Commerce and Trust

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     Perhaps because of the highly commercial nature of today's world, none of the protocols we discuss in this section have received nearly the attention in media and policy as new approaches to facilitating payment and commerce. Cryptocurrencies have been one of the focal technologies of the last decade. But only slightly less heralded and far more broadly adopted have been a range of government and other public payments innovations including instant payments technologies using government identities in places like India, Brazil and Singapore, central bank digital currencies (CBDCs), and regulated inter-operable digital payment systems like those used in China. While they are far from universally adopted or inter-operable, a new generation of payment systems are increasingly prevalent in the lives of many people around the globe, making payment in digital spaces increasingly as easy or easier than what cash facilitated in the past.

     Yet, in many ways the relatively rapid success of these efforts is a symptom of what is so disappointing about their progress so far. Cash is perhaps one of the "dumbest" technologies of the pre-digital era: it is a single, homogeneous substances transmitted between roughly anonymous, abstracted accounts. While it has proven far harder to replicate this basic function, and thus recent advances are important, this is not a revolutionary technique enabled by digital technology as, for example, hypertext improved on what had been possible in previous writing. In this chapter we will summarize progress thus far, discuss the limitations of traditional money compared to higher aspirations for commerce online and discuss ways to build on recent advances to allow a more plural vision of digital commerce.

Traditional payments

     While the early history of money has been a subject of a great deal of recent research, to which we will return below, most people associate the idea with currency in the form of tokens or notes that pass from one hand to another and view other forms of money as abstractions of this more basic concept. This form of "money of exchange" dates back to the early civilizations of Babylon, India and China and in the first millennium BC was increasingly based on precious metals like bronze, silver and gold. The durability, scarcity and wide belief in the value of these metals facilitated broad acceptance of them in payment for a range of goods and services.

     Yet none of these properties pertain exclusively to precious metals and their use as currency detracted from more practical applications, whether to weapons, machinery or decorations. This led many societies to move away from direct use of precious metals to other representations of their value that could be made scarce but had no direct use, including commercial receipts, bank notes and government-issued paper that was deemed "legal tender" and thus mandated to be accepted for its face value.

     Closely connected was the development of banks, which held currency and other valuables that they promised to return on demand, using these deposits to fund lending to others. Because banks are rarely simultaneously called on to return the full set of deposits simultaneously, they began to lend out more than they had on deposit, giving rise to a system of "fractional reserve banking" and making banks a source of the creation of new money. While the obvious dangers of a bank run this creates are not a topic we have space to focus on here, they created a natural role for "central banks" to help control this process of money creation and avoid banking collapses.

     By the early twentieth century, the overwhelming majority of money was held as accounts, rather than currency (paper or otherwise). Given its rigid denominations and bulk, currency is only effective for relatively small transactions. In parallel to and arguably earlier than currency, therefore, developed directed transfers between bank accounts with flexible denominations, typically called "cheques" today. By the mid-twentieth century, these had become the dominant (by aggregate value) method of funds transfer. Cheques came and come in a variety of forms, some more reliant on information exchanges across banks and others operating more similarly to cash (unconditional and undirected value transfers).

     Cheques, of course, have familiar disadvantages of being slow to both fill out and clear and being weighty. Beginning in the late nineteenth century, some stores began to issue tokens representing "credit accounts" for regular customers and writers like Edward Bellamy began to imagine a world where all payments could be conducted using one or a few lightweight cards. This vision began to come to fruition in the 1950s and 1960s, when telecommunications systems had developed to the point where merchants, customers and their banks could communicate quickly enough to enable verification of a holder's credentials. This led to the emergence of a range of cards which played differing but related roles and were dominant to different extents across countries, including credit, debit and charge cards. DATA ON HOW DOMINANT THEY BECAME AND WHEN.

     Payment cards only provided a partial replacement for cheques, mostly instead substituting for cash payments. Larger transactions traditionally handled by checks matched poorly with the small value for which payment cards were intended. Seeking alternatives for larger and international transfers, several jursidictions developed "automated clearing houses" (ACHs) for electronic transfers and wires as an alternative to cheques. The most prominent example is the Society for Worldwide Interbank Financial Telecommunications (SWIFT), which by 2018 carried half of all high-value cross-border payments.

     Until roughly the last decade, this constellation covered most transactions. In most of the world, a mix of cash and payments cards were used for small value transactions in physical proximity and wires were used to send money abroad, while larger value transactions flowed primarily over ACHs and to a lesser extent wires and cheques. All of these systems predate the emergence of the internet and none of them match is reach, pace or flexibility: payment cards were traditionally cumbersome and insecure to use online, cash irrelevant and ACHs far too slow (typically 3 days). Unsurprisingly, therefore, Lick, Tim Berners-Lee and others believed a native payment system was one of the core features missing from the early development of the internet. The last decade and a half has seen a variety of attempts to address this lacuna.

Digital money and privacy

     One of the first and the most attention-grabbing of these was the emergence of Bitcoin in 2008 and later a range of other "cryptocurrencies" in the 2010s. These systems used DLTs, like those we discussed in the last chapter, paired with internally generated financial structures to create a validated substrate for tracking transactions. First, instead of an identity system based on accounting for human participants, they used protocols to prove control over some resource (such as "proof of work" protocols based on solving a puzzle that requires access to powerful computers) to protect against predatory participants. This created an effectively financial screen for participation. On the other hand, they rewarded "honest" participants (those whose recording of transactions match others') with "coins" created by including transactions to their own account. The ledger was otherwise openly available to any participant, creating a global, purely financial ledger with pseudonymous accounts that allowed individual people to potentially have many "identities".

     The early success of Bitcoin inspired attention and interest for at least three reasons:

1. It seemed to fill the lacuna in the digital payments space mentioned above, allowing relatively easy cross-border transfers.
2. It was one of the first examples of a large-scale and "important" (carrying real financial consequences) online application without a centralized identity and permissioning system.
3. Because of its financial structure and scarcity, it was possible for the value of the coins to rapidly appreciate, which they did over several stretches in the following 15 years, creating great fortunes, speculation and interest.^[1]

     While many governments and mainstream business actors recognized the importance of the first point, they saw decentralization as largely superfluous or wasteful and the speculation around cryptocurrencies as a frivolous and potentially destabilizing bubble. This spurred a number of efforts to reimagine payment systems for the digital age. The most ambitious efforts were "central bank digital currencies", which have been launched or piloted in dozens of countries, especially in Africa and Asia and are being explored in many others. These most directly respond to the cryptocurrency trend by creating digital, currency-like claims on the central banks.

     Yet while holding and trading of currency has become a defining image for many people in recent decades, the accounts above and below suggest this may be a bit of an anomaly in human history. As highlighted by media scholar Lana Swartz in New Money, commerce has depended more on communication of and the partially local accounting for obligations. It is thus perhaps not terribly surprising that some of the most widely adopted innovations in payments in the last decade have take the form of changes to payments processing and account transfers, rather than the creation of "currency" per se.

     This realization interestingly parallels the development of one of the first major means of online payment, the services of the company that came to be known as PayPal. PayPal was originally conceived by founders Max Levchin, Luke Nosek and Peter Thiel as a new digital currency, but quickly moved to become an internet-compatible payments processor. Following the early growth of Bitcoin, many other private, rapid and low-cost processors entered the market. These included Square and Stripe (targeting businesses) and Venmo (targeting more casual individual-to-individual transactions) all of which were founded in the United States in the years immediately following the launch of Bitcoin. Perhaps even more impressive was the rapid spread of very low-cost social payments in Mainland China through WeChat Pay and in the rest of Asia through Line Pay. These were rapidly followed by a range of similar services facilitated by the largest technology platforms in the West, such as Apple, Amazon and Google.

     Seeking to bring these services at lower cost and more inclusively especially in markets incompletely served by these US and Mainland China-based services, several major developing-world governments have created publicly supported instant payment services, including Singapore's FAST system in 2014, Brazil's Pix system in 2020 and India's Unified Payments Interface in 2022. Even the United States has followed with FedNow in 2023. While there are still significant impediments to international inter-operation, there is an increasing consensus that the immediate gap in making instant payments online and in person through digital channels has been met. This may provide at least a partial explanation for the collapse of valuations in the space as many of these systems came into their own.

     Yet the challenges raised by cryptocurrencies cannot be laid to rest quite so easily, as suggested by the resilience of interest in the space. The decline of cash, heralded by defenders of sanction regimes and battlers against financial criminals like economist Kenneth Rogoff, has been bemoaned by privacy advocates and civil libertarians, who argue that the collapse of private payments will have systemic effects individual users fail to account for when choosing how to pay.[^Priv] The often-touted privacy benefits of Bitcoin have largely proven mostly illusory given that it has become increasingly easy for well-resourced analysts to uncover the controllers of pseudonymous accounts. However, interest in privacy technology has become a primary focus in the space, stimulating the development of highly private currencies like Zcash and "mixer" services like Tornado cash on top of other currencies. These have stimulated a good deal of controversy over the trade-offs between privacy and legal accountability, leading to forceful government actions to shut down various privacy features in some jurisdictions. These conflicts have also been at the root of the challenges achieving seamless international inter-operation for digital payments systems, as countries fight over who can surveil and regulate what activity.

     Many of these challenges arise from the same kinds of misspecification of issues usually labeled "privacy" that we highlighted in our identity chapter. There is wide agreement, on the one hand, that financial transactions should be protected from inappropriate surveillance. On the other hand, there is similarly wide agreement that, with appropriate checks and balances, it should be possible to hold individuals and organizations accountable for facilitating criminal activity. The question of how these can be reconciled is essentially the same as those we addressed in the previous chapter: how can a diversity of informational communities partially inter-operate while maintaining their integrity?

     After all, financial transactions can never been purely private: they always involve several parties and are at least partly detectable by others in a community where the inflow of transactions affects the economic environment. The goal, then, is not privacy as much as it is contextual integrity: ensuring that this information stays within the affected community unless it is having important and widely recognized spillover effects on other communities (precisely what law enforcement is meant to capture). And, if it is, it is the community's responsibility to either ensure their culture is not supporting such externally harmful activity or to defend their right to support it if the external claim is unjust. The essence of plural "checks and balances" is that the communities involved must become partly aware and involved in such external surveillance, rather than it being asymetrically and externally imposed.

     Yet surveillance is only the beginning of responsibilities that communities of various kinds, ranging from lending circles to nations, would have to take on to create such contextually appropriate financial freedom. Little surveillance is mere voyeurism. Instead, it is intended to prevent a range of financial crimes, from fraud to trading with aggressors against international law (sanctions). Beyond such dramatic transgressions, a range of transactions legitimately matter for people other than the transacting parties: sales of drugs and weapons, taking on of unreported debts that burden someone's ability to repay other debts, taxable sales, and much more. All this suggests why the anonymous and unaccountable image of cash and the centralized control by a government of accounts are both insufficient ways to understand a plural system of commercial trust.

History and limits of currency

     Imagining a more plural alternative brings us back to the history of money and why it evolved in the first place. In his account of the institutions, the late anthropological historian David Graeber argues that long before money, societies engaged in a range of mutually beneficial collaboration under norms of reciprocity.^[2] These were rarely quantified in terms of formal "value" and followed a range of logics beyond simple bilateral favor trading. For example, the community services of a hunter for a village or an elder might put the community in general in their "debt", making gifts to them customary. The richness and diversity of these traditions made their quantification unnatural, but also hard to extend beyond the Dunbar number we discussed in the Identity chapter of roughly 150 close associates.

     As collaboration and exchange extended across larger distances, times or groups, quantification and recording of debts owed and value given became necessary to manage the complexity. While it seems that the earliest such accounts attempted to record the specifics of a debt in terms of the good or service offered, this similarly became quickly unmanageable and common units of quantification were used to simplify accounting and produce the first notions of "currency". Media of exchange, bank and their notes and various of the other forms of money we discussed grew as ways of making these accounts more portable. "Credit" thus was more primary than "cash".

     But if currency arose as a simplification to deal with the limits of pre-modern information technology, the natural question is whether one might do much better today. Recording more about transactions and other forms of value creation is not just possible today; it is a routine part of most electronic commerce. Reducing all this to a transfer of money is no longer a necessary simplification, it is a projection of an antiquated historical ritual.

     Nor is the role of money as a solvent in socially long-distance trust particularly relevant today. One of the most common stories economists tell for the advantage of money based exchanges is "the double coincidence of wants": Person A may have something B wants, but the other may not have anything to directly offer in exchange. Money allows them to easily offer goods or services to C, who may have something A wants, without having to assemble the full group. Yet the role of money in avoiding the need for such "trading cycles" is dated: in fact, economists today regularly use "trading cycles" algorithms directly in a variety of contexts without relying on money, given that modern computation makes them cheap to perform.

     Similarly, as we noted in the Identity chapter, it may once have been necessary to offer someone in a distant land a widely valued token, such as gold, instead of a promise to offer a gift in the future, given the low likelihood of a future exchange. Yet such shorthand is far less important today: with everyone within six degrees of social separation and the accounting for relational trust computationally trivial, today it would be almost as easy to harness interpersonal "debts" in chains of relationships directly as to transfer funds.

     A natural question is whether harnessing these new capabilities adds anything meaningful. While we will reserve a detailed discussion of applications of plural commerce and trust to the next part of this book, it is not hard to imagine why such information is important in appropriately allocating the trust and influence that money confers. Someone who has conferred many small benefits across a local community, but interacted little outside of it, and is single has a very different profile of appropriate social favor than someone who is deeply devoted to their family and profession but has few extra-familial social connections in a large city. These two may deserve the same "degree" of social esteem (if quantifying such is even useful), but the esteem is of very different kinds. The former, for example, would be a far more plausible civic or political leader in her community, while the latter would naturally be entitled to professional esteem and a degree of material comfort.

     Furthermore, the very economic theory that us typically used to justify the relevance of money confirms this intuition, when applied to social reality. Under certain well-studied conditions, money held by individuals suffices to track value creation. But these conditions require that all goods are private (everything can be consumed by one individual and others' consuming it prevents them from doing so) and production is "submodular", meaning that combining a group of people or assets produces less than the sum of what they could produce separately (the whole is less than the sum of the parts). If, on the other hand, consumption is at least partly social and production may be super-modular, money is a poor or even hopeless way to keep track of value, because influence given to two people with the same views on collective choices will have equivalent impacts on social decisions. In these cases, we usually instead use the idea of "votes".

     More broadly, in practice, as sociologists have extensively documented, social influence does in practice work in these richer ways. People vote, they gain esteem and authority, develop reputations in a range of contexts, develop positions within fields, etc. Money captures only a tiny portion of these interactions. But, precisely because it does, its use is severely limited and other practices, that are harder to scale and quantify, cause tensions when inter-operating it with it, leading to the common debate over the "corrupting" influence of money. How could we build systems that support the scale and inter-operation of such plural systems of value, influence and trust to support richer collaboration and commerce?

Plural currencies

     While there has been a great deal of excitement about the decentralization of cryptocurrencies, there is an important sense in which any currency that aspires to universality is inherently highly centralized: it creates trust and cooperation by everyone ascribing value to the same thing. A more plural approach can, as in our Identity chapter, follow either a decentralized/polycentric or distributed structure in a way that roughly parallels our ideas there.

     In a polycentric structure, instead of a single universal currency, a variety of communities would have their own currencies which could be used in a limited domain. Examples would be vouchers for housing or schooling, scrip for rides at a fair, or credit at a university for buying food at various vendors. These currencies might partially interoperate: for example, two universities in the same town might allow exchanges between their meal program. But it would be against the rules or perhaps even technically impossible for a holder to sell the community currency for broader currency without community consent. In fact, it was the proliferation of experiments with various currencies, some of them with similar intentions, that inspired then-Bitcoin Magazine writer Vitalik Buterin to conceive Ethereum as a platform for such experimentation, though challenges with secure identities have limited community currency experiments as they make it too easy to sell an account and thus circumvent controls on prohibited transfers.

     Such a community currency played a central role in the creation of this book. We used it to measure contributions and to allow contributors to make collective decisions on prioritizing and approving changes to the text in a manner we will discuss later in this book. However, we did not use some of the most sophisticated potential approaches, harnessing the tools from the last chapter. For example, in the future community currencies might be recorded on contextually integral chains that make it exceptionally hard for currency holders to use the currencies more broadly by making it impossible for them to even show others outside the community how much they hold.

     A distributed approach would go farther than even a large collection of community currencies, replacing currencies entirely with direct representations of interpersonal debt and trust. In such a system, rather than receiving payment for a good or service, people would effectively "call in a favor" from someone who owes one to them. if you need something from someone who does not owe you a favor, you would leverage the principle of six degrees of separation in the network of "favors owed", as discussed in the Identity chapter. Many potential paths of such favors could be calculated and the total amount of "credit" one can get would be computed by classical computer science algorithms for calculating the "maximum flow" (maxflow) that can be flow between two points in a network. While such calculations are obviously impractical for people to make on the fly when they want to buy a coffee, they are trivial for a computer network. Supporting such richer, socially-grounded alternatives to quantifying value primarily through universally fungible currency seems increasingly within reach, with various social currencies (of likes, friends, network centrality, citations, etc.) illustrating first examples of what could become a far richer substrate for future cooperation.

     Of course, this will only be possible with the support of widely adopted protocols, ones that facilitate the formation and validation of community ledgers extending those discussed in the previous chapter and/or ones that facilitate long-distance, networked transmission of trust and "debt" in the way TCP/IP did packets of information. These are the aspirations of open source and internet working committees like the aforementioned Trust Over IP Foundation and start-up ventures like Holochain. Beyond the important work of establishing basic, high-quality digital native payments systems, it is this next generation of truly networked and plural systems of commercial trust systems that can underpin the Plural markets and cooperation we discuss in much of the rest of this book.

Commerce in a plural society

     In particular, establishing trust, credit and value across long social distances lies at the core of both the identity systems we described previously and the systems of contracting and asset use that we focus on in the next chapter. Identity systems are about trusting/credit claims made by someone about a third party. Anyone who accepts an arbitrary number of such claims from someone they do not know well exposes themselves to potentially devastating attacks. On the other hand, accepting some claims about relatively unimportant matters from a less trustworthy source is not too risky. The trust established by a network of verifiers in an identity system is thus quantitative and thus depends on quantification of trust, and consequences for betraying this trust, in networks, precisely the sort of system we described here. At the same time, clearly these systems depend on the technologies of identity and association we developed in the previous chapters, to underpin the definition and information structures of the communities and people who form the network of commercial relationships described here. And, as we will now explore, all are critical to the joint use, contracting over and enterprise harnessing the critical assets of the digital age: computation, storage and data.