Why we need network states
The internet is retribalizing the world
The internet increases variance, because it allows for peer-to-peer connections, says Balaji Srinivasan, the author of the WSJ best seller The Network State, also available free online.
The term “network states” is now widely discussed on twitter, Vitalik Buterin wrote a long-review of the book and he also became the first guest on the new TNS podcast.
The book gives a recipe for a digitally-native nation building – “cloud first, land last, but not land never”. With the internet and crypto (the financial internet) we will be able to build highly-aligned communities that are capable of collective action and can create fractal network archipelagos that eventually gain diplomatic recognition.
Think diplomatically recognized Knights of Malta, but with crypto-passports and on-chain census. While collective utilitarianism is a concept from the ancient Chinese Mohism, web3 now makes cryptographically verifiable dashboards of collective performance possible. Communities become computable and composable – like DeFi and DeSci.
All noble ideas and ideals are with us since the dawn of humanity. But technological progress is what makes them feasible, says Balaji. We created companies and cryptocurrencies on the internet, can we create cloud countries as well?
City states are ancient, but they were defeated by nation states. Network states are a v3 – an effective Hegelian synthesis of these two predecessors using decentralized AI, Crypto and Social (tech).
Fractal cloud countries will be nuke-proof, like the internet.
Network states are for the power-users and the powerless
Vaclav Havel talked about the power of the powerless. About the greengrocer who falsified his preferences, as Timur Kuran would say, and put a “Workers of the world, unite!” poster in his shop window, just to avoid trouble. Žižek talked about “I would prefer not to” attitude of an internal exit from the empire.
Balaji Srinivasan goes further and inverts basic premises – with statements like “true charity is investment”. This can make moral innovations scalable and accelerate both the technological and moral progress. Making actual exit possible.
Balaji goes beyond just delivering new concepts (like moral innovations in the form of The One Commandment, startup societies, network unions/archipelagos/states) but he wants to build an actual on-chain off-ramp for both the counter-elites and the powerless of the world. For people fleeing persecution in China and cancelation in the US. For people who use crypto in places like Venezuela or Lebanon, just to make ends meet.
Crypto is not for the median person in the West (yet), because it is still very early, like the internet in the year 2000. But crypto is definitely for the power-users and the powerless, says Balaji. Some people, like CZ, the founder of Binance, can be both at the same time, a power-user and the powerless (disliked by the US and Chinese establishment).
Balaji distinguishes between money-rich and power-rich people. Very often money doesn’t buy you power. Tech entrepreneurs, like Elon Musk might be billionaires, but they had to flee disfunctional San Francisco for Texas or Miami. They had to choose exit over voice or loyalty. Because, they are not power-rich or political billionaires – another Balajism for politicians and bureaucrats who control $1B+ budgets.
Balaji has another powerful mental model of founding vs inheriting. Or built-rich vs born-rich. Political heirs or people who inherit family businesses are legitimate, but often incompetent. Because they haven’t built their backlinks over time, but inherited them all at once.
Internet increases variance and teaches regular people to act like venture capitalists, explains Balaji. One day someone’s tweet can go super-viral and make them a hero. The other day, the person might get cancelled for some gauche remark.
People like moderation and moderators (smart regulators), but they don’t like mediocrity and mid-wit hall monitors. The internet is retribalizing the world, says Balaji. The old establishment and wokeified institutions are chasing away the best and brightest – turning the power-users into the powerless.
And the decentralized form of tech innovations, like AI, Crypto, Social, with new communities around moral innovations can provide the exit from the old world. Crypto is to the US, what America was to Europe, a new frontier, says Balaji.
Ending the Fed is impractical, because it’s a central node with many backlinks. But bitcoin made exiting the Fed possible. Similarly, Balaji explains that ending the FDA is impractical, but network states can make exiting the FDA possible through smart regulation.
Mobiles disrupted mobility, crypto will disrupt countries
Balaji says often that mobiles made us more mobile. People prefer accessing information on the go. The GPS navigation on our smart phones opened the map and people can now freely explore various new destinations and restaurants. We can uber to work and don’t need to own a car.
Less obviously, mobile banking revolution of M-Pesa in Kenya helped tens of millions of unbanked people to send cash to their families across thousands of miles, without the need to deliver it in-person. Even less obviously, mobile phones accelerated the progress in battery technologies what made the EV revolution possible. New vertically integrated rivals like BYD are disrupting the legacy auto makers. And China is also a dominant drone maker.
Today, every central bank contemplates CBDCs. China is the furthest in this race with digital yuan crossing 100 billion in transactions and successful cross-border payment testing. This can 10x the share of yuan in global payments market, that is currently below 3%. This is a case of a (centralized) cryptocurrency challenging the dominance of the US dollar.
The old elites are bad capital allocators and they cannot spot weak signals that are at a size bellow the political constituency (bellow 10-50%). They are the opposite of venture capitalists, says Balaji. The downstream media treats new phenomena like Amazon, Google, Facebook or bitcoin as a joke, before flipping totally and calling these new incumbents “threats to Democracy”.
Balaji has a concept of three dominant power attractors of today –CCP vs NYT vs BTC. Or Communist Capital, Woke Capital and Crypto Capital. CCP says you must submit, because they are powerful. NYT says you must submit, because you are powerful. And BTC says you must be sovereign. When taken into extremes, submission, tolerance and sovereignty become counter-productive but their absence is also detrimental – the dosage makes the poison and the cure.
These three power attractors can be mapped on hard power, soft power and smart power, as well on three dominant technologies of today – AI, Social and Crypto.
China is dominant in hard power and favors AI. NYT is challenged by Social (media) but still wields immense soft power and is upstream of Western politicians. And Crypto is the smart/money power and the nature of incentives around it creates cyber-security veterans. Hackers are upstream of drones, so jurisdictions favorable to Crypto will have an advantage in defense. Very early after the Russian invasion, Ukraine crowdfunded crypto donations and thus signaled openness to crypto.
Balaji sees decentralizing forces prevailing in the West in the near future, as both the wokes and bitcoin maximalists challenge authorities and the state. And he sees the East as still being on its centralizing arch, after a turbulent 20th century. He has a future sci-fi scenario he calls American Anarchy vs Chinese Control. The chaos of SF will be exported to other US cities, while China will export its AI for digital authoritarianism abroad.
Digital authoritarianism of China can lead to what John Robb calls the Long Night scenario. Bitcoin maximalism can lead to a Mad Max world. And the woke twitter-maximalism, in the times of proxy wars between nuclear powers, can lead to what I call the Nuclear Yolocaust Times scenario.
Liberal democracy is a skillful dance between chaos and tyranny. Crypto is to the US, what America was to Europe, a new frontier, says Balaji. We are for quite some unbundling of legacy institutions and people will want to recentralize into something better and smarter – not seeing like a state, but learning like a machine.
Mobile phones disrupted the automotive industry indirectly – by accelerating the progress in battery technology. Crypto and AR glasses, as the next predictable convergence device, might disrupt the legacy (fiat) countries, by driving progress in cryptohistory and physical social networks.
Mobiles made us mobile, crypto will make us cosmopolitan.
140 characters will give us flying cars
Peter Thiel famously said “We wanted flying cars, instead we got 140 characters.” But Balaji says that innovation in bits is vital for unlocking innovation in atoms. Thanks to social media and the network age, people can communicate peer-to-peer and this has weakened the Gell-Mann Amnesia effect, says Balaji.
The Gell-Mann Amnesia, according to Balaji, is happening due to hub-and-spoke topology of the legacy media – where consent was manufactured and experts could communicate with the public only through a centralized structure. The peak centralization in the West was in the 1950s, due to centralizing technologies such as the printing press, newspapers, radio and television. Since then we got decentralizing technologies like the transistor, internet, mobile phones and now crypto.
Before social media, there was no way for founders of biotech startups and pharma companies to criticize powerful bureaucracies, such as the FDA, that drives global harmonization in medical regulation.
The legacy media, such as the NYT, are historically technologically conservative and their hostility towards tech grew after social media and Big Tech disrupted their advertising revenue. The NYT misled the US and global public many times over decades, as Ashley Rindsberg documents in his book The Gray Lady Winked.
We need special innovation zones for longevity, where we can exit the global harmonization of regulators like the FDA or EMA. With bitcoin we are able to exit the Fed. With crypto countries we want to exit the FDA.
Longevity is similar to crypto – because they both invert basic premises. Longevity can be a $100T wealth unlock, similar to wealth creation in China after Deng Xiaoping introduced the moral innovation of “profit is good”. To unlock longevity, we want to be able to make the moral innovation of “self-improvement is good” – with “my body, my choice” and “willing patient, willing doctor”.
And we need a new type of physical social networks to unlock longevity. We need to build highly-aligned communities in the cloud (network unions) and print them onto the land (network archipelagos). And we need crypto social networks that can replace the paper of record with the ledger of record – and provide much better (crypto)history and moral justification for the importance of tech progress.
Balaji aims to go beyond just The Network State book and create a book-app that can unlock longevity by creating highly-aligned communities. The goal is to make communities computable and composable – like DeFi and DeSci. Pseudonymity is itself a collective good. We need to go beyond the sovereign individual and build sovereign collectives, that have done great things together and want to do more.
This is my first essay for the 1729 Writers Cohort #3.