Comment by derefr | Hacker News Reader

Comment by derefr | Hacker News Reader

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> Street markets and retail shops

In cities with police forces. Purchases at street-markets don't devolve into robbery because police forces disincentivize that. The municipality taxes you for that service, and so is effectively a middleman and rent extractor for these transactions.

Also, in cases where you've decided to trade using cash rather than to barter, you're being protected from your counterparty paying with counterfeit currency, by the state coming down rather harshly on counterfeiters, keeping counterfeit currency out of the market. That's a service they provide in exchange for state-level taxes. So, another middleman and rent extractor in your transaction.

> one off websites

When this works, it's because the payment processor (Stripe, PayPal) is acting as the middleman and rent-extractor.

Even without a payment processor, you can usually seek redress from your credit card company (another middleman and rent-extractor.)

Also, a search engine probably acted as a matchmaking agent to lead you to reputable services (and so is also acting as a rent-extractor in a round-about way, with sponsored ads and such.)

Without these parties in play, the Internet is not a safe place to transact. 99.99% of credit card input forms on the internet (by volume) are those of phishing domains. That's what a non-iterated prisoner's dilemma looks like.

Do I read this right - and this is a genuine question, not a rhetorical one - "smart contracts" as tool to not have to rely on the state? Because to me it seems tools like these are exactly the ones that need a strong state (or a strong mafia - when there is no state those with power create one for themselves). I admit I have a hard time understanding what your point actually is.

You read it about half-way right. Smart contracts make the state less involved, but they don't eliminate its involvement in a transaction altogether, any more than regular written contracts eliminate the state from a transaction.

The state, or any actor for that matter, can fill multiple roles in a transaction. Intermediating all transactions is a bad role for any actor to be in (from every other actor's perspective), because it's one prone to rent-extraction. Any time you hand money over to a second party through a third party, humans have enshrined the logic that the third party—if it's big and powerful enough—can demand a cut of that transaction.

In all the cases I mentioned, the rent that is being extracted is a cut of all regular transactions. Sales tax / VAT is rent; credit card fees are rent; payment-processor fees are rent; and all of these are percentages. That is why states, credit card companies, and payment processors all have billion- (or trillion-)dollar budgets.

Imagine we eliminate that intermediation. Transactions flow directly between buyer to seller, with nobody able to take a percentile cut of them. No rent is extracted from the original transaction.

Now, in the case where a transaction doesn't go well, we do still want some actor to arbitrate disputes over a transaction. But, given the way legal systems work, it's entirely possible to do that arbitration after the fact. That is the whole idea of civil court, after all.

Such arbitrations usually result in the need for a recompensatory transaction (i.e. a lien); and such transactions need to be intermediated (i.e. supervised) by a third-party, since the two parties have already proven that they aren't mutually trustworthy. So there is a transaction here from which you probably can't stop rent from being extracted.

But that's okay! Disputes happen very rarely, while regular transactions happen all the time. The total cut of small-claims court, probate court, etc. fees, is way smaller than the total revenue of sales tax. The total amount paid to retain an arbitration service, is way smaller than the total amount earned by operating an escrow service. Etc.

The state is essential! It just doesn't belong between two people. It belongs waiting behind two people, acting as the exception-handler which one or both parties run to to report the transaction as having failed from their perspective. Then the state can step in. Much less work for the state; but also, much less rent to extract.

This thread is fantastic for someone like me who never completely understood the point of smart contracts. Thanks for laying it out so well.

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