The Cyphernomicon

15. Reputations and Credentials

15.1. copyright
THE CYPHERNOMICON: Cypherpunks FAQ and More, Version 0.666,
1994-09-10, Copyright Timothy C. May. All rights reserved.
See the detailed disclaimer. Use short sections under «fair
use» provisions, with appropriate credit, but don’t put your
name on my words.

15.2. SUMMARY: Reputations and Credentials
15.2.1. Main Points

• «a man’s word is his bond»
• reputations matter
• the expectation of future interaction/business is crucial
  15.2.2. Connections to Other Sections
• see section on Crypto Anarchy for why reputations matter
  15.2.3. Where to Find Additional Information
• very little published on this
• Bruce Benson’s «The Enterprise of Law»
  15.2.4. Miscellaneous Comments
• this is another «transition» chapter, laying the groundwork
  for Crypto Anarchy

15.3. The Nature of Reputations
15.3.1. The claim by many of us that «reputations» will take care of
many problems in crypto anarchic markets is disputed by some
(notably Eric Hughes). To be sure, it will not be a trivial
issue. Institutions take years or decades to evolve.
15.3.2. However, think of how often we use reputations: friends,
books, movies, restaurants, etc
15.3.3. Reputations and other institutions will take time to evolve.
Saying «the market will talke care of things» may be true,
but this may take time. The «invisible hand» doesn’t
necessarily move swiftly.
15.3.4. «What are ‘reputations’ and why are they so important?»

• a vague concept related to degree of believability, of
  trust, etc.
• «we know it when we see it»
  • (sorry for the cop out, but I don’t have a good
    definition handy….James Donald says studying reputatons
    is «nominalist hot air» [1994-09-02], but I think it’s
    quite important)
• obvious, in ordinary life, but in the cyberspatial context
  • reputation-based systems
  • escrow, expectations
  • «reputation capital»
  • like book or music recommendations
  • web of trust (is different than just «trust»—tensor,
    rather than scalar)
• Actually very common: how most of us deal with our friends, our enemies, the books we read, the restaurants we frequent, etc.
  • we mentally downcheck and upcheck on the basis of
    experience; we learn
• Are there examples?
• Eric’s objections
  15.3.5. «How are reputations acquired, ruined, transferred, etc.?»
• First, reputations are not «owned» by the person to whom they are attached by others
  • the algebra is tricky…maybe Eric Hughes or one of the
    other pure math types can help straighten out the
    «calculus of reputations»
  • reputations are not symmetric: just because Alice
    esteems Bob does mean the reverse is so
  • reputations are not transitive, though they are
    partially transitive: if Alice esteems Bob and Bob
    esteems Charles, this may cause Alice to be somewhat
    more esteemful of Charles.
  • a tensor matrix?
  • a graph?
• Any holder of a reputation can «spend» some of his reputation capital
  • in praise or criticism of another agent
  • in reviews (think of Siskel and Ebert «spending» some of
    their reputation capital in the praise of a movie, and
    how their own reptutations will go up and down as a
    function of many things, including especially how much
    the viewing audience agrees with them)
    15.3.6. «Are they foolproof? Are all the questions answered?»
• Of course not.
• And Eric Hughes has in the past said that too much
  importance is being invested in this idea of reputations,
  though many or even most of us (who comment on the matter)
  clearly think otherwise.
• In any case, much more study is needed. Hal Finney and I
  have debated this a couple of times (first on the
  Extropians list, then a couple or more times on the
  Cypherpunks list), and we are mostly in agreement that this
  area is very promising and is deserving of much more
  thought–and even experimentation. (One of my interests in
  crypto simulations, in «protocol ecologies,» is to simulate
  agents which play games involving reputations, spoofing,
  transfers of reputations, etc.)
  15.3.7. Reputations have many aspects
• the trading firm which runs others people’s money is probably less «reputable» in an important sense than the trading firm in which partners have their own personal fortunes riding….or at least I know which one I’d trust!
  • (But how to guarantee one isn’t being fooled, by a spoof,
    a sham? Hard to say. Perhaps the «encrypted open books»
    protocol Eric Hughes is working on will be of use here.)

15.4. Reputations, Institutions

15.5. Reputation-Based Systems and Agoric Open Systems
15.5.1. Evolutionary systems and markets

• markets, emergent order, Hayek, connectionism
  • many related ideas…spontaneous order, self interest,
    agents, etc.
  • a critique of «blind rationalism»
  • or hyperrationalism, the idea that a form model can
    always be found
• order can develop even in anonymous systems, provding
  certain types of contacts are established, certain other
  things
  15.5.2. shell games…who knows what?
  15.5.3. key is that would-be «burners» must never know when they are
  actually being tested
• with devastating effects if they burn the tester
• example: how to guarantee (to some degree of certainty) that an anonymous bank is not renegging (or whatever)?
  • e.g., a Swiss bank that denies knowledge of an account
  • key is that bank never know when a withdrawal is just a
    test (and these tests may be done frequently)
• the importance of repeat business
  15.5.4. another key: repeat business….when the gains from burning
  someone are greater than the expected future business…..
  15.5.5. reputations are what keep CA systems from degenerating into
  flamefests
• digital pseudonyms mean a trail is left, kill files can be
  used, and people will take care about what they say
• and the systems will not be truly anonymous: some people
  will see the same other people, allowing the development of
  histories and continued interactions (recall that in cases
  where no future interaction is exected, rudeness and
  flaming creeps in)
• «Rumormonger» at Apple (and elsewhere) always degenerates into flames and crudities, says Johann Strandberg
  • but this is what reputations will partly offset
    15.5.6. «brilliant pennies» scam
    15.5.7. «reputation float» is how money can be pulled out of the
    future value of a reputation
    15.5.8. Reputation-based systems and repeat business
• reputations matter…this is the main basis of our economic system
  • repeat business….people stop doing business with those
    they don’t trust, or who mistreat them, or those who just
    don’t seem to be reputable
  • and even in centrally-controlled systems, reputations
    matter (can’t force people to undertake some relations)
• credit ratings (even for pseudonyms) matter
• escrow agents, bonding, etc.
• criminal systems still rely on reputations and even on
  honor
• ironically, it is often in cases where there are
  restrictions on choice that the advantages of reputations
  are lost, as when the government bans discrimination,
  limits choice, or insists on determining who can do
  business with who
• Repeat business is the most important aspect
  • granularity of transactions, cash flow, game-theoretic
    analysis of advantages of «defecting»
  • anytime a transaction has a value that is very large
    (compared to expected future profits from transactions,
    or on absolute basis), watch out
  • ideally, a series of smaller transactions are more
    conducive to fair trading…for example, if one gets a
    bad meal at a restaurant, one avoids that restaurant in
    the future, rather than suing (even though one can claim
    to have been «damaged»)
  • issues of contract as well

15.6. Reputations and Evolutionary Game Theory
15.6.1. game of «chicken,» where gaining a rep as tough guy, or king
of the hill, can head off many future challenges (and hence
aid in survival, differential reproduction)

15.7. Positive Reputations
15.7.1. better than negative reputations, because neg reps can be
discarded by pseudonym holdes (neg reps are like allowing a
credit card to be used then abandoned with a debt on it)
15.7.2. «reputation capital»

15.8. Practical Examples
15.8.1. «Are there any actual examples of software-mediated
reputation systems?»

• credit databases…positive and negative reputations
  15.8.2. Absent laws which ban strong crypto (and such laws are
  themselves nearly unenforceable), it will be essentially
  impossible to stop anonymous transactions and purely
  reputation-based systems.
• For example, Pr0duct Cypher and Sue D. Nym will be able to
  use private channels of their own choosing (possibly using
  anonymous pools, etc.) to communicate and arrange deals. If
  some form of digital cash exists, they will even be able to
  transfer this cash. (If not, barter of informations,
  whatever.)
• So, the issues raised by Hal Finney and others, expressing
  doubts about the adequacy of reputation capital as a
  building block (and good concerns they are, by the way),
  become moot. Society cannot stop willing participants from
  using reputation and anonymity. This is a major theme of
  crypto anarchy: the bypassing of convention by willing
  participants.
• If Alice and Bob don’t care that their physical identies are unknown to each other, why should we care? That is, why should society step in and try to ban this arrangement?
  • they won’t be using «our» court systems, so that’s not an
    issue (and longer term, PPLs will take the place of
    courts, many of us feel)
  • only if Alice and Bob are counting on society, on third
    parties to the transaction, to do certain things, can
    society make a claim to be involved
  • (A main reason to try to ban anonymity will be to stop
    «bad» activities, which is a separate issue; banning of
    «bad» activity is usually pointless, and leads to
    repressive states. But I digress.)
    15.8.3. Part of the «phase change»: people opt out of the permission-
    slip society via strong crypto, making their own decisions on
    who to trust, who to deal with, who to make financial
    arrangements with
• example: credit rating agencies that are not traceable, not prosecutable in any court…people deal with them only if they think they are getting value for their money
  • no silly rules that credit rating data can «only» go back
    some arbitrary number of years (7, in U.S.)…no silly
    rules about how certain bankruptcies «can’t» be
    considered, how one’s record is to be «cleared» if
    conditions are met, etc.
  • rather, all data are considered….customer decides how
    to weight the data…(if a customer is too persnickety
    about past lapsed bills, or a bad debt many years in the
    past, he’ll find himself never lending any money, so the
    «invisible hand» of the free market will tend to correct
    such overzealousnesses)
• data havens, credit havens, etc. (often called «offshore data havens,» as the current way to do this would be to locate in Caymans, Isle of Man, etc.)
  • but clearly they can be «offshore in cyberspace»
    (anonymous links, etc.)

15.9. Credentials and Reputations
15.9.1. debate about credentials vs. reputations

• James Donald, Hal Finney, etc.
• (insert details of debate here)
  15.9.2. Credentials are not as important as many people seem to think
• «Permisssion slips» for various behaviors: drinking age,
  admission to movie theaters, business licenses, licenses to
  drive taxicabs, to read palms (yes, here in Santa Cruz one
  must have a palm-reading license, separate from the normal
  «business license»)
• Such credentials often are inappropriate extensions of state power into matters which only parents should handle
  • underage drinking? Not my problem! Don’t force bars to be
    babysitters.
  • underage viewing of movies? Ditto, even more so.
    15.9.3. Proving possession of some credential

15.10. Fraud and False Accusations
15.10.1. «What if someone makes a false accusation?»

• one’s belief in an assertion is an emergent phenomenon
• assertion does not equal proof
  • (even «proof» is variable, too)
• false claims eventually reflect on false claimant
  15.10.2. Scams, Ponzi Schemes, and Oceania
• Scams in cyberspace will abound
  • anonymous systems will worsen the situaion in some ways,
    but perhaps help in other ways
  • certainly there is the risk of losing one’s electronic
    cash very quickly and irretrievably (it’s pretty far gone
    once it’s passed through several remailers)
  • conpersons (can’t say «con men» anymore!) will be there,
    too
• Many of you will recall the hype about «Oceania,» a proposed independent nation to be built on concrete pontoons, or somesuch. People were encouraged to send in donations. Apparently the scheme/scam collapsed:
  • «It turned out to all be a scam, actually. The key
    people involved, Eric Kline and Chuck Geshlieder,
    allegedly had a scheme set up where they repeatedly paid
    themselves out of all of the proceeds.» [anonymous post,
    altp.privacy, (reprint of Scott A. Kjar post on
    Compuserve), 1994-07-28]
  • or was it Eric Klein?

15.11. Loose Ends
15.11.1. Selective disclosure of truth

• More euphemestic than «lying.»
• Consider how we react when someone asks us about something
  we consider overly personal, while a friend or loved one
  may routinely ask such questions.
• Is «personal» the real issue? Or is that we understand
  truth is a commodity with value, to be given out for
  something in return?
• At one extreme, the person who casually and consistently
  lies earns a poor reputation–anyone encountering them is
  never certain if the truth is being told. At the other
  extreme, the «always honest» person essentially gives too
  much away, revealing preferences, plans, and ideas without
  consideration.
• I’m all for secrets–and lies, when needed. I believe in
  selective disclosure of the truth, because the truth
  carries value and need not be «given away» to anyone who
  asks.
  15.11.2. Crytography allows virtual networks to arrange by
  cryptographic collusion certain goals. Beyond just the
  standard «cell» system, it allows arrrangements, plans, and
  execution.
• collecting money to have someone killed is an example,
  albeit a distasteful one

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