131 - Rise of the Network State | Balaji Srinivasan

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Guys, we have a fantastic episode with none other than Balaji, who is a pleasure to talk to. He's one of those people where I listen to every podcast I can that he is speaking. He's kind of like Vitalik in that category. And the premise of this episode is the rise of what he calls the network state. This is a cryptography empowered country. We're gonna dig into this, but the tantalizing prospect is this.

What if online communities could use crypto to form their own nations? Belagi says not only is this possible, it's actually the way forward for humanity, the network state as the successor to the nation state that we all live in today. So a few things to take out of this episode. Number one, the inflation, the wars, the protests, the populism we see. Belagi goes through the common denominator to all of these things. Number two, how a Discord community can launch a country. We go through an example for the bankless nation, what that might look like in Balaji's framework. Number three, the one commandment Belagi says for launching a network state, the thing you absolutely have to have. Number four, countries in the cloud. Let's talk about some of the critiques. We do that in this episode, including are these cloud countries just for the rich? And number five, some action items as always to walk away with. What do you do if you want to join one of these digital societies? Where are they? How can you start one? David, fantastic episode. Love these conversations with Balaji. We've got to do this more.

We had Balaji on back in November of 2020, which was really at the very beginning of his thinking around this like network state idea. And it's been lovely to see him fast forward almost two years later and just have seeing how much it's been refined or being like sharpened and him being able to articulate with much more clarity. I really, really enjoyed that. And this is a concept that we are super aligned with Belagi on. This is the concept of blockchains or chains or tokens or online communities being enabled to produce currencies and then organize in other ways, is something that has captured my attention as one of the early promising ideas that crypto can bring to the table. Is we can provide the structure for 10,000 nation states, but not states, just nations, to exist in the cloud and start to organize around new sets of ideals rather than just the geographic boundaries as to where humans and people tend to be living, but instead around ideals or values or shared goals, first in the cloud, but perhaps later also in real life. Ryan, if you were a part of a network state, what would be the shared value that you would want to be a part of?

Uh David, I'd have to say going bankless would be the shared value of decentralization,

Perhaps we should create a bankless nation, if you will,

right?

Ryan.

Sounds like a good idea. And we actually explored with Belagi how to do that. As I mentioned, the cool thing about this, of course, is crypto technology is at the bottom of this, the network states. So cryptocurrency, of course, but social smart contracts to enforce governance, crowdfunding, on-chain consensus. It's all here in Belagi's ideas. So we're going to dig right into this. There's some visuals that accompany this episode as well. So a lot. Good news, you can actually see the visuals on Spotify now. Spotify is partnered with Bankless to do video. So we're bringing Balaji to you in video format. You can get all those videos if you're subscribing via Spotify. Also on YouTube, catch it there. We're going to get right to our episode with Balaji, Bankless Nation. We are super excited to introduce you yet again to Balaji Strenivasin. He is an investor, he's a founder, he's the former CTO of Coinbase, general partner of A16C, and more recently, the author of The Network State, which will be the focus of our podcast today. Balaji, welcome back to Bankless.

Thanks for having me.

You know, it's been almost two years since we last had you on, and uh things have gotten weirder since then. All right. We've got inflation, which is now a household topic, global macroeconomic topic. There's a war in Europe, protests over food and energy, increasing distrust in our institutions, our election process, our central banks. There's this increasing rise of populism that has just trended upwards. Is there a common denominator between these things, Balaji? Can you draw a line between all of these things?

Um, yeah, so my role model is I mean, many other people have talked about this, but the ending of the post war order.

So you have the post war order of 1945, or arguably the extension after 1991 with the end of the Cold War.

And it's that at the same time as, you know, the

Rise of the internet and an industrial revolution that, you know, with automation and the rise of crypto and the rise of China and the rise of India and the relative decline of the West and so on and so forth. Like there's many things that are all just going like this and this at the same time. Right. So yeah, I think like that older world is ending and a new world is beginning. And, you know, all the Top Gun Infinity remakes and the you know 70-something year old presidents and the geriatric Congress and all this stuff is sort of an attempt to kind of hold on, cling to the past, as it's kind of slipping away, and people don't have a vision yet for a positive future. And insofar as they do have a vision for the future, it's often a black mirror style dystopia or what have you because they envision the future getting worse.

And so a big part of the book is on potentially a way that you or one personally can make the future better. That is not simply trying to prop up or fix this, in my view, failing, broken,

hard to fix, if not impossible to fix, existing system, but to build something better.

I really like that analogy about the state of culture when it comes to our movies. Like we're bringing forward action heroes from like the 50s and 60s. Yep. And also you can hear it in our political slogans, right? Like make America great again or build back better, depending on like which color that you align with. We're trying to like restore the past. And we're fearful, perhaps xenophobic, of the future. But I think there's a reason why, Balaji, you are a crypto person, is because of all the populations, all the people, all the communities out there, the crypto people of the world are one of the few populations that's actually optimistic of their future. So it sounds like your solution for this is to not try and restore the past. That tends to not work in history. But there's a quote from I think Winston Churchill that I always love where if you find yourself going through hell, keep going. Like don't stop, break on through to the other side. Is that the future that you are trying to herald for us here?

I'd say 75% yes. Let me give the 25% that is different, right? The 25% is I am not

um

anti like, okay. So for example, let me let me motivate this in one way. Have you used undo

in any app?

No. Yeah.

You've never used undo in any app.

Oh, on Command Z? Oh, every single day.

Command Z.

Okay. That's right. Command Z. I was like, whoa, this guy never misses a keystroke, right? Okay. All right.

So you've used undo. Uh are your programmer have you used git revert?

No, no, I have not.

Okay, not so get revert is basically like you probably you know the concept somebody introduced a bug and they have to revert it and go back, you know, right? So

Go back to

uh if you think about undo, you think about previous file versions, you think about backup and restore, you think about um, you know, that kind of stuff, it actually is useful sometimes to rewind to move in a different direction.

It doesn't mean rewind to go, quote, back to the past and stay there, but rather we took a wrong turn. And so we need to take this other turn.

Right. And if you agree with that on a micro scale of undo, right, you actually probably agree with it on a mezzanine scale because companies actually spend a lot of money on backup and restore, right? To be able to back up your data from a week or a month ago. Right. And in fact, blockchains are about an indelible history in many ways. That's a big part of their value proposition. Like property that can't be seized from you has that past, that history, that base, right? This is what I call the relationship between microhistory and macro history. Microhistory is a history of measurements on a system. Macrohistory is like, you know, what we think of as history, like uh, you know, pottery shards and records of ancient Rome. But those things relate with crypto history because it's the um, it's got the aspects of microhistory like individual measurements, but it's the scale of an entire society because it's the entire economy and it's every communication, it's all the users. We're just built like history is beginning in a sense in you know, the year, we're in year 13 Ano Satoshi. Okay. Like the true start of written history was maybe, you know, thousands of years ago. The true start of crypto history was 13 years ago. Okay.

With that kind of framework,

you know, things don't necessarily always just get better, you know, uniformly. Things are more complicated than that. Prices sometimes go down before they come back up. You sometimes need to undo and go back. You don't make the exact right turn every time. We're not infallible. Because we're fallible, we need to have metrics that say when the past actually was better to take a step back and then move forward in a different direction, right? And if you actually look at, for example, the Renaissance, right?

That was inspired by antiquity, right? They rediscovered all these things from classical like, whoa, those old guys did some amazing stuff. And then with that, they were able to push forward. They didn't have to reinvent the entire wheel. In a sense, one point I make in the book is with physics, for example, we think of physics and science and so as being totally different from history. But there's actually a relationship. And then what that is is uh do you guys know any physics? Do you need like like you know basics?

physics. Definitely.

Okay, basic. All right. So the equations of physics

are written as like F equals MA or you know more F equals DPDT, you know, Maxwell's equations. Those actually are a distillation of lots and lots of experiments, of essentially the history of all of these investigators. And rather than having all of their verbal stories and whatnot, rather than trying to reinvent the wheel and redo hundreds, thousands, maybe millions of man years of experimental work, you encode that in one equation and you move forward from there, right? So you take the lessons of experimental history, encode an equation, and that foundation, that foundation stone allows us to get to Mars.

Right.

We we don't realize that in science because it's like mathematical, but that mathematics did not just come out of nowhere, it came out of a distillation of all this past stuff. And the same way understanding like sort of the physics of human beings and how they collide into each other and underst having some sense for history.

You know, it is it is possible, I think, to build better systems when you can benefit from the life experience of millions of other people and that distillation, just like you can from physical law. Let me pause there. So that's why I say I'm not a completely

Right.

the past sucks kind of guy at all, actually. I'm definitely future oriented and whatnot. But

as I gave some arguments for, I think it's useful to think about a rewind and then like a repositioning to move forward. Go ahead.

Right. Yeah. This reminds me of Back to the Future two or three, where they go into the wrong future and then they have to go back to the old future to go forward. And this is just, you know, basic respect for the lessons that we've learned throughout history, right?

Yes.

And so, humans, we experiment with things, we learn new things, we try and go and forward in one direction, and then we learned that we were actually off base. So we have to rewind and go one step backwards, back to our core foundations, so we can go forward in like a new direction that we actually learned was better.

Exactly. Progress is a vector. It's not just a scalar. They say it's not just that we're going forward or back. It is we could go forward, but on a different axis. We're just, you know, we're moving to space as opposed to, you know, like, you know, another society might be all about the oceans, right? Another human society might have been like their number one thing is to figure out what's at the bottom of the ocean. Everybody was obsessed with that, and so on and so forth. You can imagine different vectors for what progress look like, right?

Right. And this is something that we talk about on Bankless all the time. The American constitution is a great piece of just like fundamental, what feels like political science, right? Definitely is political science. But the current manifestation of America feels misaligned with that basic foundation. And so I think the idea, perhaps this is where we can start talking about the network state, is like, let's go back to some core principles because this current direction is a little bit off the rails. So let's go backwards a little bit so that we can go forward in a new, more refined direction that takes our current context, our current global macroeconomic context into account because we've gotten off track.

That's right.

And it sounds like I'm gonna go ahead and guess Balaji that the network state is your proposed next vector for humanity.

Well, you know, it is it is a toolbox, not a manifesto.

Sure.

Right. And so that's actually like a really important thing is um, you know, there's different ways of quote decentralizing something.

Mm-hmm.

Right. One way of decentralizing something is, you know, the way Satoshi did it with physical decentralization. And actually, pseudonymity is another form of decentralization. Why? Because he wasn't using the centralized state identifier where he could be looked up in a lookup table and knocked down. A pseudonym originates from a different source. It originated from his computer or whatever. So it wasn't connected to that main graph. Pseudonymity is actually also a form of decentralization in that sense. Very important one. Um and he used various other kinds of techniques. Um

But there's another kind of technique for decentralization, and that is like open sourcing everything, right? Obviously, Satoshi did open source it, but

uh, you know, imagine if Satoshi had put out the concept of the blockchain and um tried to get lots of folks to build implementations. That may or may not have worked, right? He may have had to do it first party, but that's an alternative approach to decentralization, right? And uh, insofar as you know, the the network state is sort of like

It's a toolbox where you don't have to agree with my problem statement or my solution statement. My problem statement is I think we're vectoring towards what I call American anarchy and Chinese control.