Coinbase and the Smartydom Affect
“Trust, like taste, is a subjective judgement requiring mental effort.” Nick Szabo, Trusted Third Parties are Security Holes, 2001.
Earlier in the paper, written some seven years prior to the Bitcoin white paper, Szabo makes the observation modern institutions and companies connect untrusting strangers into a common network upon which the economy depends.
Later, Szabo speaks of a “very big win” for a new context such as e-commerce to find a protocol without requirement for costly and risky third parties: Szabo argues for reducing mental transaction costs, which set a minimum granularity on micropayments.
It has become an obvious conclusion to link Szabo to the Satoshi Nakamoto identity — something Szabo denies — when we take the first line of Bitcoin: A Peer to Peer Electronic Cash System:
“Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.” Satoshi Nakamoto, 2008
The Rise of Smartydom
Szabo evolved the concept of “smart contracts” so that coded rules — a kind of de facto law — can run between strangers on the internet without need for intermediation.
In Trusted Third Parties are Security Holes, Szabo remarks making the functionality of personal property dependent on trusted third parties as unacceptable.
Into the present day, this has morphed into a phrase synonymous with cypherpunks and “maximalists” that unless you own your private keys, it’s not your Bitcoin, which in turn has scaled in quasi-ideological fashion:
The implication is, legacy contracts are dumb by comparison, because of the mental transaction costs they entail. This in turn leads to a suspicion of exchanges and that crypto assets shouldn’t be left on them.
The Social Context of Coinbase
“The ambition to become the next Visa or Verisign is a power trip that’s hard to refuse.” Nick Szabo, Trusted Third Parties are Security Holes, 2001.
Coinbase describes itself as a company in hypergrowth and as the easiest place to buy and sell cryptocurrency. People use Coinbase because they can trade quickly and because they trust it: Coinbase has overcome the mental transaction costs as a barrier to entry with its customers.
On the Nature of Contracts
It has been remarked all contracts are verbalised: whether they are written down or whether they run on code, they’re still in need of translation. In this light, Szabo makes the admission of unscrambling the terminology.
The contract between Coinbase and its users is based toward trustworthy price discovery of a new kind of asset — cryptocurrency. Without a dollar or other sovereign translation, it’s difficult to ascribe an actual value to the coins that trade on exchange.
If the value itself of this new asset form is essentially found in removing trusted third parties, the concepts which emerge in Nietzsche’s Genealogy of Morals are still relevant: the law creates subjects by making [subjects] capable of obeying it. Inversely, this take us from the idea of an enforceable promise, to the nature of a memory instilling promise itself.
That if we are having to trust the software and the code — and the writers of the code — then what kind of promise is being made and how does it scale?
