To: dgcchat@
Subject: [dgc.chat] Ivan the Honourable 
Date: Sun, 24 Nov 2002 23:54:37 -0500 (EST)
From: iang at systemics dot com (Ian Grigg)

"Aren't you defaming that poor Issuer of gold?" asks some
nosy parker, acting as my conscious.

"Well, no, I ..." I start to respond, and then wonder
more deeply at this question.  Is it possible?

If it were so, it is deeply troubling!  That I know, for
my own sense of justice says that ... well, what does it
say?

Amongst the extant cases currently trolling through the
gold economy (between 1 and 5, depending on how you count
them) one *could* say that a few spicy defamation cases
would liven things up.  So let's look at the case in the
hypothetical.

Herein discussed, the strategy of Defamation, launched
by our wounded Issuer against, well, unknown or unnamed
defamers.

( A brief digression:  In financially cryptic convention,
we name Ivan as an Issuer, and hence, he's a he.  Alice
is our favourite user, hence, she is female.  She thus
enjoys the title of primary or first defamer.  Not
all critics and defamers are female, as Alice is well
assisted by those incomparable whingers and whiners Bob,
Carol and Dave, thus saving me from endless meaningless
complaints from that class of oxygen thieves known as the
politically correct. )

What can our insulted Ivan do, in practice?  Well, he
can write a complaint of defamation (a snap for a lawyer)
and the file it (cheap, even).

But, where?  If Alice were to reside outside Ivan's
country, where would he to file his complaint?  Alice's
country?

( Considering where some of these Issuers are located,
this is an interesting point.  Does Nevis even have a
defamation law to help e-gold sue its detractors?  What
do the jovial Bahamians think about such things, if we
are talking about goldmoney?  We hear talk of an Issuer
in Panama, and another in NZ, or, Vanuatu, even.  Where
are these places?  What languages do they resolve
dispute in?  Can the evil Alice be tracked down, perhaps
even Norieged and hailed into court with black bag and
handcuffs to show as evidence? )



Let's gloss over these boring practicalities and cut to
the chase.  I still find myself mighty troubled.

An Issuer complaining of insults, damage to reputation,
etc, et al, ad nauseum, and at great length, as any
filing surely will?

It doesn't quite ring.  Indeed, it clunks with the sick
sound of bad advice or a bad American legal soap opera.

To see why this doesn't work, we have to go back to the
business model of the Issuer of gold bricks as digital
value.  Consider the very foundation of this business:
Ivan grabs some gold bars, and saves them somewhere safe.

Then, a digital accounting system is offered to allow
users to move their bits of the gold from one to another.
(I know of a fine one, if your appetite is whetted :)

That's it.  In a nutshell.  End of story, finito.

The trouble that arises, however, is the incredible
trust that users rely upon when assuming their bars are
there.  Many a fraud has been conducted on such faith,
and a couple of Issuers have recently even come to bad
ends (whether intentionally or by accident or mis-
adventure remains to be seen).

Alice, Bob and Carol have a vested, necessary and
continual need to know that their bars are there.
Ivan has a continual and unavoidable need to fight off
potential thefts of the bars, and also the glittering
temptation of internal re-allocation to his own account
in Switzerland, Brazil or wherever the fraudsters hide
out these days.

(Australia is my own recommendation.  It has a very
nice lifestyle. and as long as you are good with snags
and matches, you are wont to be forgiven a poor education
in numeracy and other writings.)

The bars are valuable.  That's the point.  How then do
we make sure that they are there, and that other details
of good governance are being followed?

The Issuer implements a System of Governance!  Easy said,
less easily done.  Let's summarise some options:

    + ask the government to protect the bars,
    + ask some reputable party to check them,  or,
    + do something called the 5 parties model.

Asking the government to check the bars isn't really
going to help.  What the government would do is lose
a few bars first, implement some strict rules, lose a
few more, get the Issuer to become a Bank, hand a few
off to some other needy country under the guise of
international charity disguised with three letter
acronyms, implement compulsory insurance, over-issue,
use a few to pay for a war, and ...

Well, you get the picture.  Somewhere above, there is a
step labelled "Raise Taxes," but it matters not where.

Asking the government to protect the bars is the same
as admitting that the Issuer doesn't know how to do it.
And, it's a given that the government doesn't know how
to do it (or else, they would be doing it, right?).

Ask some reputable party?  Like an auditor?  Now, this
is not meant to be an amusing rant, so we'll skip the
jokes about reputability and big accounting firms, for
today.



Which leaves the 5 parties model.  I invented this after
much ponderous thought, and a lot of help from the
profession of accounting.  Which is to say that there is
nothing really new in the 5 parties model, it is just
standard governance techniques, turned to the problem of
Issuance of digital value.

(Perhaps I can only claim to have labelled it, and even
the label is a little weak.  Oh well.   As JP says, it
isn't the inventor of the process, it's the guy who does
the business of the invention that is the important part.)

Most reading this far (hopefully more than two of you)
will know the 5 parties model already, but for the
record, here is a quick summary:  The Issuer appoints
an Operator to run the machines (so the Issuer isn't
tempted to fiddle the database) and a Mint to create
new value (so the Issuer isn't tempted to inflate).

Also, a day-to-day manager is appointed to do the buying
and selling of the issue, so the Issuer has nothing to do
except be suspicious and watchful of the other three.

That's four parties.  The fifth party is the public.

The public is much forgotten, but is critical to the
model.  Each of us (we, the Users, are included in we,
the public) watches the four parties, the Issuer and his
three helpers.  We make sure that they are each doing
their job.  Each of us has a responsibility, in the
model, to check that instructions are valid, that the
reserves are covered according to contract, that bars
are still being reported as present, etc etc.  The list
is long, and if you pay me I'll write it down for you.

It is within this context that the reporting on bars
is a critical element of governance.  Auditors are too
expensive and their reliability is questionable.  Not
to mention, they only come in once every six months,
and who knows if they'll last to the next six months?

What can be better than every User watching all of the
reports with eagle eyes, hoping to find a flaw in the
system?

Nothing.  What can be more cost-effective than the users
downloading the bar count every day, after their hard
day's work, and looking to find fault in the storage of
their assets?  Alice commenting on those bars shifting
up, shifting down, shifting sideways from one place to
another, is music to the ears of the Issuer of a well
governed system.

You simply can't buy that sort of help.

Even better, these Users get out on the lists, and they
criticise.  The stickier the mud slung at the Issuer, the
stronger he becomes.  The more mud that sticks, the more
chance the Issuer has of fixing the system.

Consider JP's tireless campaign to identify the missing
accuracy in e-gold's infamous bar weights.  Or Dagny's
sleuthing to find out about bars held in strange places.

Maybe, even Khurram's questions of cunning, or Eric's
probes into the complex relationships between one or
another Issuer located in colourful Caribbean islands.
The lambasting of goldmoney over their unpopular KYC
program by Craig the tireless!

I even can boast a modest success myself, through
badgering the goldmoney people into publishing their
six-monthly bar statement.  I said their governance
was no good (or some equally wicked thing, the precise
damnation is of no import here) and finally ... hey
presto, the bar statement was scanned in and posted.

Check it out on this page:

    http://www.goldmoney.com/en/bar-count.html

We could go on, if only to encourage you to create your
own tireless campaign of criticism.  But let's skip to
the point.

The result of all these outrageous attacks on the Issuers
was revealed weakness, leading to greater strength.
Hopefully, but not always, I grant you, and I hear your
admonition to redouble our efforts.

In each case, the Users criticised the Issuer, and in
some cases, the Users found weaknesses.  Those exposed
flaws could be turned into strengths.  And therein lies
the strength of the 5 parties model.



OK, that was a long digression.  Four pages later, we
finally return to the subject of defamation.

Whatever defamation is (libel and slander are in there
somewhere, too), it involves Alice saying something bad
about Ivan.  I got my legal training from the University
of Gresham, so I'll skip what it really is, as he hasn't 
written _The Defamation_ just yet.

Let's get to the case.  The Issuer could claim defamation
against the critics, for lambasting the poor security, or
for claiming the gold is not really there, or ... a long
list of imagined slights against the business.

But, if such is the case, by taking action against Alice,
Ivan has announced to the world that he is not following
the 5 parties model.  In silencing critics, Ivan is
supressing the ability for the users to monitor and
report on the health of the system.

This would be fine if *another* governance model was in
place (e.g., a Bank, and our ever-diligent government
worries about the bars).  But, nobody's doing that, just
yet, and we must discount that option.

So, poor old Ivan is stuck:  he cannot sue for defamation
without doing damage to his governance model.  It would
be no difficulty whatsoever to declare the governance
model as dead, if indeed, the users were thusly
discouraged from their critique.

(We saw this recently, with two companies that did not
have open governance and did not listen to their critics.
They collapsed with losses in the millions to Users.)

Indeed, the worst possible event that could occur is that
Ivan could win the case.  If he succeeded in silencing
Alice in the courts, the result would probably be a
wholesale departure of confidence, as few would research
the real facts, and many would assume that it was big
business against the small man.

And, perversely, if Ivan wins, then Alice becomes the
damaged party, and should petition for such to be paid by
Ivan.  He has so damaged the users' value in his acts,
that fraud is tangibly and materially more likely, and
Alice's metal is in greater danger.



But, Wait, I hear the armchair philosopher saying!

Surely you are not suggesting that the Issuer has no
rights to defend against defamation?  What happens if he
really was defamed?

You decide:  what can be said that is worse than the
claim that the bars aren't there?  What defamatory remark
exceeds the damage of claiming that the Issuer is a
fraud?

He wears dresses and dances on tables at parties?  Ivan
has a guilty past?  He is a loudmouth, and he beats his
wife (no doubt, the lovely Matilda, the merchant or
exchange provider who doesn't otherwise appear in the
tale of Ivan v. Alice) ?

There is nothing worse that can be said than to attack
the issuance.  And, that's what the governance model
wants;  attacks on the business.  If you can find
something worse than an attack on his honour, the safe
keeping of the bars, and the sanctity of his digital
money system, I'll lay good grams that Ivan has to stand
still and suffer the torment, for Alice's sake.

For all our sakes.

Ivan doesn't lose rights when he becomes an Issuer.
Rather, he takes on a noble position of great honour,
and he foregoes the opportunities presented by the
law to defend against scurrilous attacks.  The more
opportunities declined, the stronger he becomes.

An Issuer must act with unimpeachable honour.  And he
must stand strong in the face of adversity.  Using the
courts to silence critics is an admission that he is
neither strong, nor honourable.  He has denied his
responsibilities to his Users.  His business of issuance
is unfit to earn the trust and confidence of the
community.

In contrast, Ivan the Honourable will happily deal with
the many attacks thrown against him, within the courts
and without.  He chose Issuance as a profession, and his
governance model demands that he seek out and absorb
criticism.  Ivan takes that responsibilty very seriously,
as do his faithful critics.

It is for these reasons, that I believe, and for my
money, any Issuer that sues a critic for defamation is
not following the 5 parties governance model.

As such, he acts without honour.   He acts to reduce the
safety of the metal under trust.  Such an Issuer should
not be trusted by Users with their gold, and we, the
Users, should never fear to critique his system.

--


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