The Network State Review – Digitally native nation building is here
How to build a digitally-native nation in three simple steps
Balaji Srinivasan has shipped a v1 of his magnum opus on 4th of July this year. It is called The Network State and I preordered it on Amazon after attending his VR lectures at 1729.com.
Balaji sees network states as upstream from technological progress in areas like longevity and life sciences. The ‘00s were about YC startups. The ‘10s were about Satoshi, and the realization that even things like currencies are turning into variables. Suddenly you can ask: “fiat or crypto?” Balaji things that the ‘20s will be about startup societies and startup cities. And the ‘30s will be about network states.
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The other day in my hometown of Bratislava close to Vivo mall, I bought a pizza called Nakamoto Satoshi from a food truck with slogans: “We love bitcoin” and “We stand with Ukraine”. I paid with Bitcoin Lightning. The digitally native form of cash.
Balaji asks in his book if we can build digitally-native form of countries. And more generally, he explains step by step how to build parallel societies, while avoiding all the usual failure modes and traps of previous such attempts.
His idea is to start with moral innovation in the form of One Commandment, launch a startup society, organize online around network unions with daily calls to action, and later crowdfund land and real-estate to form network archipelagos. Something like Indonesia, but connected by a digital ocean of the internet.
Some of these projects eventually should seek diplomatic recognition to become network states. Think of Vatican or The Sovereign Military Order of Malta, but digitally-native and with a clear moral innovation in one domain.
You can read a one-paragraph definition of the Network State by Balaji, listing all the conditions that aim to prevent failure modes of previous attempts to build new states:
“A network state is a social network with a moral innovation, a sense of national consciousness, a recognized founder, a capacity for collective action, an in-person level of civility, an integrated cryptocurrency, a consensual government limited by a social smart contract, an archipelago of crowdfunded physical territories, a virtual capital, and an on-chain census that proves a large enough population, income, and real-estate footprint to attain a measure of diplomatic recognition.”
city states -> nation states -> network states
To beat fiat one cannot return to gold. Because gold was defeated by gold seizures - the FDR’s Executive Order 6102. Satoshi needed to invent bitcoin. A v3 – combining the benefits of cash (v1) and electronic money like Fedwire (v2). The same logic applies to countries. City states were beaten by nation states. Small states like San Marino are relicts of the distant past and not role models for the future. (San Marino was spared the unification of Italy, because it gave refuge to Garibaldi.)
The same I think can be said about individuals and nuclear families. They are products of modernity and a centralizing phase of the West, where the state was strong and could break the networks and tribes into nuclear families and later into individuals, who went bowling alone. In the decentralizing phase of the West, an individual will be beaten by the the Deleuzian dividual - or something like the pseudonymous economy described by Balaji.
Similarly we cannot move back to healthy nuclear families and the trad lifestyle. Because social democracy 1950s style is NGMI. Because we are not “getting to Denmark”, we are “getting to Venezuela”. The West is in its decentralizing phase. To recentralize, another term Balaji stresses a lot, I think we need to refocus on extended families, tribes and networks enabled by web3.
physical version -> scanner stage -> digitally native
Balaji uses this model to distinguish a scanner version of digitized product from a purely digitally native one. Electronic transfers of money are a scanner version of physical cash. But bitcoin is digitally native. It was first created on the internet, without any physical equivalent.
In-person lectures are a physical version of education. Zoom lectures and MOOCs are a scanner version – digitizing the legacy structures and institutions. One can ask similarly what would be a digitally native form of education?
Estonia took advantage of the internet age very early on. Their e-residence program is very impressive, but it is still a scanner stage of eGov. Network states present an attempt to present a digitally native form of nation building, that could unlock innovation not just in bits, but also in atoms by creating special innovation zones with smart regulators.
Airbnb, Uber and Lyft as smart regulators unlocked billions of dollars of value hindered by outdated regulations. Life sciences and longevity present a potential unlock of trillions of dollars.
Network states could bring about a similar progress in wealth creation as China after Deng Xiaoping, when entrepreneurship and ownership became legal.
God is dead, Gov is dead, long live the Network
Balaji sees three Leviathans of God/State/Network. When Nietzsche proclaimed that “God is dead”, he meant that elites stopped believing in God and started to believe in Gov. A God-fearing man, who previously wouldn’t steal for the fear of afterlife in hell, stopped believing. But he turned into Gov-fearing man, believing police, smart detectives and government agents would get him eventually for his misconduct.
Balaji says that the West experienced peak centralization in the 1950s. The US was just the least centralized and most free country in a centralizing period. FDR didn’t send his powerful and rich enemies into gulags; he just taxed the hell out of them.
Today the Network is becoming the main Leviathan. People don’t steal because either the Network, like bitcoin, won’t let them because of encryption. Or they will be shamed and cancelled by the online mob and their social network.
There are various in/effective Hegelian syntheses and hybrids one can make out of God/State/Network. The US Marines used to fight for God and the Country. The Network State is also an attempt at such hybrid between two Leviathans.
I think this concept of God/State/Network can be seen as dynamic in time and combined with frameworks like Wardley Mapping (Concept -> Custom-built ->Product/Service -> Commodity/Utility) or Cynefin Framework (Obvious/Complicated/Complex/Chaotic domains) and adjusted into something like God -> Network -> State helix (using Balaji’s concept of helical progress of history on the z-axis, as opposed to both linear and cyclical views on history).
I draw here also on the first-person view (God), second-person view (Network) and third-person view (State) developed in detail by Forrest Landry. Daniel Schmachtenberger describes it as superstructure/social structure/infrastructure.
Three power attractors – CCP vs NYT vs BTC
Three main powers today according to Balaji Srinivasan are: Communist Capital, Woke Capital and Crypto Capital (CCP vs NYT vs BTC). There are by themselves three effective Hegelian left-right syntheses opposed to each other.
The Chinese Communist Party says you must submit, because they are powerful. The wokes say you must submit, because you are powerful. And the bitcoin crowd says you must keep your head high and be sovereign. While Balaji Srinivasan is closer to the BTC part of the triangle, he says that maximalism in any of these three directions is bad, but the absence of submission, tolerance or sovereignty is equally bad.
I think, one would be wise to optimize for the biggest possible respect and recognition within this CCP-NYT-BTC triangle. If CCP is the center of hard power and NYT is the center of soft power, web3 is becoming the center of smart power (as Balaji says - engineers and hackers are upstream of robots and drones). And any maximalism or over-zealous tribalism can be considered a stupid power. Still, zeal is as important as effective execution. Hence the left-right synthesis is needed.
But maximalism in all three directions has its catastrophic risks. A digital authoritarianism of CCP, unchecked on a global scale, can lead to what John Robb calls the Long Night scenario. BTC maximalism can lead to a Mad Max world. And the wokes with their maximalism unchecked can bring us to a scenario I call the Nuclear Yolocaust Times.
Metaverse will reopen the map
The map is not the territory. And the digital territory cannot be mapped. Internet represents a new frontier. Anyone can buy a domain, create a handle and start building. Contrast that with the physical world. One can build a billion-dollar business from a laptop. But as Balaji says, one needs a billion permits to build a shed in San Francisco.
Balaji says that all the great ideas and ideals are here with us since the dawn of history. What changes is technology, which makes these ideals suddenly feasible. Balaji also often says that “mobile is making us more mobile”.
People take for granted that we have smartphones now. But they are a very recent phenomenon. I saw first-hand what a simple dumb phone did in Africa. It started a mobile banking revolution, enabling tens of millions of unbanked people to start transacting through services like M-Pesa.
Mobile phone opened the (google) map and became a convergence device, combining many products into one. Balaji sees mixed reality glasses as another convergence device that will enable integration of metaverse and AR. If combined with web3, suddenly not just secret (startup) societies, but secret network states became a thing.
People fight over borders because borders are visible, referring also to Girard’s memetic desire. But no one can see a border between Facebook and Twitter. Balaji explains that the border would be people who spend exactly 50% of their time on each network.
What borders are for nation states, backlinks in a general sense are for network states.
Bundling, unbundling and rebundling
Balaji often mentions a saying by James Barksdale “The only way to make money is bundling and unbundling. The Internet is driving both.” Digital technology helped to unbundle the CD into MP3s and the Internet rebundled them into playlists on streaming services.
Balaji applies this concept to politics as centralization/decentralization and eventual recentralization into network states. The West was the most centralized around 1950s, since then it experiences a long period of decentralization. The East, and especially China, moves in an opposite direction of centralization, after a century of chaos represented by Mao’s Great Leap Forward. This will lead to a scenario Balaji calls: American Anarchy and Chinese Control.
American Anarchy, Chinese Control and International Intermediate
In the last century the world was divided between the capitalistic First World, the socialist Second World and the poor Third World, represented also by the Non-Aligned Movement. Balaji sees a reversal of this order in the 21st century, with what he calls an Aligned Movement around web3 and the ascending world, represented by countries like India, becoming the leaders of the free world.
American Anarchy is a near future sci-fi scenario and an extrapolation of current trends in the declining West that sees quite some unbundling as the societal trust is shred to pieces. Balaji has a short essay about it at Bari Weiss Substack. It is a combination of anarchy and tyranny with a diminishing state capacity to provide order. Imagine more and more places experiencing crime like San Francisco and slowly turning into the next Venezuela.
It’s like the ineffective Hegelian synthesis of freedom and order, the opposite of Fukuyama’s “Getting to Denmark”, a high trust society with freedom, prosperity and equality. We can call it “Getting to Venezuela” - a tyranny from ineffective and corrupt state as well as organized crime, combined with anarchy from random criminals on the streets.
If the West is experiencing an unbundling and decentralization, with institutions losing both legitimacy and capacity to execute in the real world, the East is, after chaotic 20th century, still experiencing an upward trend of centralization and increasing state capacity. Balaji mentions profound technological changes in India that put a billion of people online in a couple of years through 4G infrastructure buildout and provided them with digital identity. Similar trend is observable in Africa with mobile banking.
The Chinese Control is also a near future sci-fi scenario and extrapolation of the current trend towards greater authoritarianism after Xi Jinping took power almost 10 years ago. If there is an attempt at a state coup in China, the state will roll out all digital surveillance arsenal in their possession and will export these tools to other countries.
Both American Anarchy and Chinese Control are dystopias. What we need is not some utopia, but rather a pragmatic and protopian (gradualistic and optimalistic) approach pioneered by countries like Singapore, Switzerland and Dubai. Balaji calls such countries, and countries like Estonia, Israel the International Intermediates. And India will be the largest one of such countries and capable to defend itself from both the American Anarchy and the Chinese Control. India might be the torch bearer of the Western ideals in this century. Along with network states.
The ethics of membranics: Difficult to enter and easy to exit
If toxic cults are defined by the difficulty to exit, ethical cults, or better ethical enclaves should be defined by the ease of exit and the conscious way to work on improving the ease of exit. Balaji calls for H-YIMBYism. A horizontal buildout of new cities using modular and prefab houses. This can be combined with the fractal localism of Taleb and The Scale by Geoffrey West (Putting various network startup societies in proximity to each other, as different parts of new towns would allow super-linear scaling).
Membranes are semi-permeable. Similarly borders in a free country should be open to citizens and semi-closed to foreigners, who need to provide additional documents and proofs of their intentions and skills. Because tourists and citizens are not the same. The same asymmetry exists between entering a country and exiting a country. The exit should be as simple as possible, except some edge cases like people who committed a crime. The entry should be much harder and merit-based.
Imagine a prestigious institution, event or a dance club. The entry is very selective, but the exit should be as easy as possible. Restricting exit from a conference or a club would be deemed unethical.
Membranics are a term used by Alexander Bard and it is opposed to various utopian ideas to build top-down utopian societies, over-engineering them with Platonic zeal. Instead the main criteria is selecting the right people at the borders of the membrane and letting them be themselves inside the club, providing they behave within certain ethical and moral boundaries. But not controlling each of their steps and prescribing details how they should live and conduct themselves. The concept of membranics can be easily combined with the One Commandment concept of Balaji, that is meant to focus a startup society on a single goal, in a way startups are focused to solve one problem. The startup societies will be a society-as-a-service, a new SaaS.
Balaji’s network states are compatible with concepts around complexity theory. I think Balaji implicitly draws on Taleb and his minority rule – only a few percent of highly dedicated and “intolerant” people can change societal norms. This is related to a more general idea - the Schelling’s model of segregation. Even groups of relatively tolerant people after time can produce very uniform communities with low (e.g. ideological) diversity. As with the in/effective Hegelian syntheses, there can be a good diversity and a bad diversity. If you drive on the right and your neighbors drive on the left it is a form of a bad diversity. (This is related to Cynefin Framework mentioned above).
Taleb has a tiny online book Scala Politica that provides a broader set of ideas, around his notion of fractal localism, and describes how morality often doesn’t scale but freedom should be scale-free (fractal). Meaning a person and a community and a society should be equally free. (I want to combine Balaji’s and Taleb’s ideas in a separate article.)
I also think that Balaji’s network states provide the right focus of One Commandment and the gradual, optimalistic and protopian vision for a complexity-adjacent movement of Game B, founded by people like Jim Rutt, Jordan Hall and Daniel Schmachtenberger, and their attempts to build proto-Bs. I wrote a whole article about how Balaji’s ideas of optimalism and tech progressivism are similar to nurturing conviviality and protopias intended by Game B.
Borders, backlinks and behaviors
Borders in abstract are semipermeable membranes. They can be crossed with digital passports, NFT-style. There are borders also in the cloud. Balaji says blocklists like https://www.blocknyt.com/ are an important part of the future.
Founders build backlinks gradually, through persuasion and pragmatism. Heirs get them all at once, through prestige and an inherited brand name.
Behaviors will be very important. They are distinct from the proclaimed values. Behavior is the Real, the veil that comes down when “shit hits the fan” and a person we though was ok suddenly is not showing their best behavior.
Social credit (system) seems dystopian when imposed top down CCP-style or oligopoly-style. But I think it might be an important piece of building the network state future. Because this is similar to zero-karma concept by Balaji – the ability to transfer reputation between contexts, while remaining pseudonymous. But here it’s not about skills or knowledge in some technical domain, but actual pro-social behaviors in real life over long time.
If nation states were about borders (physical loyalty) first, network states will be not just about backlinks (digital loyalty) first, but also about good behaviors first (because exit will be easy and entry should be somewhat difficult).
Keeping down with the Joneses
Startup societies, as envisaged by Balaji, are built around the One Commandment, or in another words something like the opposite of one of the seven deadly sins that each startup company needs to succeed. Something like the seven life virtues. Again this is similar move to what Alexander Bard calls imploitation - a reversal of exploitation. A reciprocal opening between an actor and the arena, as John Vervaeke would put it.
Balaji mentions various examples of One Commandments that would in turn create network states such as Keto Kosher (no sugar and low carbs), Digital Sabbath (no screen time 9PM-9AM), Keeping down with the Joneses (frugality, financial independence, saving by bulk-ordering with neighbors) or even Formalwear (people dressing outside nicely and formally like adults in the movies from 1960s).
Reversed diasporas and tornados that build homes from the clouds
Balaji’s has an amazing ability not just to produce plenty new good ideas, but also to distill concepts into catchy phrases and metaphors, while others spend volumes of books on them. I read thousand pages of Žižek. I respect him. But I get more from one podcast with Balaji.
One such fascinating metaphor is a reversed diaspora, describing network state (cloud first, land last) and a reversed tornado - what the DeFi should be about – using massive capital in the cloud to building startup societies and network states in the physical world.
Alexander Bard has a term imploitation meant as a reversal of exploitation, meaning being patient, improving and refurbishing, aiming and gradual and optimal solutions. This is very similar to Balaji’s idea of optimalism.
If the battle today is between the Woke Capital and the CCP Capital, between the anywheres and the somewheres, between anarchy and control, between voice and loyalty, people will look for the third option – for the exit and for the everywheres – digital nomads that are at home everywhere physically, because they can blend in and are sensitive of fractal localism, but at the same time have their capital city in the cloud and a clear moral compass powered by web3.
Balaji Srinivasan thinks network states with web3 will provide this promise of exit. I also think network states, starting from humble startup society with one founder and a laptop, scaling through network unions into network archipelagos and even gaining diplomatic recognition, can and will become Hansa havens for moral and technological optimalism and protopianism.
If nation states where fighting over geosphere, network states will nurture the noosphere. Because noopolitics is about synthesis, not conflict. It’s not about destroying or digesting other cultures. It is about syngesting them into new effective Hegelian syntheses.
It’s still about borders, backlinks and behaviors. But cloud first, land last.
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