We use escrow in online trading because there’s no reason to trust a stranger that can get away with our money or goods.

But what is the reason we trust strangers in real life? All the minor daily interactions of buying bread, going about our errands, or even in-person trading unfold relatively frictionlessly in civilized contexts.

The reason is just that: in civilized contexts people can be held accountable for their actions. We can either directly oppose them, or report them, or spread the word about their corruption, effectively damaging their reputation. In civilized contexts, actions have consequences.

Real life is frictionless, because it depends on this kind of structural trust. It doesn’t require people to be good, it just requires people to be self-interested. People are discouraged to cheat or steal, because it’s not in their best self-interest to do it.

In simple terms, the expected gain from cheating is much less than the expected loss:

When we’re dealing with a complete stranger, we can place trust in that structure of self-interestedness. The civilized world creates the contexts in which this equation is more often true than not.

In this essay I’ll show how Bitcoin’s hard signals make it possible to recreate this accountability structure online.

I’ll show how a frictionless P2P trading system can exist without escrow. People can choose to trade with those that have put real skin-in-the-game and can be held accountable for their actions.

How a Game of Hard Signals Creates an Accountability Structure

In How Bitcoin Fixes the Internet, I introduced the concept of hard signals: signals backed with pubkeys and real cost in terms of provable Bitcoin burn.

In the game of easy signals where accounts are cheap to create and signals cost almost nothing, the gain from cheating is much more than the potential loss, because the scammer has nothing to lose.

Because one has nothing to lose, the equation in most online contexts incentivizes cheating:

The hard signal game flips that equation around by imposing real costs and consequences. Chronicle is the protocol that implements this game. To play the game, a person first has to put real skin-in-the-game: either they use a public key that has a credible history of activity, or they burn an adequate amount of Bitcoin to back their pubkey. This proves they have something to lose in case other people oppose their pubkey.

When a person actually has something to lose, the equation to cheat can become:

Now, the factors of this equation depend on the context: how much a person can gain from cheating depends on the value of the trade, and how much they can lose is proportional to their reputation.

In the real world we intuitively estimate the reputation based on the context: a disheveled person in a shady neighborhood probably has less to lose by cheating us in a trade.

In Chronicle where the pubkey’s reputation can be computed from the public record, it’s possible predict the L_cheat accurately, and know whether we’re entering a context where the pubkey can gain more from cheating than lose from it.

A new pubkey that has no history of credible activity has nothing to lose by cheating. So even if the trade value is very low, they stand more to gain by cheating. If one chooses to trade with a new pubkey that has nothing to lose, they are naively placing trust in a stranger.

A pubkey that has been around for years and has a record of credible and useful activity can lose the reputation that among other things allows them to trade with other high-reputation actors. However, if the value of the trade is very high and exceeds the value of reputation, then the equation is tilted toward cheating, and we’re again naively placing trust in a stranger.

So if we know the value of the trade and the value of the reputation, we can choose those contexts or traders that give us a reasonable basis for trust, where honest dealing is more profitable than a dishonest one.

Trust is simply our anticipation of whether the outcome will turn out to be good, or of positive value:

And that depends on the context. You may trust your 10-year-old kid in a lot of contexts, but you won’t trust them to drive your car, because that’ll probably result in a negative value outcome. Similarly, if we know the value of the trade and the value of people’s reputation, we can step into the right contexts where the future outcome will likely be positive.

P2P Trading Without Escrow

Using Chronicle’s accountability structure, we can imagine reputation-based peer-to-peer trading without escrow and its friction, fees, and third-party trust.

Chronicle is a general record of who backed what or whom, and at what cost in terms of how much Bitcoin they’ve given up. A user can back their pubkey, domain name, email address, and other subjects they control, to show they have taken responsibility for the online activity they conduct with those subjects.

On a P2P trading platform, traders can advertise their offers and conduct trades under their chosen pubkeys. Other users can compute their reputation from Chronicle’s public record, and enter into trades they feel comfortable with.

If a new user were to bootstrap their pubkey reputation from scratch, they can back their pubkey by burning a specific amount of Bitcoin. If Bob burns 100k sats (approx $100), that puts at least that much skin-in-the-game.

[”chronicle:pubkey”, bob_pub, 100000000, bob_pub, ts, sig] 

The fact that Bob has $100 to lose means that other traders will have a reasonable basis for entering into trades with less than $100 value. Some may be comfortable with only a $10 trade, but this depends on each trader’s risk tolerance. The point is, the higher the pubkey’s initial burn, the larger the trading pool available to it.

(It may seem inefficient to put down $100 worth of Bitcoin to conduct $10 trades, but Chronicle is a general protocol, and a user with years of online activity might have built high enough reputation to conduct trades without a large initial burn.)

Now, if they cheat, the victim (Alice) can publicly oppose Bob’s pubkey by burning the effective amount of Bitcoin that would diminish the value of his reputation more than the value he gained from cheating.

[ “chronicle:pubkey”, bob_pub, -x, alice_pub, ts, alice_sig]

The exact amount ‘x’ depends on Alice’s reputation. If the trade value was $10, and Alice’s reputation is very high, she can burn $1 worth of Bitcoin to diminish Bob’s reputation by the entire $100 of value he had put into it. If Alice is likewise a new pubkey backed by the same amount as Bob’s, she would have to put in at least $10 to get even with Bob. She would be at a temporary loss, but this would simultaneously improve the safety of the entire network, and potentially increase her future reputation.

On the other hand, if Bob is consistently reliable, and has built a good relationship, Alice can choose to endorse his pubkey:

[ “chronicle:pubkey”, bob_pub, x, alice_pub, ts, alice_sig]

This public backing means Alice becomes accountable for Bob’s pubkey’s future actions, because she has effectively distributed part of her credibility to him1. By this endorsement, she decides to take on the consequences of his future activity, both good and bad. The larger her endorsement, the greater the share of her total credibility she has lent, and the more accountable she is to the consequences.

I call this recursive accountability. If a new pubkey with zero reputation was boosted by a credible trader, which allows that pubkey to commit theft, the actor most accountable for the transgression is the one that allowed it to happen. Because the record is public, the pubkey’s reputation can be traced back to the credible pubkey that endorsed it.

When people can be held accountable for their endorsements, they are given sparingly. The way influence is distributed is mathematically transparent and precisely known to everyone. When you know exactly who’s pulling the strings, there’s no concept of a frontman.

Now, this accountability structure doesn’t prevent theft. It only allows people to enter into the contexts where theft is unlikely because it is irrational. By selecting the context in which G_cheat is sufficiently lower than L_cheat, the individual can essentially avoid all possibility of being cheated:

If one willingly conducts a high-value trade with a low-reputation pubkey, then one is inviting theft. It’s like going into a shady neighborhood with a Rolex and pockets full cash.

What this system does is make it transparent which online neighborhoods are safe and which aren’t, so one can avoid danger by choosing civilized contexts instead. Those civilized contexts have less to do the intrinsic goodness of people walking those streets, and more to do with the accountability structure that incentivizes civilized behavior.

How This Solves Trust More Generally

Escrow is a good case study for trust, because the value of the trade is explicit and can be compared to the value of the reputation2, but this principle can be applied wherever trust is needed.

Whether we trust this email sender, this online store, this payment link, this phone number, this social media post decides whether we open the email, enter our credit card details, accept the call, or trust the content of the post.

Without a public record that proves that the person behind these subjects has actual skin-in-the-game, we have no reasonable basis for trust.

With one we can choose the right contexts, or more accurately, we can configure our email clients, web browsers, and smartphones to expose us to content backed by people with a certain level of reputation.

By adjusting the threshold based on our personal risk tolerance, we can step into the contexts where we have a reasonable basis for trust.

Thanks to Curtis Heinen for feedback.

—

Chronicle is under active R&D

Chronicle has a working prototype, a whitepaper, a protocol specification, and a registry of events. Hard signals are a new primitive that can reshape the internet and the way we interact online. We’re developing new UI/UX patterns, reputation algorithms, simulations, mathematical models, and small-scale experiments to understand and refine the system before launch.

If you want to get involved in early beta experiments or work on Chronicle, let me know. You can leave a comment or get in touch through our website.

The internet, however, still functions on easy signals for attention and credibility, and we’re paying for it. Accounts, reviews, posts, and messages are all easy and cheap to create, which means bots can create hundreds of accounts and thousands of spam messages, comments, likes, and fake reviews to sway collective attention.

The web’s signals have become even easier now that AI can produce intelligible text and agents can code legitimate-looking scam websites at very low cost.

As with easy fiat money, the system has to get really bad before we notice that there’s something fundamentally wrong with the game.

An easy signal can be easily automated and fabricated, carrying little cost and no consequence. It is a poor currency for coordinating human attention, as it can be exploited endlessly, but it’s the currency the web runs on. It knows no other.

Bitcoin, as a scarce source of value, can be used to create a scarce source of signal, which I call hard. A hard signal can’t be easily inflated, as it carries real cost and a real history associated with the pubkey that signed it.

When the internet gains an improved currency for attention, it naturally tends toward order, low-time-preference behavior, and civility.

How Chronicle Uses Bitcoin to Create Hard Signals

Hashcash created a precedent for hard signals with proof of work. The idea is that a proof of computational cost attached to, say, an email can prove that the underlying signal is harder than a normal message that can be easily replicated and sent en masse. The hardness of PoW emails could be used to filter out easy email spam.

The solution wasn’t practical for email, since it would be bad UX to require a user to wait a long time for the PoW to complete before they could send the message1. Since then, the email protocol has centralized because only large providers can address spam2.

Bitcoin provides a more flexible solution for proving cost: an irreversible Bitcoin burn attached to a digital subject such as an email address, message, or domain name. The hardness of the signal is then proportional to the amount of Bitcoin sacrificed.

Another dimension of hardness is the public key that signs the signal: pubkeys with a credible history of activity are harder than new pubkeys. The hardness of the signal is therefore a function of both the cost and the credibility of the pubkey that signed it, because both are hard to produce.

Chronicle is an open protocol that provides a real-time publication layer for these signals and defines the format for events.

The signal, or event, is just a six-field JSON array:

[kind, subject, amount, pubkey, ts, sig]

Here’s Bob verifying his domain name with 1 million msats:

[”web:verify”, “bob.com”, 1000000, bob_pub, ts, bob_sig]

Or backing his Nostr post with 1 thousand msats:

[”nostr:event”, <event id>, 1000, bob_pub, ts, bob_sig]

Theoretically, any digital subject with a unique identifier can be backed in this way, from phone numbers to social media posts or comments to content blobs with a unique hash.

To make the network move at real-time speeds, a Chronicle node batches many signals together, burns the total amount of Bitcoin, and includes the Merkle tree root hash of the events in the OP_RETURN field.

Chronicle nodes store the events off-chain in a publicly accessible record, which can be read by any internet client or service.

How Clients Use the Record to Improve the Product

Web browsers, email clients, social media platforms, and open protocols are all struggling under the pressure of spam: increased moderation, operational costs, and degraded UX.

Once a public record of hard signals exists, clients can start indexing signals by the cost and credibility of the actors who signed them.

Email clients can suppress unknown senders with low credibility. Web browsers can warn against dangerous domains, URLs, and content. Social media platforms and forums can filter out low-credibility posts and comments.

Users can avoid most of the noise by setting the cost and credibility thresholds they are comfortable with. A very popular person who might otherwise receive a thousand spam emails per day could set the threshold higher to receive only the most relevant messages.

The same clients can be used to create Chronicle signals. When you’re emailing a stranger you’d like to connect with, your email client can automatically attach a hard signal signed with your pubkey and help you select a cost that would be effective in getting past the recipient’s email filter. If your pubkey lacks a credible history, you might need to attach more cost to make the signal harder.

Now, Chronicle has an interesting feature. If you abuse the credibility behind your pubkey and spam someone, they can publish a counter-signal against your event. They can specify a negative amount, for example, -1000 msats, and reference your signal’s event ID:

[”chronicle:event”, <your event id>, -1000, victim_pub, ts, victim_sig]

The significance of this is that opposition to a signal linked to your pubkey creates a blot in your history, which makes your pubkey a little less credible. The effect is that your future attempts at spamming or intruding into people’s inboxes will have more friction.

This example extends to all online activity where we interact with other people: posting, commenting, upvoting or downvoting. Every action can be linked to a hard signal, signed by a public key that is accountable for the consequences.

This is important. Current platforms and clients allow users to block and report spam email addresses, phone numbers, and accounts, but this does very little to deter spam. Spammers can cheaply create more email addresses and phone numbers, and reporting stays platform-local: reporting a number on Telegram doesn’t transfer to WhatsApp.

But if email addresses, phone numbers, and accounts must be backed by pubkeys with credible histories in order to have any sort of effect on other users, then they can’t be easily and cheaply spun up. And if the record of hard signals exists in the public domain, where all platforms and clients can consult it, then the misuse of a phone number in one client can transfer to all clients and online services that use phone numbers for verification and identity.

Chronicle only provides a neutral record for publishing events. It is the clients that shift the incentives of the game when they start to index by hard signals. It is the individual users who choose the thresholds of cost and credibility they would like to engage with online who create the consequences for those who misbehave.

How This Changes the Game

In the game of easy signals, the cost of spam is nearly zero, and the consequences are nonexistent because the identity can be tossed away and cheaply recreated.

We can see how a system of easy signals rewards bad behavior. Since there are no costs or consequences, the expected loss from bad behavior is essentially zero. For a bad actor, this leaves only the upside of spam, scams, and manipulation.

This is the game we currently inhabit. All the “yuck-y” feelings we get from the web and current social media stem from this immoral structure.

A game of hard signals flips that equation.

Information can remain cheap to publish, but the signals that influence other people should be costly and accountable.

If a person doesn’t have a credible history to stake, then, until they build one, they must sacrifice more cost to get other people’s attention. A reputable person can rely more on the credible history of the pubkey they’re putting at risk each time they use it to engage online. If a person abuses the credibility of their pubkey, other users can oppose their actions, diminishing that pubkey’s future reach. These two factors turn the expected loss from bad behavior from zero to positive: the initial cost and the potential consequences of a diminished pubkey.

But the very fact that opposition and consequences are possible creates a natural restraint. People become accountable for what they do online, and accountability is a precondition for civility.

The greater the number of clients and platforms that start using hard signals to improve their products, the more valuable pubkey reputation becomes, and the more one has to lose by behaving badly. At some point, the profitability equation of bad behavior flips from the expected gain being much greater than the expected loss to the expected gain being much less than the expected loss. The game begins to reward good, useful behavior.

This has major implications for the internet. In a hard-signal game:

• Spam and scams become rare

• Social media becomes civilized

• Search results become useful

• Reputation becomes portable between platforms and clients

• Escrow between reputable actors becomes optional

• Captchas and other slow verification methods can be replaced with immediate pubkey verification

• Mass manipulation and propaganda become prohibitively expensive

• Free speech, not merely free publishing, becomes possible and accountable

We’ve gotten so used to these externalities that we’ve accepted that this is just the way the web is. But these are only symptoms of the easy-signal game. The easy currency of attention and influence has been abused for years and is now becoming too problematic to ignore.

Bitcoin fixed easy money. It can fix the easy currency of attention and influence by backing signals with real cost and accountable pubkeys.

In this way, Bitcoin can progressively reorganize the internet around goodness, truth, and civility.

Thanks to Curtis Heinen for reading the drafts.

—

Chronicle is under active R&D

Chronicle has a working prototype, a whitepaper, a protocol specification, and a registry of events. Hard signals are a new primitive that can reshape the internet and the way we interact online. We’re developing new UI/UX patterns, reputation algorithms, simulations, mathematical models, and small-scale experiments to understand and refine the system before launch.

If you want to get involved in early beta experiments or work on Chronicle, let me know. You can leave a comment or get in touch through our website.