From: solman@MIT.EDU
Date: Fri, 22 Jul 94 09:43:15 PDT
To: Mike_Spreitzer.PARC@xerox.com
Subject: Re: "Key Escrow" --- the very idea
In-Reply-To: <94Jul22.085205pdt.14526(9)@alpha.xerox.com>
Message-ID: <9407221642.AA15351@ua.MIT.EDU>
MIME-Version: 1.0
Content-Type: text/plain


> > ...The cost of conducting these negotiations in the
> > physical world is enourmous.
> >
> > The cost of conducting these negotiations in the real world is 
negligible...
> 
> Is "the real world" a typo?  I suspect you mean something like "in
> cyberspace".

:) It is most certainly a typo.

> I'm not familiar with the line of reasoning you're referring to here.  I
> suspect it's a large topic.  Does it rest on the assumption that cyberspace
> and the physical world are largely disjoint?

> I think they're not.  Activities in cyberspace often
> "are about" or "have influence on" the real world.  Sometimes vice versa.
> Doesn't this mean laws can't be divided into those about the physical world
> vs. those about cyberspace, but must in fact be about both?

You are entirely missing my point. The superior efficiency of cyberspace,
its low transaction costs, have created possibilities there that can not
exist in the physical realm.

In both realms people have different wants and desires. Because they interact
with each other, the actions of one individual can have an impact upon the
actions of other individuals. Without any form of social agreement, there
would be no security, no certainty about anything. This can be highly
inefficient. There is no point in starting a big project today, if there
is a high probability that somebody will kill you tomorrow. There is no
point in doing something that other people would find useful if there is
no mechanism for you to exchange it with them for services that you find
useful.

To circumvent this inefficiency, individuals enter into contracts with one
another. A and B might agree not to kill each other. In exchange for giving
up this element of their freedom, they get security. Security has value.
It enables them to undertake long term projects that might otherwise not have
been possible. But a contract like this is not useful without some mechanism
of enforcement, so A and B have to agree to pay for some sort of policeman.
This policeman would receive compensation for enforcing the contract between
A and B.

HERE IS THE DIFFERENCE BETWEEN THE PHYSICAL WORLD AND CYBERSPACE.

In the physical realm, in order for a contract like this to work, large
numbers of people have to be bound to it. This is true for the following
reasons:

A) The number of people bound under the contract must be large enough to make
it unlikely that the policeman can control them or break his contract.

B) Negotiating a contract like this takes alot of time. The compensation for
the policeman has to be determined. The mechanisms for disciplining murderers
(and determining guilt) have to be determined. The mechanisms for enforcing
the contract between the police and the people have to be determined. The
mechanisms for determining how much each person will be required to pay have
to be determined.

This is an extraordinarily inefficient procedure in the physical world. To
deal with this inefficiency we have developed laws. Laws specify that all
sentient individuals within a given area have to agree to a specific contract.
There is no contract negotiation, there is just a contract that automatically
applies and because a substantial majority of the individuals within a given
locality respect the laws, this system works. In fact legal systems are highly
inefficient artifacts in the physical world.

In cyberspace, the two motivations for extending contracts to all
participants (i.e. having uniform laws) are no longer present. Point A
is no longer true. You don't need to have an enforcing policeman whose
power is balanced by the large number of people he protects, cryptography
can take the policeman's place as the contract enforcer. Point B is no
longer valid because the entire negotiation process can be automated by
computer with negligible transaction costs.

Without any motivation for laws, individuals can get their security through
personal contracts with other individuals. If you don't want to worry about
fraud, subscribe to a fraud protection agency that you like. Any individual
agent that wants to make you an offer will have to first be approved by the
fraud protection agency. In exchange for this approval, the agent will pay
the protection agency money and then pass along that cost to consumers that
required the approval. Alternatively, the agent can agree not to violate the
rules of the FPA, and give the FPA a deposit. If the agent screws up, victims
of fraud could collect recompense via the method of adjudication specified
by the FPA. If the agent isn't willing to agree to the fules of the FPA,
then the user and that agent just won't do business. There can be thousands
upon thousands of FPAs in a scheme like this and individual FPAs can offer
all sorts of protection plans.

In the real world a system like this could never be implemented, the cost
of administering it would be too great. How could stores know what standard
of honesty was required for each individual customer if different customers 
lived under different laws? The store has to be notified of the specific
rules governing a specific customer. The store has to pay a tiny amount
to the FPA. It has to be verified that this amount is collected. The store
must then alter its sales strategy for the customer.

This would clearly no work in the real world. If I wanted to buy a 
watermelon slush outside of the Kendal T (something I am about to do)
it would cost me about $200 in transaction costs beyond the $1 for the
slush. This is where the difference lies. It simply becomes feasible to
have individually tailored social contracts once you enter cyberspace.
Individuals with incompatible social contracts simply can't communicate
with one another. You get absolute freedom AND absolute security.

JWS