Every year, Messari.io publishes its Crypto Theses, heralding in the Christmas holidays the same way The Economist’s December Double Issue once did.
As the last of its 10 theses for 2021, author Ryan Selkis mentions the “ultimate exit”: how to rebuild a “crypto-inspired nation-state”.
The potential for blockchains to disrupt the Nation State resonates with a talk I did back in May 2018 at EDCON in Toronto when announcing the Ethscape project (which has since suffered from severe parental neglect but may get a second life soon).
The tyranny of longitude and latitude
The fundamental thesis of Ethscape was that blockchains would lower the barriers to exit from the Nation State, by giving online communities an escape from geography as the main mechanism by which legacy countries enforce laws.
Ethcape was to be a opt-in, onchain realm where smart contract logic, rather than the tyranny of longitude and latitude (i.e. the physical location one happens to be in), would have guaranteed compliance with the consensual arrangements between its “Ethizens”.
Ethscape then gave a number of examples of such smart contracts, including a “proof of Ethizenship” (conceptually, some form of self-sovereign cryptographic passport), a randomized governance mechanism based on the Kleroterion voting machine of Ancient Greece, and the idea of a “dynamic dividend”, basically a smart-contractified periodically adjusted Universal Basic Income.
Finally, Ethscape was to have a “3 Article Constitution":
§ Art. 1 - Atomic Secession Right
Every Ethizen has the inalienable right to leave Ethscape.
§ Art. 2 - General Public License
Everything produced in Ethscape is under copyleft.
§ Art. 3 - No amendments
This Constitution cannot be changed.
Theatre of the absurd
Shortly after my Toronto talk, a fair number of users signed up as first Ethizens and were set to receive the same amount of free “Esc” tokens to get the project launched.
However, we then found out that such airdrop of tokens with GDP dividend-type rights attached would most likely have been considered a securities offering.
Paradoxically, our online experiment aimed to test an “economic reset” would have been forced to limit its token distribution to wallet holders who already had a head start as accredited investors in the real world!
As a result, we saw our pathway to growing an initial community blocked. For this and secondary reasons, the Ethscape project stalled.
(As an aside, in the theatre of the absurd that is global securities regulation, if today by way of social experiment you wanted to give one digital token to every inhabitant of the planet that gives all 7.8 billion token holders an equal revenue share in global GDP - assuming they all had a mobile phone - you’re likely conducting an unauthorized securities offering and may face imprisonment. The safest way to do it would be pushing the code anonymously the Satoshi way - see our related post in this issue).
The adjacent possible
Ethscape was not alone in its shortivity: Libertarian graveyards are littered with the corpses of sovereignty experiments that died an early death.
Too often, they turned out to be real-estate frauds by conmen promising fiscal subterfuge. In such schemes, land is subleased from a willing (i.e. poor) Nation State and developed into some sort of protected reserve for parallel citizens.
I myself was attracted by such scheme back in the late 1990s that offered investors the chance to buy property in a patch of Costa Rica under perpetual lease from its Government. “Liberty City” was to be developed as an Ayn Randian paradise for global entrepreneurs, until its founders disappeared with the downpayments.
More credible (albeit equally short-lived) projects are often founded by dreamers and romantics looking to carve out a physical space to start a society from scratch.
One such project notoriously involved a man in Guernsey declaring himself the Monarch of his 150ft by 50ft plot of land and declaring it sovereign territory so he could build without planning permission!
A more substantial project, recently made the subject of an endearing Netflix production, is the story of Giorgio Rosa, an Italian engineer who in 1968 decided to build an island in international waters off the Coast of Italy and declared it sovereign, only to see it bombed by Italian authorities after pressure from the Pope, who deemed it a place of lawless promiscuity.
Others too took to the open seas by looking to build and eventually inhabit floating pontoons outside territorial waters.
Of the land-based projects, we know only of Liberland and Ledger Atlas who seem to have been able to successfully enter leases with their host country to establish experimental enclaves.
Irrespective, sovereignty experiments that are based on territorial carve-outs will always remain at the mercy of their host country. Also, they are unlikely to gain sovereign recognition from the international community at large.
Ultimately, the lex terrae will remain the largest attack vector for any experiment in sovereignty that anchors itself in physical territory.
Is there an “adjacent possible” structure that incrementally leads to sovereignty and cannot be taken hostage by the league of legacy nations?
Network States
Recent thinking by academic/entrepreneur Balaji Srinivasan, going back to ideas on “exit” he shared back in 2013 and 2017, perhaps for the first time offer a pragmatic pathway to escape velocity by introducing the concept of “Network States”.
Drawing parallels with how big companies such as Amazon and Tesla shop around for beneficial terms when considering where to locate a new base, Balaji urges online communities to seek strength in numbers and “crowdchoice” regulatory carve-outs.
The example he gives is of an initial group of a hundred thousand entrepreneurs who each earn USD 100,000 a year and would pay 10% tax if they were to relocate to a new country in an un-coordinated way.
However, if instead they found a way to collectively bargain with that country’s Government and propose to pay 9% income tax, the host country’s loss of tax revenue of 100 MM from a reduced tax rate would be offset by the extra 100,000 earners it can now tax.
Combined with crypto as the guarantor of free association, remote working, and the portability of people’s property rights on blockchain, Balaji argues that crowdchoice would lead to a massive migration of talent that forces Nation States to succumb to regulatory carve-outs or at the very least disciplines them to stay competitive.
Land comes later
The elegance of the crowdchoice idea is that, in contrast with legacy projects, Network Nations are online first and offline second.
Already, the user base of the world’s largest social networks exceed the size of some of the biggest countries on earth.
In addition, most of us already coordinate and interact online first and we only physically meet when we feel like taking the stairs down from the cloud into the real world of meals and meetups.
In this light, crowdchoice is a strategy that leverages the user base of social networks to collectively bargain with host countries for the best deal in return for immigration: a regulatory Groupon that forces Nation States as suppliers of sovereignty to lower their prices for bulk buyers of their services.
Cryptogtraphic diplomatic immunity
Some countries already provide carve-outs from their laws for specific groups of residents - typically as a result of Government policy rather than the outcome of collective bargaining by immigrants themselves.
Singapore for instance, in recognition that it needs an expatriate population to import expertise from abroad, exempts resident expatriates from social security payments (but in return denies them access to its public health system).
However, in our analysis it is difficult to see how such carve-outs, whether initiated or conceded by Nation States, could ultimately lead to sovereign status for a voluntary online community, which is what would be required for our MVP.
For this to happen, host countries would need to recognize the special legal status of members of our online community.
If this seems far-fetched, it is the same legal construct that exempts foreign diplomats from the laws of the country in which they are present.
Within the logic of Nation States and their perceived need for diplomacy between equal sovereigns, diplomatic immunity was created as a legal fiction to protect diplomats from harassment in host countries.
The principle goes back to martial and canonical law. For instance, the Order of the Knights Templar was a sovereign order of crusaders without physical territory.
Admission as a Knight Templar lead to “virtual” citizenship and passe port in Old French, literally the authorization to pass through a port i.e. the right to freely enter or leave a country.
As a result of their special legal status, Knights Templar remained subject to the Order’s rules despite their presence in foreign lands.
This legal fiction was formalized in the 1964 Vienna Convention on Diplomatic Relations, and assumes (with some exceptions) that diplomats carry their home laws with them.
The same immunity that diplomats enjoy may becoming available - and inviolable -thanks to encryption and blockchains:
- Our wallets hold our title to tokenized property;
- Digital currency gives us decentralized payment ledger;
- Smart contracts automate the way we transact;
- Cryptography protects our right to freely associate, including opting-in to onchain communities and yes, digital countries.
As a result, we can now carry our sovereignty with us: our individual private key is stronger than an army of a million, or in Assange’s words: “No amount of coercive force will ever solve a math problem.”
The Untouchables
The shift in power balance as a result of the above technological changes may finish what e-commerce started: a gradual erosion of the Westphalian, territory-based concept of sovereignty, to the point that Nation States are impotent to enforce their laws over footloose online actors.
This dynamic may accelerate once online communities start congregating in specific geographic locations in such numbers that they effectively become untouchable, like mass protestors outnumbering the police.
This will lead to their de facto tolerance as digital realms with special legal status, on a par with territorially organized polities that enforce the lex terrae.
Once such precedent is set, more digital realms are likely to follow. The end result is a “multiverse” of overlapping and competing jurisdictions that will co-exist in a physical-virtual reality space, with members dipping in and out depending on how well their digital country protects their economic and governance rights and safeguards their right to exit.
These rights will be like megas in Pokémon Go: powers super-imposed on the realities of physical space, with conflicts won on the strength of each Pokémon’s privacy defenses and the robustness of its cryptographic borders.
Battle lines
From the above, it is clear that our MVP of a digital country is unlikely to come out of some Government-sponsored “sovereignty sandbox”, but rather from radical defiance of entrenched power structures.
These power structures are likely to fight with the tools they know best: surveillance and coercion.
The battle line between the centralizing powers of the Ancient Régime and the diffuse, dematerialized autonomy of online communities therefore runs straight along the surveillance vs. privacy divide.
Winning the privacy battle is key not only to human dignity but to the success of any decentralized and uncensored governance experiment.
As we talked about elsewhere, what is required is “money without memory”: privacy-centric crypto currencies that can be transferred without revealing their source and contents.
ZCash and other privacy pragmatists make true privacy a “toggleable” user choice, putting power back where it belongs: at the individual level from where all sovereignty - physical or digital - ultimately emanates.
Any new country MVP would therefore need to put digital defense in place by building an army of privacy tools that protects it from enemy assaults on its rights to freely conduct commerce, exchange value, communicate and associate.
So if we’re setting out to build a new country, “Privacy through Cryptography” should be the motto for its flag!