In a free society we will use blockchain based reputation systems to promote good actors, and because of this centralized third party intermediaries will cease to exist.

If you think about it, every human interaction has potential for conflict, and as the relational distance between two parties broadens, the potential for conflict grows. The more you know the person you’re interacting with, the easier it is to negotiate, because you have a better chance of intimately understanding the goals and trappings of that person.

For instance if you’re married, the person who you know best and who best knows you is most likely your spouse, and every day the two of you interact dozens of times or more. If your relationship is at least moderately strong, chances are you are able to do so in, if not a loving way, a civil way.

How is this achieved? Well, because the both of you have spent so much time getting to know each other; you share a household, memories, finances, intimacy, and perhaps children, you have earned a tremendous amount of mutual reputation. This reputation causes you to be empathetic with each other. You understand what brings each other joy. You understand what leads to conflict.

So you can use this knowledge to engage each other in ways that maximize respect, sovereignty, compassion, trust, and productivity, and reduce uncertainty and stress. Because of your close relationship, it is massively important that you have a solid reputation in the eyes of your spouse. That drives your motives, and incentivizes you and your spouse to make sure the majority of your interactions are win-win.

What is reputation?

Reputation is the sum of all your interactions with another person in a specific context. For example, if you have a history of calmly talking about finances with your spouse, you can both be reasonably confident that any future financial issues that come up will be discussed calmly. Context is key because it defines the nature of an interaction.

We all value different things, and so the way someone interacts in some contexts matters more to us then how they interact in others. For instance, if you plan on having children, the way your partner interacts with a child now is an important indication of how they will interact with your children in the future. A negative interaction might signal that they are not the right person to be in a relationship with. For you the context “interactions with children” carries more weight than it would with someone not interested in having children.

Circles of trust

There are concentric circles of trust that exist in societies. The people closest to you, perhaps your spouse and children, exist in the innermost circle. These are the people you have built the most reputation with. The next circle contains people who are still deeply close to you — maybe your parents, siblings, and best friends, but the further outward from center, the less reputation you have built with the parties each circle represents. Interactions with people in the furthest circles have the most risk, and that means if you do choose to interact with them you will need systems in place to account for that risk.

For most of human history building reputation was a slow process, and often times there were serious repercussions if you trusted the wrong person. Bad actors will always exist, and to trust one could imperil your livelihood or even your life.

But we are social creatures who need to cooperate with each other in order to survive and thrive. Think about it, no one is an expert at everything, so we must band together to build the best possible outcomes for ourselves, our families, and our communities. For this reason, there has always been a pull between the risk of trusting someone you do not know, and the reward that comes from cooperation. Over time we have figured out ways to limit our exposure to bad actors while maximizing our ability to cooperate. This has been extraordinarily productive for us as a species, but it’s far from ideal.

Reputation organizations

Photo by Julia Caesar

With limited technology people in our past created organizations as intermediaries to help solve the problem of reputation. There are many examples of this, from escrow services, to dispute resolution services, to credit reporting agencies. Even government is no more than an intermediary trying to protect its population from those they consider bad actors.

In our more recent history, the rise of the internet has allowed an exponential growth in ways for humans to collaborate, but it also created more risk because we end up dealing with people outside of our trust spheres. However, we now can easily connect with people all over the world, which is a remarkable achievement towards cooperative building, since it’s the people with the most differences in experiences that can offer skills and insights the people in our circles of trust most likely cannot.

People who are the most different from you, may have the most unique perspective relative to you, and perhaps can offer tools, knowledge, and products you would never even consider. But while interactions with people farthest away from your trust center might provide the greatest reward, they definitely come with the most risk.

To counter this risk, companies were created to act as intermediaries between parties who don’t know each other, and therefore have no reputation built between each other.

These companies provide a platform for users to find each other, communicate, and transact value, and because of this users separated by distance and culture can securely interact. The idea is, if the users trust the intermediary, they do not have to trust each other.

This is quite obviously very valuable, as some of the largest companies in the world are simply intermediaries. Companies like Amazon and Uber, who act as intermediaries in commerce interactions are worth billions each. And companies like Facebook and Twitter, who act as intermediaries in information interactions are also worth many billions. Then there are banks and governments. These types of centralized intermediaries affect the most people globally.

So you see, reputation matters. A lot. It’s clear that companies and states who offer reputation protections provide a valuable service. When humans are safe to interact and exchange, they create amazing things together, and by removing the risk of intervention by bad actors, humans can feel safe to reach out beyond their nearest circles of trust.

But organizing this way has costs. Third party intermediaries, while effective to a certain extent, create unintended costs for users, and I group these costs into two categories: practical and philosophical.

The practical costs of third party intermediaries

In order to solve the issue or reputation, intermediaries like Amazon and Uber create significant infrastructure. In an online world this means hard costs like servers and buildings to house them, and soft costs like employee salaries and benefits, and payment processing. This ends up costing these organizations a lot of money, which in turn gets passed down to the end user.

For instance, each Uber ride costs the user upwards of 30% of each transaction. Amazon is a bit better, but users will still pay around 15% or more. The cost to create and run the infrastructure of a third party intermediary is very high, and users bear the brunt.

The second practical cost has to do with personal security. Centralized companies like the ones I mentioned above as well as state actors, all require a certain amount of sensitive user data in order to provide their services. They use identifying information to prove that users are who they say they are, and have what they say they have. For example, Amazon might need your banking information, address, social security number, business ID, date of birth, and more, and in return for knowing it they vouch for your character. They use the same information to vouch for the character of anyone you decide to do business with.

In a pre-blockchain world, these were necessary evils. The upside of being able to do business with billions of people around the world was worth giving up a bit of privacy. However, privacy isn’t the only concern. Data is valuable, and because these organizations hold a ton of data in central locations, they become targets for hackers looking to profit from stolen information.

The more information they store, the more of a target they are, and EVERYONE gets hacked eventually. Your information has likely been stolen a few times already, from Anthem, Target, Equifax, or any number of other large companies. They all lose their battle with hackers. It’s only a matter of time.

The philosophical cost of third party intermediaries

The financial and privacy costs of using centralized third parties are quite large, but in my opinion the philosophical cost is more interesting to ponder. If a third party is allowed to have authority to grant or refuse reputation to the people involved in an interaction, ultimately that third party intermediary can prevent the interaction from happening. The third party intermediary has all the power, while the transacting parties have traded their power for security.

As an example, even if a buyer and seller on Amazon both agree to a deal (which means they vouch for each other), Amazon has the authority to veto it. This is true every time. If Facebook or Twitter doesn’t approve of how you interact with your peers, they can kick you off or censor you, even though individual users have the ability to unfriend and block people they don’t want to associate with. If banks, credit cards, or payment processors take action against a person or organization they don’t like, they can prevent that person or organization from surviving.

The same is true with government actors. If a law exists prohibiting an interaction from occurring, regardless of whether both parties want it to happen, the state can take steps towards preventing it.

In my opinion, any voluntary interaction should be able to occur. If two people want to exchange value, be it knowledge, goods, or services, as long as the exchange is consensual, no one should prevent it from happening. But while reputation is controlled by centralized third party actors, voluntary interactions will be prevented. States can also effectively cancel a person’s identity by revoking residency, or even denying SWIFT access, so that a person can no longer operate in the global financial system.

The answer is blockchain technology

In Swarm City we are building a platform that allows people to find each other, communicate, and exchange value in a decentralized way. People will be able to build marketplaces, and form communities of like-minded individuals. For example, users will create their own buy/sell marketplace like Amazon, and communities of retailers will form to provide products in that marketplace. And drivers will band together as communities to provide services in rideshare marketplaces.

The Swarm City platform is decentralized because, although individual marketplaces and communities will be able to disallow certain members, or certain transactions to an extent, the Swarm City platform itself cannot censor interactions. And what’s even more critical, the Swarm City platform cannot prohibit any marketplace, or community from forming.

This allows communities to build naturally around like-minded values, and any voluntary interaction may take place. This is a novel approach to organizing, and I believe it will have tremendous impact on how humans exchange value.

However, what makes Swarm City truly revolutionary is the idea of “tokenizing” reputation, which means applying reputation to a blockchain. In my opinion, if you break Swarm City down to its primary function, at its core you’ll find a blockchain based reputation system.

(Photo by Juan ignacio Tapia)

Reputation on the blockchain

Every interaction in Swarm City takes place in a marketplace. We use hashtags to signify a marketplace — for example #needaride might be a rideshare marketplace, and #needtobuy might be a retail marketplace. When people successfully trade value in a marketplace by exchanging a product, service, or information, each party earns reputation tokens for that marketplace.

A marketplace is powered by a smart contract which can do all sorts of things like act as an escrow service, but its most powerful ability is generating non-spendable reputation tokens for every successful interaction. Also, each smart contract is unique to each marketplace, which means the reputation tokens they create are contextually unique to the type of transaction that occurs there.

These tokens get affixed to the user’s public key, are non-transferable, and live in perpetuity on the Ethereum blockchain. So when a user is deciding whether or not to interact with another user, they can see how much reputation that user has earned. It’s public and irrefutable, but just as important, it shows in which marketplaces that user has earned their reputation, which provides context to their reputation. For instance, a user may have thousands of reputation in #needaride as a driver, so it’s highly likely they can be trusted over someone with no driver rep in #needaride.

But perhaps that same driver with no #needaride reputation does have plenty of #NHRideshare driver rep and charges considerably less for their rides. The reason they don’t have any #needaride rep is simply because they haven’t participated in that marketplace yet, but they are clearly a reputable rideshare driver. Riders have all this context to ponder when deciding who to interact with. And so do drivers.

Riders earn their own unique reputation tokens, and this will let drivers know if their potential rider is a good actor. This is the power of blockchain based reputation. It gives immutable, public, contextual information about anyone you’re considering interacting with. Also, since reputation exists on a distributed ledger, it can follow a person from location to location. A rideshare driver doesn’t need to start from zero reputation in a new location if they use the same marketplace to give rides.

Voluntary societies

A free society is a voluntary one, where individuals may interact in any consensual way they choose. But for a free society to work optimally, it must have tools to solve the issue of reputation. Prosperity comes from interacting outside of your most trusted circles, because the pool of human ingenuity transcends the bounds of your close relationships. Genius exists everywhere, and it would be foolish to not seek it out. However, we must protect ourselves from bad actors. That is why blockchain based reputation is so critical. It gives us all the rewards of interacting with people we don’t know by providing irrefutable reputation, without the risks that come with using centralized third party intermediaries.