If a reputation system is (even pseudo-)anonymous then how are you going to have any hope of preventing it from being abused?
Elaborate on how a pseudo-anonymous reputation system could be abused?
You mean if someone is trusted through a long duration of time and then randomly pulls the plug on everyone? I am not sure anything can be done to avoid that possibility but here is a solution.
If it's Mastercoin and someone is issuing a currency, voucher, credit coin, we should prefer the issuers with higher community trust ratings and we should prefer the issuers who issue with an expiration date during which time anyone can send the currency or credit back to the issuer to have it redeemed.
The longer the period of time we have to trust an issuer the more dangerous it is.
At the same time the issuer would have a lot to gain by having expiration dates because whatever products or services they are using to back their credit coin or voucher can be redeemed in a time frame they can choose and plan for.
The only potential for abuse would be if the issuer decides not to make good on their promise to deliver their goods and services. If they don't redeem the vouchers for their goods and services then everyone loses. I don't have a solution to that because a lot of small businesses fail even if they don't intend to. And some are just really late like with BFL.
Establishing trust in a decentralized market
Any decentralized exchange such as Mastercoin or Colored Coin or Bitshares will require the pseudo-anonymous rating and reputation systems on issuers. This advance could help to establish trust. Does anyone have ideas on how to do this in a decentralized market environment?
If someone is selling something in a decentralized manner then trust is everything because there is no central regulator. This is the main problem which needs to be solved.
Although it is convenient to rely on a trusted authority, a highly trusted authority will become the source of corruption and they can do much more harm than a few thugs. When a crisis hit, it is usually those trusted authority take all the risk and went bankrupt, and then government take money from everyone's pocket to bailout them
A good approach is to let everyone manage their own risk (diversification, never risk too much that they feel uncomfortable to lose, and increase their risk exposure with larger risk capital), although it is difficult to learn from the beginning, but once everyone had this habit, it will protect them from financial loss, and the society as a whole will be much more stable
I never said rely on a "trusted authority". We have to develop a decentralized reputation system to overlay on top of the decentralized market place. Every trade represents a level of risk and we want to try to at least mitigate those risks and make trading predictable enough so that it can be an automated market place. Even if the market place is automated you still have to be able to trust that when you redeem a credit for a Yubikey that the Yubikey will be delivered. You basically have to trust the producer Yubico will honor that credit and you're trusting them based on the fact that they've done thousands of trades just like yours and every trade has delivered. It's always possible that when it's pseudo-anonymous Yubico could decide not to honor their contract and redeem.
This can be solved for digital products. If it's a movie or book you can set it up so that it's completely automated and as trustworthy as the blockchain and source code. It would simply be a matter of uploading that digital product to a sort of lockbox which is encrypted and the decryption keys get sent to everyone who redeems.
We can use get around this problem is by using the gift cards/credit. For digital products those cards would be very trustworthy. If you want Pizza and you deal with a Pizza credit it's not so trustworthy anymore because you don't know with 100% certainty that the Pizza company will redeem the credits.
Coinsigner offers a potential solution they are calling a scalable dispute resolution system. I think this approach has a lot of potential to work and I've invested in their idea because I believe it or some variation on it will have to be developed.
Here is a visual of how it works:
So my opinion is:If it's going to be pseudo-anonymous then it will only work well for digital goods and services. For digital goods and services you can have trust that the moment you buy the credits that they'll be redeemable to the issuer in an automated fashion. You send the credit coin/voucher to the issuer, and you get your digital item.
Pseudo-anonymity when applied to physical goods doesn't work so well. I can't be 100% certain that they'll ship the product to me because I don't know who I'm dealing with. I could be dealing with scammers, organized crime or anything and I could have no guarantee that I'll receive what I paid for.
The possible way to solve it while preserving the most privacy seems to be with Coinsigner. All trades go through just fine unless there is a dispute and if there is a dispute then pseudo-anonymous mediators act as the jury and judge to make a judgment on resolving the dispute. Each mediator is rated and gets paid according to how many successfully resolved disputes they have, they are basically the referees of the system.
Visual example:
The alternative to something like Coinsigner is to require that the issuers are never anonymous and that everyone knows who they are and what they are. I think for most issuers it will be better to just start a corporation, list yourself on the exchange as a corporation, give out the names and addresses of the people involved, and use the current legal system to deal with disputes. This would work fine for most issuers who issue private currencies. It probably wont work for sole proprietors offering services such as physical Bitcoins for example. They may be completely trusted by the community, but they might not have enough money to register all the paperwork to form a legal entity to protect themselves. These sorts of issuers may want to remain pseudo-anonymous and we may want them to remain pseudo-anonymous as well.
More on Coinsigner
http://www.coinsigner.com/Howitworks.html
