Re: Why does the state still stand:

James Donald writes a very interesting essay but I want to clarify one
aspect.  Let me quote just the summary:

> So guys, that is the plan:  We destroy the state through higher mathematics.
> We do this by replacing the current institutional mechanisms of corporations
> with cryptographic mechanisms.  This will give more people the opportunity
> to evade and resist taxes.

I think the intention then is to create "fully anonymous" companies.
These would be organizations whose principals and employees are known
only by pseudonyms, even to each other.  Their only contact is
electronic, via an anonymous network.  And the employees are paid in
anonymous ecash, which they don't pay taxes on since it is unreported
income.

These companies produce products or services which they offer for sale
across the net.  They accept payment in ecash, either from end users or
from other companies.

Such companies would be illegal, with everyone involved subject to
criminal penalties for tax evasion (and no doubt a myriad of other
violations).  But because the anonymity is protected cryptographically,
the government is helpless to learn the true identities of anyone
involved.  The companies continue to successfully sell their products
and services, advertising and recruiting openly from anonymous sources,
and there is nothing the government can do about it.

This is, I think, the model we have been talking about for several
years on this list.  There are obvious and non-obvious problems which
many people have brought up over the years.  It is still not clear to
me that it can really work in this form.  Still it will be interesting
to see when someone actually tries to do this, to see how it works.

James mentioned the issue of groupware to allow these people to
coordinate their efforts.  That is an interesting aspect that we haven't
considered much.  One trend which may be relevant is the increase in
telecommuting.  Once people are accustomed to working mostly from home,
interacting with co-workers and management by email, they would be good
candidates for recruitment by the anonymous firm.

It might be interesting to make a list of all the problems people can
think of why this idea won't work, paired with proposed solutions and
workarounds - sort of a mini FAQ for this important (some might say
ultimate) cypherpunk model.

Hal

On Tue, 14 May 1996, Hal wrote:

> It might be interesting to make a list of all the problems people can
> think of why this idea won't work, paired with proposed solutions and
> workarounds - sort of a mini FAQ for this important (some might say
> ultimate) cypherpunk model.

I'll just give one problem: the principal-agent problem.  How do owners of
the company make sure the managers operate the company in their best
interest?

Solution: reputation.  If the managers don't do the right things, the
owners arrange so that the managers lose reputation and won't get hired in
the future.  Unfortunately the science of reputation is not so advanced
that we know this will actually work.

Solution: smart contracts.  This is Nick Szabo's idea of building
contractual obligations into cryptographic protocols so that the parties
have no choice but to fullfil them.  But again we don't know whether this
will actually work for this problem.

A company implies a particular kind of persistent structure, with a
hiearchy of owners, managers, and employees.  It is far from clear to me
that this is the most likely organizational form in an anonymous digital
economy.  One possible alternative is to have no persistent organizations. 
Teams form spontaneously to work on individual projects.  Each individual
member jointly negotiates a contract with every other member, and these
contracts are enforced through some arbitration system. 

I'm not saying this is somehow better than the anonymous company model. 
It has just as many problems for which no easy solutions exist.  I'm just
pointing out that the properties of anonymous relationships differ quite
radically from our current ones, and that these differences may be large
enough so that the social and economic structures in such an anonymous
digital world may not merely be analogs of currently common structures. 

Wei Dai