Half of the nations in the world did not exist before 1950.
Arguably, a big reason for this is adaptability. Governments are characteristically late to technological transformation, even as the world around them is speeding up. Admittedly, there’s a principal-agent problem at play here, as even today there’s not enough incentive for legacy states to integrate more digitally. Beneficiaries of the status quo have little appetite for dismantling and rebuilding the system they benefit from, but only those who embrace change survive.
Shortcomings of Legacy Governance
We can split our analysis of the world into 3 layers: local, national, and global. Traditionally, the national level has acted as a gatekeeper between local and global governance through layers of representative democracy (or not-so-representative non-democracy, depending on where you’re from). This is why you aren’t casting votes on UN resolutions, for instance.
As it stands, local governance is still highly underrated. Contrasted with national or global governance structures, cities and states are the only entities actually capable of regulatory dynamism. As Vitalik Buterin puts it, “There are large and very real differences of culture between cities, so it's easier to find a single city where there is public interest in adopting any particular radical idea than it is to convince an entire country to accept it.” Plainly speaking, local governance is valuable because it allows for experimentation.
As we scale, governance becomes less and less efficient. In the wake of the COVID pandemic, we’ve found many many national governments to be slow-moving and inefficient in responding to long-running problems and rapid changes in the underlying needs of their citizens. Here, Louis Grx splits their more glaring shortcomings into 3 categories:
Age: National governance systems in the Western world are chronically out of date. In the year 1800, for instance, the global population was less than 1 billion, the US was 24 years old, and China had 112 years left of rule by the Qing Dynasty. Railways didn’t yet exist, and the telegraph wouldn’t be invented for another half-century. Society was run much more slowly, and was paper-based. The quantity, nature and importance of information in our lives has increased drastically, as zero marginal cost afforded by the internet has literally made it millions-fold cheaper. Yet our fundamental systems of governance haven’t changed.
Centralization: A high cost of information in a paper-based society meant that only small numbers of elected or non-elected individuals were directly involved in governance, and worked together in one place. Centralized governance persists at the national level today, but falls short in its inherent inability to effectively represent such a diverse group as a country’s population. A small group of people in Washington, DC, Tokyo or Berlin simply can’t be expected to be adequately aware of and effectively represent the interests of an entire population.
Short-termism: Lastly, incentives of lawmakers are plainly misaligned. If you’re a newly elected US president, for instance, much more of your focus lies in securing a second term in 4 years rather than implementing policy that will outlive your time in office. Of course, the interests of your country and the interests of your re-election are often two very different things.
Once we reach the top of the ladder, actual governance basically ceases to exist. Global governance boils down to mechanisms by which we manage globalization, using a network of states to create and enforce global activity. A 2018 column by Jean Pisani-Ferry outlines some of the larger shortcomings of this global network we’ve created to govern ourselves with, which we can summarize and consolidate with 3 categories:
No Consensus: This boils down to a classic public goods problem coupled with layers of bureaucracy. Many agreements on climate like the Kyoto Protocol, Paris Climate Accords, and Copenhagen Conference were notoriously vague, ratified but not implemented or not ratified at all. And this doesn’t just apply to the environment— the World Trade Organization’s latest negotiations round started in 2001 and never reached consensus.
No Enforcement: Plainly speaking, the world has overly relied on the US as an enforcer on the global stage, as reflected quite clearly in massive discrepancies in defense spending (In 2020, the U.S. spent $778 billion on military spending, more than the next nine top-spending countries combined), and a growing opportunity for aggression without resistance.
No Interoperability: Layering democratic degrees of abstraction on top of one another leaves us with a rigid structure. This lack of flexibility and interoperability between global institutions means they collectively face obsolescence in the face of ever-growing interdependencies.
The Cycle of Centralization and Decentralization
Now that we’ve spoken about why existing systems might be antiquated, we can delve into the mechanism by which they evolve. Painting in broad strokes, we find that human civilization follows a cycle of centralization and decentralization, outlined by Jon Hillis in A brief history of decentralized cities and centralized states:
1. “Technologies for coordination and communication rapidly bootstrap themselves into usefulness by civilization
2. These new coordination technologies allow humans to form effective local, decentralized governance structures (eg cities)
3. Ultimately, the federated network of decentralized governance is overpowered by a more efficient centralized structure of sovereignty
4. The centralized sovereign structure eventually collapses under its own weight, restarting the cycle by creating a governance vacuum”
This has been the case across the largest arcs of Western civilization. Hillis gives 4 broad examples and maps them to his framework:
The Ancient Era (10000 - 1000 BCE)
These early irrigation cooperatives drew more people than they could reasonably support or coordinate. In short, it didn’t scale, and the power-seeking capitalized on this.
Centralized governance structures became top-heavy and collapsed under their own weight and feckless materialism.
The Classical Era (1000 BCE - 500 CE)
The phonetic alphabet greatly expanded the capabilities of written language, simplifying the transmission of ideas.
At the concentrated experimental efforts of critical thinkers, written coordination evolved from epic poetry to intentionally local, distributed democracies.
As city-states outgrew their footprint they dispersed themselves to retain small and local governance, creating federations in the process.
The Romans, having already traded in their own federation for centralized dictatorship, showed up and pillaged the Greek republics. Eventually, they too met their demise at the hands of “an insatiable lust for physical comforts, violence, and growth” (Hillis).
The Medieval Era (500 - 1500 CE)
The Plague, famine and a collapse of metal currency killed the federations, ultimately to the benefit of remaining centralized kingdoms, who controlled militaries and trade routes.
The Kingdoms of England, France, and Spain, the Ottoman Empire and others rose to power, but not without multi-generational war, religious crisis, the commoditization of power and revolt against the ruling class.
The Modern Era (1500 - 2000 CE)
After finding new land across the Atlantic, settlers cleared it of its old inhabitants and took all their stuff. To govern their newly colonized territory, settlers then promptly set up new towns and local governance. This seemed to work well, so they replicated it across any more land they found.
You are here.
You Are Here
Today, we find ourselves in a unique environment of regulatory arbitrage strengthened by the acceleration of remote work through COVID. Florida, Wyoming and Texas are on the rise, while California and (potentially) New York are on the decline.
More broadly, we’re hurtling toward a new paradigm of governance, self-sovereignty and decentralized cooperation through the full application of novel coordination tools like computers, the internet, and blockchains. Suddenly, we can work and cooperate borderlessly, at zero marginal cost, and now, trustlessly.
Decentralized autonomous organizations are a resultant example of these combined technologies, and are helping create localized experiments in self-governance we’ve observed across history. Unfortunately, history also tells us these vehicles for decentralized self-sovereignty have always failed, as have their fragile, federated descendants. Whether or not we can break the cycle, we’re now facing a once-in-many-lifetimes opportunity to take another shot at the problem, and, armed with our knowledge of the past, try and create more resilient decentralized structures.
Whether or not we’re doomed to repeat history, we can take some solace in the fact that with each cycle, following generations of people have, on average, lived healthier, wealthier, and happier lives because of the innovation realized. In leveraging our new coordination tools at the end of a cycle of centralization, we find an interesting idea we see early signs of today: a convergence of countries and software.
How to Start a Country
Why might we want to start a new country? Obviously, land is a finite resource, but blank slates are practically embedded in the human experience. People buy vacant land, start companies, and now start new currencies for the same reason. In Balaji Srinivasan’s words:
“We want to be able to peacefully start a new country for the same reason we want a bare plot of earth, a blank sheet of paper, an empty text buffer, a fresh startup, or a clean slate. Because we want to build something new without historical constraint.”
We can view territory and its conception through 3 lenses:
Physical Territory: The Legacy Country
Broadly speaking, we have 3 methods of creating a physical country, via consolidation of power: election, conflict, or colonization.
Digital Territory: The Metaverse
Moving into the domain of digital territory, we arrive at the hot topic of the metaverse. To try and cement what we’re talking about here, I’ll use a definition from Matthew Ball:
“The Metaverse is a massively scaled and interoperable network of real-time rendered 3D virtual worlds which can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.”
While there’s a computational challenge in creating interoperable and real-time rendered virtual worlds, there’s no spacial constraint in the physical sense. Instead, the value of digital territory, like a digital asset such as Bitcoin, is derived almost totally by pure supply and demand mechanisms, as well as the “cash flow” accrued by miners or stakers in maintaining its network. That said, creating new digital territory, like creating a new cryptocurrency, is permissionless.
Phygital Territory: The Network State
Finally, we settle on a mix of the two in Balaji Srinivassan’s concept of the Network State. In his own words, “A network state is a social network with a clear leader, an integrated cryptocurrency, a definite purpose, a sense of national consciousness, and a plan to crowdfund territory...Crucially, that land is not necessarily contiguous.” The big idea? A country doesn’t need land to get started.
A Network State is a legacy country as a non-convex set. To visualize this, we might consider a real estate investment trust or REIT, for short. A REIT is a company that owns and sometimes operates real estate. Crucially, this real estate isn’t bunched together in one place like a city. Instead, a REIT’s assets are decentralized— dispersed, but each building is owned and operated by the same entity. Other loose examples include McDonald’s restaurants or Google’s offices.
Consider now a physical manifestation of internet territory. The advent of DAOs has streamlined the process of remote, trustless collaboration. The Network State is just what happens when those people start buying nodes of land together. To better understand the relationship between these nodes, let’s look at diasporas. There are Chinatowns all over the world; we’re all familiar with the concept of ethnic diasporas and their ability to connect people with each other through common heritage. Let’s now consider a reverse diaspora: a community that first forms online, develops a culture online, issues a native currency online, and only then comes together to buy and build on physical land. You can even architect in VR.
While this may sound like a space-age utopian concept, we’ve been a lot closer than we think for a lot longer than we think. Estonia is a small European country that sits between Russia, Sweden, Finland and Latvia. While unassuming at first glance, not many people realize it has one of the most advanced digitally-integrated governments in the world. Following a concentrated effort in the 90s, Estonia’s governance systems are now virtual, borderless, and trustless. Nathan Heller explains it a 2017 essay for The New Yorker:
"In the event of a sudden invasion, Estonia's elected leaders might scatter as necessary. Then, from cars leaving the capital, from hotel rooms, from seat 3A at thirty thousand feet, they will open their laptops, login, and—with digital signatures to execute orders and a suite of tamper-resistant services linking global citizens to their government—continue running their country, with no interruption, from the cloud."
Governance as software comes with some powerful implications, chief of which is the ease with which you can start a country. If your country is run by code, making a new one is as simple as forking it. Suddenly, countries— the ultimate centralizing entities— can be decentralized.
A more recent experiment in decentralized land ownership called CityDAO helps make the case for network states. It came together from a tweet, cultivated community on Discord, issued Citizenship NFTs that gave holders the ability to vote on what land to acquire and how to use it, and finally crowdfunded and bought their first piece of land, 40 acres near Cody, Wyoming.
Implications of Countries On-Chain
The digital integration of nation-states has implications much greater than scattered buildings. As we delve into what countries on-chain really imply, we come up with 3 big ideas:
As mentioned in the context of Estonia, when governance is code instead of people, replicating it becomes not only possible, but readily accessible. With nothing but a laptop and an internet connection, people can start billion dollar businesses, new digital currencies, and soon, countries.
Today, we find ourselves sharing our lives with people thousands of miles away without knowing the names of our next-door neighbors. What we find is that people connect over values with people close to them in their social networks, not in their physical proximity. A Network State organizes people based on geodesic, not geographic distance. In addition, on-chain countries present the opportunity for live dashboards. While the US census happens every 10 years, a network state would have the ability to track its citizenship, GDP, the status of governance proposals and the value of its currency in real time.
Countless colonies around the world have achieved independence from their rulers over the last few centuries. We could see this shift take place again without any bloodshed. There are two reasons for this: firstly, decentralized territory can be problematic when you’re trying to bomb something. How do you go to war with a country if they don’t have contiguous territory or if they encrypt their territory? Secondly, we stumble upon the decoupling of fiscal vulnerability and military capacity, as outlined in Violence and Social Orders by Douglass C. North. If your currency is immutable, there’s no real threat to your financial sovereignty. Decentralization deters violence.
This all sounds great, but can a coordinated internet community really be a country? I’d argue it can. Consider Facebook: even with signs of decline, the platform has 2.91 billion monthly active users, nearly as much as the populations of China, India and the US combined. A reasonably powerful country like Israel has a population of only 9 million. To think that a social network of even a few million people with an integrated cryptocurrency, established culture and a process of crowdfunding territory would put pressure on legacy states or accrue recognition from global governance organizations isn’t unreasonable. In fact, it might be inevitable.
Thanks for reading,
Thanks to Michael Bushnell for the book recommendation.
A few limits of traditional organizations and their governance systems by Louis Grx
A Brief History of Cloud Countries by Antoine Dusseaux
A brief history of decentralized cities and centralized states by Jonathan Hillis
Crypto Cities by Vitalik Buterin
Framework for the Metaverse by Matthew Ball
How CityDAO Acquired the First DAO-Owned Land by CityDAO
How to Start a New Country by Balaji Srinivasan
Introducing Praxis by Praxis
Minimum Viable State: Building a Nomad Internet Country by Lauren Razavi
The Network State by Balaji Srinivasan
The Global Economy’s Three Games by Jean Pisani-Ferry
Violence and Social Orders by Douglass C. North