Reputation is the basis of trust and failure to keep promises could damage a reputation and increase everyone’s cost of doing business

"Organizing higher-order communities on top of the law of the jungle depends upon trust. Without trust, contracts become much more expensive to document and enforce. In low trust environments many transactions are not even possible because the cost of creating a contract is greater than the value of the transaction. Reputation is the basis of trust and failure to keep promises will damage reputation and increase everyone’s cost of doing business.

In societies where 99% of the people you meet can be “trusted by default” things prosper. In societies where you can only trust your friends and family things stagnate. Extensive reliance on a community peace treaty to enforce promises in contracts is already a sign that trust is decaying. In an ideal world, reputation would be highly valued and therefore trust is so high that written promises are only required to remind the parties of the agreement. In such a society everyone takes the non-recourse risk that the other party will default. Loans are made without liens being filed at the courthouse. Doors are left unlocked and children play in the streets.

We should not attempt to replace trust with contracts nor enforce promises by courts assessing subjective damages. Ambiguous evaluation of contracts breaks down trust in the peace treaty (government) itself and yields too much subjective and undemocratic power to the courts. That said, smart contracts and community courts are a necessary background upon which trust can be built. The more predictable court rulings become the less time people spend fighting in court and the more quickly people settle things among themselves. Predictable court rulings require a philosophy of contract that is equally predictable.

Judgments on smart contracts are either payable or the other party is subject to criminal theft.

A true democracy should facilitate people working together and building trust. The consequence of defaulting on promises is a loss of trust. We must all take personal responsibility in determining who to trust and bearing the cost of misplacing our trust. If we allow promise based contracts to be enforced with the full jungle power of the community then we introduce moral hazard at the most fundamental level. We allow one person to take the risk of trusting someone and expect everyone else to bear the cost of enforcing the collection of damages when that trust was misplaced. The consequence of this is to cause members of society to grant trust to people who do not deserve it. This is because people aren’t trusting each other, they are trusting the illusion of an enforceable contract. Never do business with someone you do not trust. If trust is lacking, then a smart contract is how a community should document an enforceable contract. If a contractual promise is broken, then your only recourse should be to warn others about the breach."

Author: Daniel Larimer

Source: https://moreequalanimals.com/assets/MoreEqualAnimals-1.15.2021.pdf