The Importance of Reputation for the Evolution of Decentralization

Chapter 6 underscores the importance of reputation systems for the decentralized economy. Reputation is the proper incentive, instead of money, for motivating the most efficient cooperation and long-term stability in business. Existing Web3 smart contract solutions often incentivize people to devote their energy to taking advantage of their business associates in anonymous environments. Through the promise of future business opportunities, reputation changes the relationship from adversary to partner. Reputation changes the transaction from a single-stage zero-sum game into a repeated positive-sum game. The value that is created in the transaction is that the reputation of both parties is improved in a harmonious profit-able transaction for the long-term