Ian Grigg and Vinay Gupta “Mattereum, Chamapesa and dispute resolution”

Vinay Gupta (CEO of Mattereum) and Ian Grigg (Principal Architect of Chamapesa, Chief Scientist of Mattereum) in a fascinating talk about social structures of agreements, trust and dispute resolution, and the way Ricardian systems can be created to support it.
The video and transcript can be found below.


Vinay: So, Mattereum, ChamaPesa, and dispute resolution.

Ian: Very interesting nexus, yes.

Vinay: I probably ought to give the nickel summary of what Mattereum does, which is people come to us and say, “Hey, we’ve got this property right that we want to move around using blockchain,” and we say, “Hmm,” and we look at the law, we look at their business logic, we construct legal contracts which express the thing they want to do, and then we take a part of the legal contract and render it as a smart contract. Obviously you’re taking your chances trying to enforce that in a court, so then it binds to a set of arbitrators, that’s the complete Ricardian system, and the entire thing is based very consciously on a craft mode of production, rather than attempting premature automation.

Ian: Yes.

Vinay: That’s what we do — very, very skilled, very, very manual. And then the hope is that that process produces a bunch of large-scale template contracts that are used for 25 blockchain companies, all of which are doing transfer of physical goods, they might as well use the same underlying contract in the model of for example ISDA, where everybody in the derivatives industry uses the same contracts, you get interoperability but also amortisation of technical costs. Our business model in a nutshell.

Ian: There you go.

Vinay: So, you come along with the ChamaPesa thing, our model of dispute resolution is radically too expensive for that…

Ian: Yes indeed.

Vinay: Because we’re there to be the kind of top level “Oh my god, it’s screwed up and there are millions of dollars at risk!” catchers, and we are well-engineered for that, but we are not well-engineered for the small stuff, and you’re dealing with tens of thousands of dollars, max. How are you going to do it?

Ian: Yes, it’s interesting. Before I say that, there’s a thought in my mind. I think what’s happening here is that if you look at say the blockchain industry, the cypherpunks and the financial cryptographers, we’ve come along and we’ve said, “Well, we can invent this concept called contracts, we can digitise contracts, whether we do it Ricardian or smart or a hybrid of the two… No particular issue, we can do this thing.” What we’ve then got is a set of, shall we say, very strong assets, but what we don’t have is any way to deal with it when the machine breaks down.

Vinay: Yeah, absolutely. Trent McConaghy has an excellent phrase for this, he says, “The happy path is pure digital, and the unhappy path manual and complicated.”

Ian: Is pure manual — yes, that’s right. Whereas when we get to Africa and Kenya and so forth, it’s kind of the reverse. They do actually have their ways to solve this problem out, in the sense that they work within very small groups and so forth. But their ability to digitise or even capture the asset in any sense is very poor, in the sense that basically they’re working with paper books, the paper books are only valuable within the context of a chama, you can’t take the paper book to a bank and get a mortgage, because the bank will look at that and say, “What is this Mickey Mouse thing that you’re bringing to us?”

Vinay: Oh, that’s interesting. So the chama social structure anchors the recordkeeping. It’s not running on sovereign authority; it’s running on basically community authority.

Ian: Yes, that’s right. They create the community within the chama, and that is what gives authority to the paperwork.

Vinay: Oh, this is fascinating. One of the other things I’m doing is working with a guy called Dan Bates on a thing called ImpactPPA, and Dan’s thing is basically blockchain-based municipal services. What they’re doing is power: windmills, solar panels, batteries and a microgrid in a kind of hub-and-spoke configuration, and the sort of analysis is that basically most of the early work on blockchain was competing with state services: they wanted to issue currency, which is a nation state level thing, and a huge amount of the previous generation of blockchain mindset is focused on this idea that you’re providing the same services as the state.

Ian: The mindset if you like, yes.

Vinay: The concept of operations.

Ian: Yes.

Vinay: So then if you refocus on the municipal level, it all actually makes a ton more sense. Because municipalism is basically about how do you pay for real stuff, and the scope is way more contained and it’s much easier to see the cause-and-effect relationships.

Ian: Right. And you also have local competition, in that you can see two counties next to each other nominally under the same system, but one is doing much better than the other.

Vinay: Yep. And similarly the chama thing: what you have is a community-level mandate to the blockchain, rather than a sort of sovereign level mandate to the blockchain.

Ian: Yes.

Vinay: It’s a much more legally contained, intelligible use of the technology, rather than this kind of “We’re going to issue a new global currency, we’re the central bank of the Internet,” thing, which is the Bitcoin mindset.

Ian: Yeah, you have a very small feedback loop, so when it goes wrong, you stop. Whereas if you’re talking about the state level thing, when it goes wrong, you double down.

Vinay: And it just rolls and rolls and rolls.

Ian: And it rolls and rolls and rolls until we’re all roadkill.

Vinay: Do you think we’ll see 100k Bitcoin this year?

Ian: [laughs]

Vinay: Anyway, moving swiftly on…

Ian: Indeed — as it will be, if it does that. So, coming back to the ChamaPesa and the way that they do dispute resolution, they have the same problem that everybody else in Africa or Latin America has, or some parts of Asia, that the courts are both unreliable at the macro scale, at the large scale dispute resolution process, because they are corruptible, if you like, the frequent complaint is that the court case goes to the one who pays the biggest bribe. Now, whether that’s true or not who can say, without trying it.

Vinay: But that’s the theory.

Ian: That’s the perception. And the other thing is that they’re totally inaccessible to people on $2 a day. You do not get to resolve a dispute, if you’re not a relatively well-off person, because you can’t afford to talk to a lawyer, and you can’t afford to even necessarily make the trip to the courthouse, or file the first brief, or…

Vinay: You literally just can’t get into the system.

Ian: You can’t, it’s completely shut out for you. So, the locals have a very strong sense of community, and they also have — if not in practice, but certainly within their minds or their memories — the notion of tribal elders. Consequently, there’s always somebody you can go to if you need to resolve a dispute, there’s always a sense that we could do this or we could do that, etc.

Vinay: So the chama is basically constituted on the community’s cooperative agreement, and then that comes with a shared model of dispute resolution, so that’s coming baked into the social tier, and they’re already using that on paper.

Ian: Yes, but it’s not explicit. The sense there is that when we started talking about arbitration and dispute resolution as a formal process, they all automatically understood it, but they hadn’t experienced it in such a formal fashion before.

Vinay: So as things are, things just are sort of getting hashed out.

Ian: In the sense that they worry about their disputes when they happen, and they don’t have this contractual sense, where in your contract you write a clause that refers to dispute resolution to a particular forum, which is what we in the West do customarily. They would not do that, because in a sense they don’t have a forum where they can take their disputes, so they don’t bother to imagine it upfront.

Vinay: Right.

Ian: However, if you come to them with a forum that works, they’re quite happy to adopt it, because they know the existing forum isn’t for them. So we found it was actually extraordinarily easy, in comparison to the West. Selling Western communities on arbitration is a hard one, it’s really hard.

Vinay: Because they think they’ve got access to the courts already.

Ian: Yes, and they think their courts will protect them and they think that their courts will look after them. Now, that can’t possibly be true, because when you go to court, one party has to lose and one party has to win, so somebody is not going to be protected. [laughs]

Vinay: Yes, yes. Chris Wray talks about this, that upfront everybody wants the most severe possible sanction, because they never imagine they’ll be the one on the receiving end.

Ian: That’s right — yes, exactly. There’s this very big perception that our courts are good, especially if you go to… The larger the country gets, the more the belief in their own legal system. So explaining how to do dispute resolution at a community level is very hard in the West, it’s a hard sell.

Vinay: Yep. Because in a sense that was system that we kind of migrated away from hundreds of years ago. I’m thinking of the old days, I don’t know whether this is true or not, but where the jury was the first 12 men that came out of church that morning.

Ian: Something like that, yes — there’s always practices that we’ve gradually got away from. If you go back into the old days, the court was, for example, a franchise and somebody owned the franchise, and the executioner was a franchise and somebody owned the job of executing, that was their income. We got away from that system, we went to a more state-oriented model, because that was thought to be more independent and standards could improve, which it does in many respects, in many places.

Vinay: It’s relatively uniform justice. It has roughly the same error rate at all tiers, not that the small claim stuff is junk and the high level stuff is pretty good. To a fair degree, it’s got about the same error rate, regardless of the size of case.

Ian: Yes.

Vinay: Which is not bad, it’s an achievement. But, doesn’t help you in Kenya.

Ian: Doesn’t help us in Kenya. So, in Kenya we found it a relatively easy sell to put in place an arbitration framework. Now, the thing that will be immediately striking to the Western mind is how can they possibly afford arbitration. The answer is you use them to provide the arbitrators, you get the communities themselves to provide an arbitrator. When we did it in practice, we simply chose the president of the chama to be one arbitrator and I was chosen to be the other arbitrator, so there were two arbitrators in a chama of 30 people.

Now, the next thing of course is that if you do get into some sort of violent debate about funds have been stolen or whatever, our chama might not be able to adjudicate that. So we can go to the next chama and pull the arbitrator from there, use that person, who is now independent, to listen to the sides and come up with a determination.

Vinay: And you could go as far out across that social graph as you need to, until you hit somebody that everybody agrees is independent.

Ian: Yes.

Vinay: That’s fantastic.

Ian: Yes. That’s sort of where we’re aiming for in the future; we’re obviously not there by any stretch of the imagination. Part of being in the community is that you have to provide jury service, but in this case arbitral service, so that at some stage you might think, “I’m happily doing my stuff,” but suddenly you get called upon to be an arbitrator.

Vinay: Right, right — you drop everything, because something has gone wrong.

Ian: Yes, yes. That’s what being part of a community is, you have to support the community when it gets into trouble.

Vinay: Right, right. And this is part of the responsibility that people take on in the initial contractual arrangement.

Ian: Yes, yes.

Vinay: In the standard context, the fit process is that you have a business process represented by a legal contract, and then you fit the software to the legal contract, basically.

Ian: If you like.

Vinay: In this instance, the business process is not implemented as a clean set of business logic; it’s a community process that has a whole bunch of underlying social capital concerns. You kind of have an underlying community structure to which the business process is fitted, and then the contract is fitted into that business process and the underlying community structure.

Ian: Yes, in the sense that the contract is coming last, and is capturing and getting more refined about this notion of what it is that’s happening, yes.

Vinay: Right. Because it’s binding to an already living system.

Ian: Yes.

Vinay: This is the critical thing, that in a Western business context there is, generally speaking, no underlying living system that is transacting before the contracts are in place. Generally speaking, people might agree that there’s going to be a deal, but stuff doesn’t start happening until the paperwork is done, and our lawyers generally enforce that pretty strictly.

Ian: If you’re in that frame of mind, yes.

Vinay: If you’re in that frame of mind.

Ian: Yes.

Vinay: So, the notion then is that the software is fitted to the paperwork, and the paperwork is fitted to the business process, but none of it really interacts with any kind of fundamental social structure. What we have is a much longer bridge between the cryptography and the thing, because the thing is even one or two more steps less mechanistic than contract law.

Ian: Yes, yes.

Vinay: Yeah, I do like your challenges.

Ian: [laughs] And that is one of the key things which is now emerging, and it’s something we worked out back in 2000 or so: to make this work, to make it work properly, you have to start from the community aspect, or, more precisely, you have to start from the communication aspect. The starting point for building this process is not digital cash; it’s actually digital chat, in the sense that you want to build your community around messaging. We message back and forth, and you just think, “We’re going to organise next week’s chama meeting,” what is that? It’s a series of messages going back and forth, and on top of that you build your digital cash system or your digital asset system.

Vinay: Right, okay. So this is quite similar to the thinking inside of status, economic space agency, lots of folks are coming to this convergence idea, that the money passes along the conversational channel.

Ian: Yes, exactly.

Vinay: I think even Google might have turned on a payment rail in their chat app.

Ian: Well, everybody is doing it now, but the idea has been around for a long time. I first wrote about it in 2000 or so, I actually figured it out in 2000.

Vinay: This is the traditional Ian Grigg 15-year lag, isn’t it? [laughter] “A generation ago I told you exactly how this ought to be done!”

Ian: 15 years of pain, yes. Skype was sold to eBay for that purpose. eBay were having trouble with their PayPal unit, so they thought, “Why don’t we put it into a cryptographically secure framework,” and remember, Skype in the mid-2000s was the word in security.

Vinay: Absolutely, absolutely.

Ian: Now, if you take Skype and you take the messaging, you’ve got secure and reliable delivery of messaging… How hard is it to stick a cash in that? That’s what they wanted to do, but they didn’t… But that’s another story.

Vinay: Which leaves this enormous, wide open space…

Ian: Yes, yes.

Vinay: Okay. So, we have the governance in the form of the community appoints a dispute resolution agent in that environment, you’ve got the chat logs which tell people what was promised and what was sent and who was going to do what…

Ian: Exactly. And all of this has got at least some solid cryptographic backing to it.

Vinay: Right, right. And there’s an evidence chain in there…

Ian: Yeah.

Vinay: Okay. This all seems like it’s circling around something, which is of course identity. How do we know who’s who inside of this system?

Ian: Well, it turns out that one’s a solved issue.

Vinay: It is?

Ian: Oh yes.

Vinay: Phone numbers?

Ian: The community knows everybody. When you form a chama, you only form it with people you know very well.

Vinay: Right, because money is on the table in a low-trust environment.

Ian: That’s right, exactly. The community has identity already wrapped up; the only thing they’ve got to do is record it, in some fashion. Now, it turns out to be pretty trivial in Kenya, the rule is you have to have a sufficient details of the Kenya ID, so if there’s a government issued ID, you’re done. And because a chama is a very light-scale thing, we’re not talking KYC or AML or anything like that; this is just a savings club, so we don’t actually need to do very much, they have this very lightweight rule. But actually, you can go a lot further. Because of course you can’t take the Kenya ID or a passport or whatever, you can’t just sort of distribute it willy-nilly outside the chama, but what you can do is capture information about who is there and you can make a summary record. The chama itself can become an authority.

Vinay: Say a little more about that. You somehow have almost like voting inside of the chama on who’s who? Say a little more, I didn’t quite understand that part.

Ian: The desire that, certainly in the West, people have about identity is that they want to go to some institution, like a government or a corporation or an Uber driver or something like that, and present some thing that suddenly makes it all good.

Vinay: Yeah, absolutely. This notion that you have a hard identity credential, you bang your passport on the table, and there are no further questions about who you are.

Ian: The default or the knee-jerk answer to that is you bang your passport on the table, and now everything is hunky-dory. But actually, that doesn’t really measure up in terms of risk analysis. Because if I put down a passport from one country and you’re from another country… What happens if we break a deal for $1,000 or something like that? Are you going to pursue me to another country? It doesn’t work.

Vinay: You’re outside the records bubble.

Ian: Yeah. In fact, even if you think about the process in the local community, a court case at the local magistrates’ court is going to cost you $1,000. What’s happening is that the identity document has become an expectation, but it’s not actually delivering the trust or recourse that you want.

Vinay: Because you think it’s a promise of enforcement, and it’s actually not. “Even if we know who this guy is, we’re not going to do anything.”

Ian: And you can take it to the extreme. If you talk about say the Germans or the Swiss or something like that: my name is my bond, if you’ve presented your name and a passport, that’s it, they will act very well. But if you go to South America or places in India and so forth and you get somebody’s name, is that going to be much use to you? Probably not, especially if they spot you as a foreigner… So, the issue is not the identity; the issue is how do I get recourse for something going wrong. Coming back to the chamas, we all know who everybody is in the chamas. If I can present to you a fairly good indication that I come from a particular chama, and that chama is in the network…

Vinay: So the chama is the namespace.

Ian: Yes.

Vinay: You are Bob of truck chama, this is Helen of farm chama, this is Fred of weaving chama or whatever they are, and you have this namespace so the people are connected… Which is probably exactly what they did in villages.

Ian: It is. Bob Smith is Bob the smithy, literally, and Bob from that particular village. That’s how it was done in the old days.

Vinay: Yeah, absolutely.

Ian: So, if I come to you and I give you credible evidence — phones, crypto and so forth — that I’m of a particular chama, and you know the chama is in the network, you now know that you can go for recourse.

Vinay: And this is kind of community-level DNS.

Ian: Yes, and you don’t need to know my name.

Vinay: And the chama has a bunch of assets.

Ian: Exactly, skin in the game.

Vinay: Somebody comes and represents themselves as being from a particular chama, the chama has authorised them to use that credential, they go to another chama to rent a truck, buy a truck, whatever it is they’re doing…

Ian: Do some trade, do some business…

Vinay: Gets done, something goes wrong, and you go to the chama and say, “Hey, this person that you warranted, this person has gone with my truck…” and investigations to proceed.

Ian: Yes. And now we’ve got people, we’ve got assets, we’ve got evidence, etc.

Vinay: You begin to build accountability, and presumably if somebody doesn’t honour the warrants, black mark against the chama as a whole, which impacts their ability of trade.

Ian: Yes, and we did all that without your identity.

Vinay: Yep, yep. Do you know Matthew Schutte of Holochain?

Ian: No, I’m afraid not.

Vinay: He is a big, big advocate of what he calls discretionary enforcement. He says there is basically two ways that you can punish people who misbehave: the first is to go around and take their stuff, the other is to not give them more stuff in the future, sanction the past or sanction the future. If you just refuse trade, that in itself is sanction, if it’s comprehensive enough. He’s got this whole model that this stuff worked inside of the small village level, but it doesn’t scale because we don’t have the right machinery, and he thinks Holochain is that machinery. I have my doubts about how the Holochain is that machinery, but his analysis is very strong.

Ian: Right. And a whole lot of stuff actually does work inside the village and then stops working outside the village.

Vinay: The magic Dunbar’s number.

Ian: Exactly. That’s why chamas are that number, because they’re limited by Dunbar’s number.

Vinay: This is the universal thing: in informal systems of enforcement, you’re always going to hit this hard limit, which is how much space do you have to remember who’s in your good books and who’s in your bad books.

Ian: That’s right. But if we can do that at the chama level, if I could be part of a chama, and that chama’s good word is now put at risk, now I start to behave, because it’s my chama, and the amount of skin in the game that I have when I represent my chama, when I represent myself as coming from my chama, is very high.

Vinay: Right, right. You’re wedged between the people you’re doing business with and the people that you’re representing, in the way that theoretically causes straight deals.

Ian: Yes.

Vinay: So really, the hope here is you basically engineer a transition from a low-trust society to a high-trust society using crypto.

Ian: Yes.

Vinay: Which would presumably double the economic efficiency of their economy or something crazy?

Ian: It would add percentage points to the economy, just like M-Pesa did. M-Pesa did that, because it enabled one leg of the trade to move reliably and seamlessly from person to person. Before M-Pesa, what would happen is you take an envelope, stick cash in it, hand it to a driver of a matatu, the matatu would drive half an hour or an hour, even 10 hours sometimes, get to the other end, hand the envelope to a tuk-tuk, a bike guy, and he would take it the next leg, to the supplier.

Vinay: Cash by post.

Ian: Well, cash by informal network, informal transport network, not even by post. It was unreliable, and you can imagine the arguments that would happen when it disappeared or didn’t get there, etc. The only reason it worked, it turns out — so we are told, I hope they correct us on this — the only reason it work was because the matatus are owned by chamas, and the matatu driver was now representing the chama in carrying the envelope to the supplier.

Vinay: So the chama had always been the fundamental trust structure.

Ian: Yes, yes.

Vinay: So, taking existing social structures, reinforcing the existing local social structures with crypto so that the internal credentials could be used externally.

Ian: Yes, that’s the solution.

Vinay: Wow, okay. Let me run over that again, because that’s very complex, new thinking. I think a lot of people watching this would just be like, “What did he say?” So, informal trust structures at about a 30-person scale which are already handling funds on behalf of their members, so in a sense they are like a regulated financial body would be here, but they’re being warranted by their community rather than being warranted by their state.

Ian: Yes, yes.

Vinay: You have a system of financial agency. This person is the financial agent of this other 30 people, and if they misbehave, we will get punished. Then that structure, traditionally not that fungible, because if you don’t know those people already, you don’t know how whether Fred is actually from that chama or not, because the chama doesn’t have an easy way of extending credentials.

Ian: Exactly.

Vinay: So you add a digital credentialing system which takes the pre-existing trust structure and makes it easy to extend the trust in a geographical sense.

Ian: Yes.

Vinay: That then enables what?

Ian: It enables commerce, in the sense that you can now safely deal with a chama on the other side of the country without having met them before.

Vinay: So you get Ricardian advantage, you can trade with people that are less like you, which means that you’ve got more advantage from trade. You’ve got tons and tons and tons of rice, they’ve got tons and tons of wheat because they’re at the other end of the country, whereas all your neighbours are also growing rice. The further people are across the social graph, the more likely it is the trade will be commercially useful, but the harder it is to perform; you bring that barrier down, and everybody could trade simultaneously.

Ian: Exactly.

Vinay: Wow — this is amazing!

Ian: And the interesting thing is that everything we’re building is improving everybody’s lot, it’s not taking away from anybody…

Vinay: The scope here is similar in horizon to things like microfinance, but without the injection of capital. It’s kind of solving the same problems that microfinance was supposed to solve, but microfinance has been a bit of a mixed bag, because it turns out that credit is dangerous.

Ian: Well, it turns out that if you go there as the rich white capital provider and inject in rich white capital models, they don’t work. If you try and flatten the local people into your way of thinking… Sitting in Boston or Silicon Valley, it worked on the board, but then you go there and they look at you and say, “Actually, I’m just going to take the money,” so the big problem that happened with microfinance was it slid into loan sharking.

Vinay: Yes, absolutely.

Ian: And the reason for that was because once you’ve got too many people involved, somebody was going to rise up and start abusing the system, because they were bringing in a system which was constructed along Western, approximately reliable lines, and now we’re moving into Africa where the reliability bar slips down, the trust bar comes down.

Vinay: Yeah, and the systems just don’t scale down.

Ian: They don’t scale down — yes, yes.

Vinay: And this is not that surprising, right? If you take any system and you multiply the error rate by a factor of 10, it will fall apart.

Ian: It will fall apart, absolutely.

Vinay: There are systems which can function at that error rate, but they look completely different from…

Ian: They are differently constructed, that’s right.

Vinay: An example of this is what happens if you take a London-style business practices as and try them in Switzerland. Similarly, if you take London-style business practices and try them in Italy, and it’s a failure in either direction.

Ian: Yes, that’s right.

Vinay: The Swiss have this assumption that the thing is done when it’s done. The Londoners have this assumption that the thing is done when about 80–90% done… “It’s 80–90%, something like that… It’s good enough, we’ll figure out the details.” The Italians are like, “We met, we had dinner, we like each other, it’s done.” That question of when is the deal done… The Dutch have a super complicated way of deciding when things are done, super complicated, almost incomprehensibly complicated by London standards, which is why the Dutch can do seven-party deals, they’re really specialised in large-scale, multiparty deal-making, whereas the London approach is like two people at a time, maybe three in a pinch. All of those conceptual models of what it looks like when the thing is done are tied to different social models of trust.

Ian: Yes. So when you take your social model and you go to somewhere like Africa, you can’t conceive of what’s going on, so you don’t see it, you’re blinded to it.

Vinay: Yeah, absolutely. All of this cultural stuff is invisible. I picked it up a bit from having parents from different races, but that kind of bridging of worlds… The constant confusion inside of my family unit about the meaning of even simple words was not because both parties didn’t understand English perfectly, but because these concepts were backing up onto completely different frameworks.

Ian: Yes, exactly.

Vinay: Obligation, promise: these are words which in a Western context would mean thing and in an Indian context they’d bind onto total different semantic structure, and it’s almost impossible to communicate across those barriers. Words like “Oh,” how strong a word is that? If you’re in Switzerland, that’s a very different word from in Ireland. Even if it’s all in English… The underlying cultural constructs are so different. So you’re basically taking a bunch of crypto, and wrapping it around a cultural construct that you think is a better fit for crypto than a lot of the stuff we’re doing here?

Ian: I think so. Because the thing that struck me was that there are many, many chamas, and that’s fantastic, that’s lots of fun.

Vinay: Literally, there must be hundreds of thousands…

Ian: There’s a million or so. There’s 300,000 that are registered, and below that there’s another three times that which are unregistered, which are basically hobby clubs, we would call them clubs or hobbies, hobby groups. So you’re talking about a million, and therefore you’re talking about a million assets, which means a million Ricardian contracts. Now, you try and do that with ERC20s.

Vinay: Oh, that’s not happening anytime soon.

Ian: No.

Vinay: No, really no.

Ian: No. But you can do it with a properly-constructed Ricardian system, because of the nature of the hashing and the parameterisation, and the software which can easily deal with that.

Vinay: Yes. Because in this instance, you are doing the blockchain thing of having many, many copies. Here the many is 30-something, rather than 400,000 and then it’s a global system; it’s 30-something and it’s a local system, and the value at risk is compartmentalised.

Ian: That’s right. In terms of where does it all break down, you’ve got a chama, which is a very cohesive unit, and that in there has one Ricardian contract which is managed by the software.

Vinay: And the balance here between the social structure and the technical structure is completely different from the Bitcoin ideology. The Bitcoin ideology is more or less 80–90% tech and 10% “Will you accept Bitcoin for payment?” whereas this system, almost all the heavy infrastructure is the already existing social practices, and it’s basically like adding a telephone or adding a fax machine or adding email; you’re just adding enough crypto that the existing social structure becomes more effective.

Ian: Yes. All we’re really doing, at some level, is replacing their paper books, and as long as everything else that they do is the same, it should work, it should be happy.

Vinay: As well as it works now, which is 40% of their GDP.

Ian: Right.

Vinay: Yeah. There is something really interesting here, and I want to try and tease this out. The typical way that people design crypto is that they, generally speaking, start with a clearly defined business process running on the standard rules of Western business, as close as they could get it, and then within that structure there are a set of algorithms that are used to represent different parts of those processes. We think of digital signatures as being identical to wet ink on paper, and we try as far as possible to use them that way.

Ian: That’s right, yes.

Vinay: But the digital signature is not wet ink on paper; it’s got a different set of properties…

Ian: It’s amazingly different. It’s crazy that people would even think of doing that!

Vinay: So then in this chama context, you take a different social structure, you fit the cryptography to that social structure, and at that point the digital signature is not being interpreted as the equivalent to wet ink on paper; the digital signature is now equivalent to meeting somebody in a cafe and having them personally recommend somebody to you, something like that.

Ian: Yes, right.

Vinay: Same technical artefacts, but different representation of what the signature indicates, different indication of what the ledger indicates. It’s literally indigenising the technology.

Ian: Yes, yes. Now we’re starting to get a bit deeper. One of the things that we’ve been doing, and this goes back to what CAcert were doing, and that goes back to what PGP was doing and so forth, you remember the old PGP web of trust thing… That didn’t really work out, ever, at all, and one of the reasons was that the signature over somebody’s key didn’t carry any meaning and there was no standardisation. Different schools thought it meant one thing and other people thought it meant another thing, and these things did not mesh.

Vinay: Because there was no semantics.

Ian: There was no semantics, at all.

Vinay: Just to clarify what that means, literally you just have an email address with a digital signature on it, and there was no sense that you could add any additional information to that transaction to tell people what you meant when you signed it. It was a completely naked artefact, around which social structures came. This, by the way, is why I love SPKI, because SPKI had rich semantics for talking about what signatures meant, but nobody ever used it.

Ian: But nobody ever used it, yes. PKI comes along and creates this semantic structure called a CPS and so forth and so on, which gives you a sense of where to go. Now, they didn’t solve it, and the reason they didn’t solve it was because they mucked up the liability, the CAs never took on the liability, so therefore you got this race to the bottom in terms of quality.

Vinay: Again, we’ve got to specify what this is. We’re talking about the things from which you buy your HTTPS certificate which gives you the padlock on your website. The process is you take a bunch of money, you take your corporate documents, you go and see an entity called a certificate authority, they check your documents and then they give you the certificate. But because you’re paying them, they’re incentivised to give you the certificate, rather than check the documents really carefully and figure out that you’re a scammer, and this results in things like a fake certificate being issued for microsoft.com.

Ian: Yes, and many, many other examples of difficulty. So the system didn’t deliver enough value to be useful for people, it didn’t work out. Now, CAcert comes along and tries to do it property, so it sets up assurers all the way around the world, we had something like 6,000 assurers, but we had to answer that question of what happens when it goes wrong, who pays the cost of what happens when it goes wrong.

Vinay: The liability landscape.

Ian: The liability question. And the CAs avoided that, because what they basically said was, “You suffer, you pay for when it goes wrong, we’re out of it, we have these contracts protecting us.” But because CAcert was a community, it wasn’t possible for us to say, “You pay it,” because you is us. We can’t dump the liability on ourselves, it doesn’t work. We had to find an answer, and the answer was arbitration, in that we added the clause in and everybody came in under arbitration, and if a certificate were to ever fail, we had this mechanism by which we say, “File a dispute, and the arbitrator will tell us what to do case by case,” so we got the answer, that’s how you solve the liability question.

But CAcert was too narrowly focused, what it was trying to do was this whole CA thing, but that didn’t quite work out. But what it did do, and the funny thing was, and nobody expected this, when arbitration went into place, a lot of the people in the community started to behave a lot more maturely. You used to have this normal Internet geekery thing going on, and what happened then was that there would be arguments on the Net, like there are in Twitter today. When the arbitration process came in, people backed off from that and stopped being nasty to each other.

Vinay: Really?

Ian: Yes, and they started to be more professional about the work they did, more careful.

Vinay: Is this because having an actual sanction in the system meant that people were no long jockeying for position so hard?

Ian: It meant that people had consequences, they had skin in the game. It meant that if they got out of line… Previously there were no consequences, you could go out there and slander somebody and call them some terrible name, and it didn’t matter.

Vinay: But you had a dispute mechanism, so if somebody did something which was outrageous…

Ian: Then you could be called to account. You might get away with it, but the fact that you have to stand up in front of an arbitrator and say, “When I called this guy a complete and utter dickhead, I didn’t really mean it, I was speaking rhetorically,” but you have to say that. So people got a lot more mature.

Vinay: That’s fascinating — wow, could the Internet use a slice of that!

Ian: Exactly. That allowed the whole organisation to lift its game to the next level in professionalism. But the other thing that happened was we pretty much nailed down what the nature of the certificate was. The nature of the certificate, and this is where we come back to the chamas, the certificate basically said not who you were… Yes, it said that, but that wasn’t the important part. What it said was, “This person is a member of the CAcert community,” and therefore you have recourse.

Vinay: So CAcert changed the semantics of the HTTPS certificate, to use it not just as an indicator hard identity but as an indicator that there was a chain of accountability attached to it.

Ian: Exactly, yes.

Vinay: I had never understood that about CAcert.

Ian: And that was the secret, and that lifted us, as a community, up to the next level of professionalism. Now we go and apply that technique to the chamas in Africa, they have that trust structure right there; what they have difficulty in is the ability to export that to anywhere useful.

Vinay: See, this is the whole intellectual history thing, this is why the depth of these conversations is so important: the realisation you had at CAcert was that you were binding the accountability to the identity.

Ian: Yes, in the sense that the CA job was to put something into a certificate. People were saying, “You should put the identity in there,” and we kind of drifted away and said, “No, no. We put the accountability in there, and that’s the part we keep reliable.”

Vinay: Yeah, absolutely. Similarly, you come into the chama context, the identity is not the important thing; the important thing is the accountability, and the certificate is being used to indicate a different thing.

Ian: Yes, yes.

Vinay: This is very, very much the same kind of approach we’re taking with the Identity Insurance Consortium, only they’re…

Ian: It’s similar, in the sense that you have to concentrate on the accountability, not the name.

Vinay: Yeah, in this instance about recourse. Accountability is “Bob did something wrong, we can go after Bob.” In this instance, it’s “We don’t know who Bob was, because turned out to be a ghost, but at least we’ve got insurance,” and it’s that same thing of what people want… They don’t really care who you are; they want to know whether or not they’ll be made whole if something goes wrong.

Ian: That’s exactly what the problem is. And this has struck the whole identity industry, they’re all looking around at the identity, saying, “We have to make that bigger and smarter and better,” but that’s not the problem, it was never the problem. The problem is: what happens when it goes wrong?

Vinay: Yeah. Rob has a lovely analysis of how credit cards work, and he points out that it’s actually about five or six different services bound into a package, and we use them in different contexts, different parts of that package. But almost all of our digital systems, the signature only means a single thing, it’s not a bundle, and the unbundled things are often too weak to actually do the transaction. You need quite a complex set of interlocking services before you can actually get trade to occur.

Ian: Right.

Vinay: Well, this has been extremely interesting. I feel we ought to do a three-hour version of one of these maybe a little closer to launch…

Ian: [laughs] Yes.

Vinay: Fantastic — Ian, thank you!

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