Free True Names and the Opening of the Cyberspace Frontier by Vernor Vinge Page A

starters, the systems are not really purely “anonymous.” The ability to use digital signatures and persistent digital pseudonyms, or “true nyms,” means that behaviors can and will be attributed to nyms. Some nyms will establish the reputation of being straight in dealings, others will establish a less savory reputation.
    How does an escrow service (the classical definition of escrow, not the newspeak definition used by the U.S. government for key escrow) survive and prosper? By being in the business of releasing funds when conditions are met, and not otherwise. By not absconding with the funds. In the real world escrow services do quite well because the continuing future revenue stream from their good reputation exceeds what they could get by “burning” any particular customer. Sometimes this involves putting up a bond, which is a kind of secondary escrow.
    Digital escrow services will operate along similar lines, with reputation playing the major role. Also, escrow services can be “pinged” (tested) by lots of small transactions. Inasmuch as digital money is untraceable, lots of small interactions can be used to test the trustworthiness of any bank or escrow service. Brand names, image, and product ratings will be as important in cyberspace as they are today, perhaps more so.
    Private Law
    As noted, virtual communities have their own rules, with usually little involvement of the outside world in the internal operations of the community. In some important examples, the virtual community is explicitly outside the law, as with the Mafia, Triads, and other such “outlaw” or “underworld” organizations—the very names suggest the status vis-à-vis the conventional legal system. For those who think of these groups as essentially criminal and coercive, à la truck hijackings and protection rackets, think also of the market services provided by the Mafia because government has decided to outlaw certain services: gambling, prostitution, high-risk loans, and “recreational” drugs. Since a bookie cannot use the court system to collect on bad debts, he has to use “private justice” systems, e.g., breaking legs. Other virtual communities have equally well developed private legal systems. The killing of informants is one obvious example. (Note that I am not condoning the killing of informants, cheats, whatever. I’m merely noting such examples in the context of this discussion.)
    But more than just “voluntary” interactions are involved: the role of contracts becomes central. And contracts can be enforced in cyberspace. Bonding entities or escrow agents can hold digital money until some service is satisfactorily completed.
    Most interactions in the real world depend more on these reputational effects than on actual enforcement of laws by governments. A “reputable” mail order company, for example, ships products because that’s a more important longterm business for it to be in than ripping off a few customers would be. Just about any bank could, quite easily, forge simplistic withdrawal signatures and claim that a customer had withdrawn his money. That they don’t do such things has a lot more to do with what banks perceive their business to be than with any technological or legal limitations.
    In other words, reputations matter. And in cyberspace, they matter even more than in the outside world, where some people have shown irksome tendencies to declare bankruptcy to escape the obligation of repaying a debt, and then seek the protection of the American legal system, and where honesty, it sometimes seems, is presumed to be something for suckers. Under crypto anarchy, a nym’s reputation is all he has, and honesty once again becomes a valuable trait.
    What form legal structures may take in cyberspace is unclear. But the role of traditional legal structures is likely to diminish, unless governments around the world are