legitimate businesses need not be legal. Especially given alternate source of legitimacy.

“Rule of Law & Not of Men” The Classical Liberal ideal A neutral simple framework of rules enforced impartially & justly enabling cooperation without vulnerability The old “right of contract” Any mutually acceptable arrangement Law secures it, as a trusted intermediary