Pirate Coves, Guerillas and Puppet Masters

"What's interesting about bills of exchange is that they're just, well, information"
— True, about as much as your driving license/ credit card is just a piece of plastic…

AC@FinancialCryptography

The key function of a payment system is the legitimisation and enforcement of wealth transfers. Simply having a big list of confirmed payments means little in itself. Those payments have to be effected. They have to be accepted within whatever property law governs the parties involved. And this has to happen at an acceptable cost.

Payments coerce impoverishment and enrichment to match transfers agreed. IT is just a channel for this. It does not determine the business structure of payment services. Dispute resolution and enforcement are the true core competencies. PayPal was rarely cheaper than credit cards or banks wires - but it provided an acceptable environment for pseudonymous transactions. Something average consumers never really needed pre-internet.

In the current environment everyone trying to build payment services rivalrous to the "official" banking system is going be forced into a stance depending on their reliance on mainstream instituitions.

Pirates Coves: Trading zones where the normal rules do not apply. Special privately enforced norms dictate legitimacy. However everything of value is brought into the zone from outside, and is valued there primarily because it can be taken outside again. As a open conduit in the system, the cove depends on passive complicity from actors in the mainstream for its function. (Switzerland *cough* bribery in the early cold war *cough*) (*cough* Macau and N.Korean trade *cough*) It cannot survive being locked out. This contradiction forces coves into entering the formal system, or being frozen out. The old e-Gold died, PayPal survived.

Guerillas: A threat to the system because although weak, the guerilla survives on its own resources. Balances in a guerilla system are valued by precipitants independently of them being transferable into mainstream money balances. Commitments are honoured with only the co-operation of the guerilla's own members. Enforcement against outsiders relies on threats or co-option.

If the community's goodwill is strong enough, even the active opposition of government would not be able to control it. (The Hawaladar [traditional Arab money senders] are generally banned by governments, but they precede and will outlast them.)

As in war, most guerilla systems will never "beat" the official opposition, they will have to wait for it to collapse, and then sweep through a shell-shocked population. Privately arranged monetary system were rampant after the downfall of the USSR, during the Argentina debt crisis, and in depression-era America.

Ironically, these systems most resemble the mainstream because they have to reproduce it. Self-government means reproducing the State's instruments of legitimation and cohesion. A significant proportion of national credit systems originate out of guerilla systems. The Chinese Communist Party's Yuan did not used to be the official money of China, but it circulated widely before this was the case.

Puppet Masters: Wrap themselves around the exposed control points of existing institutions, directing them to achieve ends agreed to with the new system, but not intended by the old. This area is not well developed, but shows promise. The best known real world example is Yodlee - who collect their customer's bank login details and screen scrape their account data. As well as giving a nicer interface to an existing account, Yodlee lets users share access to banking data and offers an account verification mechanism based on the scraped data. And in its early days, Paypal was very aggressive in using web scraping to integrate to eBay against eBay's wishes.