2. Purpose of Law
● Prevent involuntary interactions
● eg. theft, murder, etc
3. Purpose of Law
● Mediate ongoing interactions
● eg. I offer to sell you shirt for $10, you send
me $10, I do not send shirt
4. Types of fraud
● Total
● not sending a product
● Partial
● sending a product with very bad quality
● Visible
● defect is immediately obvious
● Invisible
● defects take months to manifest
● defects have only a small chance of manifesting
● Types of underlying commerce
● Product, one-time service, ongoing service
● Financial service
5. Idea: incentives
● No legal system
● Profit from acting honestly: $3
● Profit from cheating: $10
● Legal system
● Profit from acting honestly: $3
● Profit from cheating: -$40
● Problems
● How to prove fraud (information asymmetry)
● Cost of filing a claim
● Cost of enforcement
6. Cryptoeconomies
● Involuntary interaction
● Violent attack impractical
● Hacking, perhaps practical
● Ongoing interaction
● Fraud more difficult (information is more public)
● Fraud easier (people are anonymous)
● General problems
● Commerce international (enforcement harder)
● Rapidly changing society (harder to set
standards)
8. Solutions
● Know whom you are trusting
● Add disincentive to cheat
● Require collusion to cheat
● Make cheating more visible
● Make cheating impossible
9. Know whom you are trusting
● Idea: if A trusts B, and B trusts C, then C is
more likely to be trustworthy
● Secondary benefit: if C cheats B, C loses
reputation with A too
● Naive implementations vulnerable to sybil
attack, be careful
10. Add disincentive to cheat
● Deposits
● A submits N coins as deposit, if A cheats
then deposit goes to B
● Sacrifices
● A sacrifices N coins to be able to
participate in a system
● Idea: allow reputation to go negative
● Hostages
● A submits N coins as hostage, if A cheats
then coins are destroyed or sent to charity
11. Require collusion to cheat
● Multisig
● Oracles (for data)
● Wallets (for personal security)
● Multisig 2.0
● Withdrawal limits
● Rights of refusal
13. Make cheating impossible
● Factum law
● Idea: the definition of how much money
you have is based on the results of past
contracts
● If you cheat, the system automatically
deducts $X
● Problem: not everything is cryptographically
verifiable
● Computational resources: yes
● Math problem solutions: yes
● Subjective effort: no
● Offline effort: no
16. Benefits
● Cost of enforcement tends to zero
● Scalable (works for both $1
microtransactions and very large trades)
● No barriers to entry, anyone can participate
17. Problems
● How to determine precedents?
● What level of bad quality is actually
fraudulent?
● What are the defaults?
● Network effects
● Only effective if many people using it
● Solution: start in a community