Can cryptocurrencies lead to new countries? What a fascinating question! Balaji Srinivasan thinks they can and lays out a blueprint for how in his new book The Network State. Is he on point? Let’s get out our encryption keys and unlock the good and bad of his arguments.
What is Balaji’s thesis? To start he observes that the advent of cryptocurrency and blockchain technologies provide a way for people to come together for single issues in a way that is transparent and not dependent on any one particular business platform like Facebook or Google. i.e. you can have a meetup group for something you care about on the blockchain without needing a company like Meetup.
Balaji suggests that this online grouping can deepen into something like an old-fashioned guild, with members contributing and supporting each other in their advocacy for that one issue. They demonstrate their commitment by financial contributions using the community blockchain tokens.
Thereafter Balaji proposes that this online grouping could get a bricks and mortar presence by crowdfunding the purchase of physical land wherever it is useful. This land doesn’t have to be one contiguous unit as we traditionally think countries are. It can be composed of parcels of land all over the world.
Then this distributed collection of land pieces can become a self-governing entity by encoding its governance rules via smart contracts, issue its own crypto currency and offer participants essentially what would be citizenship to a new country, what he calls The Network State.
In the last step, once this new country get enough members who have enough income, it can get diplomatic recognition from other countries, thereby establishing itself officially among the pantheon of countries in this world. Every issue that people care about could lead to its own country and people could be citizens of multiple countries.
In Balaji’s view, this will be a huge improvement over the current organization of humans on this planet. These new network states will all be opt in - you can join the ones that are working on the issues that you care about and leave anytime. Governance by smart contracts and governance tokens will be more honest and efficient than the current legislative processes that countries use. The blockchain being a public, unmodifiable ledger can serve as the single source of truth for everything that happens in that country, in a pseudo-anonymous fashion, thereby allowing people their privacy as well.
Is this plausible? Do all these claims hold up? Will human events unfold this way? Let’s take a look at what aspects work and examine the challenges in making them work as well.
Blockchain technology creates a public database where you can create new entries and read them, but you can’t modify an entry once it is entered into the chain. This does mean, as I wrote in my article on NFTs, that you can establish a solid verifiable history of ownership of whatever you have put on the blockchain.
If used properly you could, say, put car ownership titles on the chain, and then verify for sure who owned what car. The challenge here is that you can’t of course put the car itself on the blockchain. You can put something representing the car. Does that car actually exist? Does the person putting it on the chain actually own it? The record on the blockchain will not show that. Clearly you need some more controls and these controls have to go off the blockchain into the physical world, a smart contract on the blockchain won’t be enough. So you need actual bricks and mortar governance. How will this be done in Balaji’s model of a distributed country? The book does not clarify.
Will the pseudo-anonymity provided by the blockchain, where you are known only by your public key, be enough to prevent abuses of power by the governing authorities, whoever they might be? Balaji notes that if you are tech savvy you can keep your private keys completely offline and only house to house searches will reveal your possession of them. So ‘cancelling’ you, like say how you can get kicked off Twitter, becomes much harder.
Yes, this is a great feature, however how many people are so tech savvy ? For the vast majority of people cryptographic private keys are greek and latin and storing them on their own private local storage equally flummoxing.
People that will fit the profile of the web3.0 tech savvy do-it-yourself user are a very tiny fraction of the world population. The rest will need web2.0 tools they will have to trust, and these tools will become the gatekeepers, as I wrote before. Tools like Coinbase, Open Sea, MetaMask etc. These tools will have to be governed by the laws of the country that they operate in as Coinbase is finding out. You do want to have laws that apply to them otherwise they can easily clean you out. So off-chain governance controls will be needed and the eternal question, who guards the guardians will still apply.
Web3.0 sits on top of web2.0 which sits on top of the modern industrial production system. In order for a new network state to run its own cryptocurrency it is going to need access to this modern industrial production system. Let us look at all the dependencies that this creates, all that is needed to run a cryptocurrency.
Firstly you need the computers of course that will crunch away on the numbers to generate and verify the crypto coins. It is mind-boggling to think of all that goes into making these computers. You need the factories that make the computer chips, you need the technicians to work in the factories, the mines to produce the raw materials, the miners to extract the materials ,the scientists to research the way to build the chips, the schools to teach the scientists, the teachers to pass on their skills, the stores to provide food they all need to eat, the farms to grow the food, the farmers to work on the farms and so on and so forth. Pretty much everything in the world is involved in making those machines that will create the cryptos. We are so used to this highly efficient production-distribution system that we just take it for granted.
How will all these exist and co-ordinate in this new model of network states? The book does not say. It seems to assume that these network states will sit on top of the tradition country model. As per the book, a network community centered around a cause can become a viable state when it has enough people and GDP(Gross Domestic Product). Where will these people be working to make up this GDP? It won’t be within this one issue network state, that would be impractical. It seems to be implied that they would continue to hold their high paying silicon valley jobs for example, while transferring their citizenship to this new network state. Will such a setup work? Will the existing countries allow it? Balaji seems to suggest that it will be a slow iterative process, one country offering recognition after the other.
When you crowdfund land, who actually owns it? That question is not addressed in the book as well. So there are a lot of dependencies and a lot of questions too.
What about the personal and the social? Can a grouping of people based on one issue they all care about lead to a cohesive social unit that can serve as something like a country? Balaji seems to think so.
What are these causes that could make up a network state anyway? A couple of examples Balaji provides are a network state focussed on a keto diet and one focussed on having no FDA style regulations for drug manufacture and creation. Depending on your point of view both causes could have their benefits, Can your shared commitment to such a cause create any kind of group feeling that a traditional country does or has done?
Something to think about - you engage with groups on facebook and other platforms right now that are focussed on one thing or the other. What bond do you feel with the people you engage with? Is it very different from what you feel with other groups in your network - groups like your biological family, people you consider your countrymen, people in your ethnic group who look and speak like you etc?
Chance are, you said yes, these bonds are of a different quality. In general, it is true, blood is thicker than water and language, place, food, religion and cultural practices tend to be sacred. A good question to ask is - if you are getting married who will attend? Whom do you most want to attend? If you got in an accident whom would you call? If someone you knew is getting married how motivated will you be to go to the wedding? Or if they died, their funeral? The answers to these will suggest who you consider to be your community and the kinds of bonds that are important to you.
Will a set of network states that each express a current preference be an adequate substitute for feeding our hunger for belonging and community? Sebastian Junger in his delightful little book ‘Tribe’ relates an incident where he was hitchhiking his way somewhere, was desperately hungry and an old fellow in a small town brought him food. In Junger’s view your Tribe is the set of people who would bring you this food not because they want to but because they have to. They don’t feel they have a choice. For example you would just feed your child, you wouldn’t think about whether you wanted to or not.
This sense of obligation creates the sense of rootedness and belonging that people are miserable without. The community of the Network State is the opposite of this. No one has any obligation to you; all are present out of personal preference only and because they made a financial contribution. This as the French writer Michel Houellebecq has written about leads to an atomization of the individual - leaving them isolated and empty. Indeed, most spiritual teachings emphasize letting go of our preferences, being less selfish, less self-centered for better mental health and a better life, versus customizing our lives to meet all of our preferences.
However, our actions speak louder than words and principles and more and more we are actually making the choice of joining preference based communities. We are ridding ourselves of any obligations, at least in the rarified parts of the world like avant-garde California, no matter how lonely it makes us.
Still, it is worth remembering that most people don’t migrate. They live their entire lives where they grew up, rooted in their culture. The Network State, for the moment at least, is a rarified concept most likely to appeal to the high tech people of silicon valley style spaces who are full of political preferences and live highly customized lives, kind of like those drawn to the Sea Standing Institute that Peter Thiel financed.
All in all it is a thought provoking book, worth reading. Conveniently and appropriately for our time, if you don’t want to read it all, Balaji offers summary versions as well. It is vital that people think about new, better ways to live. If everyone becomes a part of Network States, you will have no choice but to do so yourself. Perhaps one day Network States will become reality and will give us better governance.
Will these Network States also bring us more happiness? That remains to be seen.