Saying it's decentralized is all well and good, but how exactly is that going to work? What is the technical mechanism that returns credits to the defrauded individual? What lines of software code actually implements it?
OK, sorry for the rambling, and I don't want to hijack the thread. Just imagine a centralized implementation of an insurance system then, since that's more straightforward. If I figure out a good mechanism for decentralization, I will post it separately.
Back on topic, how do you revoke the bond/identity that they have built up? Is it just by virtue of labeling the person a SCAMMER and distributing their public key on a blacklist?
Also, is there a way to transfer/sell the identity (besides just handing over the private key?)Oops, you posted this already...
What's nice about this proposal is that the proof of value is just a list of transaction pairs, and if you include the merkle paths up to the block header even SPV clients can validate the proof. You can also make these reputations securely exchangeable by using their outputs as smartcoins, and again SPV clients can validate the proof by giving them the transaction history - if a "reputation" can be sold it means that an identity that wants to shutdown a service still has an incentive to pay back outstanding debts because the reputation still has value. (although you'll need to limit what the reputation can be used for, see below)