HCPP20 - DAVID FRIEDMAN - Anarchy Online: A World of Strong Privacy
Channel: Paralelní Polis
Date: 2021-03-27

Public key encryption makes possible a world where much of human interaction is unobservable to anyone but the parties involved and those they choose to reveal it to. One consequence could be to put everything online out of the power of government to control — what you cannot see, you cannot tax or regulate. Whether that is a bug or a feature depends on how well non-governmental mechanisms can replace the useful functions of government, in particular law and contract enforcement. Fortunately, the same technologies that make strong privacy possible also enable mechanisms to enforce agreements based on reputation. 

Reputational enforcement of a contract depends on interested third parties being able to know, at low cost, who violated the contract, in order that it will then be in their interest not in the future to trust the violator. If the information of which party is guilty is too costly, third parties will instead conclude that one of the two parties cannot be trusted but they do not know which so should avoid both, making it no longer in the interest of the victim of the contractual breach to complain about it. 

Digital signatures make it easy to prove to any interested third party that a contract was signed, that it specified an arbitrator, and how the arbitrator ruled. Combine that with a policy of designing contracts to put the opportunity to profit by default on the party with the greatest interest in maintaining his reputation, for instance by terms such as whether payment is made in advance or on performance. If neither party has a reputation to lose, leverage the reputation of someone who does by having each party post a bond in digital cash with a trusted third party. 

Such mechanisms should make it possible to maintain a functioning economy under conditions of online anarchy. 

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David Friedman

David Friedman is an academic economist with a doctorate in physics recently retired from spending the past twenty-three years teaching in a law school. His first book, The Machinery of Freedom: Guide to a Radical Capitalism, was published in 1973 and includes a description of how a society with property rights and without government might function. There as elsewhere, he offers a consequentialist defense of libertarianism.

His most recent non-fiction book is Legal Systems Very Different from Ours,
covering systems from Periclean Athens through modern Amish and Romany. He is also the author of three novels, one commercially published and two self-published, and, with his wife, a self-published medieval and renaissance cookbook and a larger self-published book related to their hobby of historical recreation.

Much of his published work, including journal articles, essays, drafts of
forthcoming work and the full text of several books can be read on his web
page: www.daviddfriedman.com.

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