The Sovereign Crypto-Native
Dear Bankless Nation,
Self-sovereignty is a philosophical ideal.
Throughout history, it’s been put into practice in varying degrees, but it’s never been fully actualized.
Since the beginning of time, large empires and nation-states have ruled over humankind.
From the way we transact to the way that we own property, nation-states have dictated the rules that govern us by force.
But for the first time in history, the combination of digital technology and cryptography is enabling us to break free from the reign of the nation-state, most popularly discussed by Balaji Srinivasan in the Network State.
Today, Alvin dives into the philosophical weeds of how crypto is enabling the concept of a self-sovereign individual.
- Bankless Team
Author: Alvin Lee, Evangelist at DeGate DAO
We’re living in a crazy world.
Ukraine and Russia are at war, while China and Taiwan threaten to do so. Politics is increasingly polarized in the United States and many developed countries, with leaders from the far left and right defeating more moderate political elites. The seesaw market conditions in cryptocurrencies is an extreme representation of general market volatility, a reaction to the extreme money printing post-Great Financial Crisis.
Amidst the shadow of an upcoming global recession predicted by the likes of investment greats like Michael Burry, and a drastic drop in cryptocurrency prices followed by a sharp bounce, it seems like we are well in the throes of a bear market.
What’s a card carrying member of the crypto world to do?
How should crypto-natives think and navigate this strange world that we live in?
Most importantly, where is the opportunity in the crisis?
Crypto-natives have an answer that is rooted in personal freedom and personal responsibility: take charge of your personal finances, break up with your bank, and be sovereign over your own world.
But how exactly does one do that?
This article builds on that intuition by outlining some key ideas and thinkers on individual sovereignty over the last 25 years. We look at some of the trends for the future, and major problems left to be resolved for crypto-natives as a world community.
The Sovereign Individual goes Crypto
Several great thinkers of our times have thought deeply about how freedom-loving individuals should take control of their own financial destiny in a changing world.
Arguably the canonical text is the 1997 book The Sovereign Individual by James Dale Davidson and William Rees-Mogg, a favorite of cypherpunks in the 2000s. A cult classic today, the book identified the mega historical trends that are opening up a window of opportunity for individuals to choose freely where and how they can live, and no longer to be bound by any one given tax regime.
The Sovereign Individual preceded crypto yet predicted many of its central ideas. Till today, people are in awe of its many predictions such as a digital cash (similar to Bitcoin), the rise of mobile phones with touch screens, the importance of global pandemics in changing world politics, and more.
The core idea of the book is that technological change advances or decreases the power of the state vis-à-vis the individual. The rise of centralized nation-states in 1500s Europe came about because kings could wield violence at a large scale, consolidating their power over feudal lords.
The Industrial Revolution that followed brought about increasing returns to scale in economic production, leading to large enterprises and the Great Enrichment. By the 20th century, efficient production at a large scale and fixed investments in physical capital made it easy for governments to attract a large surplus and run tight knit nation-states.
The information age of the 21st century onwards spelled a reduced dependence on investments in physical infrastructure and equipment.
The Sovereign Individual predicts that absent the need for large enterprises with physical locations, people will grow increasingly free to escape bad governments with high taxes by moving, and choose amongst competing governments or smaller jurisdictions who can offer the best deal.
Thus, the “sovereign individual” is a kind of libertarian hero, able to live and travel freely with monetary sovereignty, running his or her enterprises and other endeavors through the internet.
Many crypto adherents subscribe to this ideal of low taxes, location independence, remote work and self-control over finances. But spend some time in Bali, Lisbon or Melbourne, and witness how this concept from the late 1990s has already taken shape in the form of modern digital nomads.
More recently, Balaji Srinivasan, the former CTO of Coinbase and an important thinker in the crypto sphere, has promoted the idea of a libertarian “network state” (of which Vitalik Buterin is also a fan of with important caveats).
Srinivasan’s “network state” refers to any online community centered around a common interest or belief gaining increasing sovereignty over their own lifestyles, including physically occupying land where their beliefs are custom and sometimes law.
Informed by the advance of blockchain technology, Srinivasan released his own version of The Sovereign Individual vision:
“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.”
While The Sovereign Individual emphasizes individual freedom of choice between tax regimes, Srinivasan’s network state recognizes that people are united by other things beyond money and economic incentives: they also want to be around people with shared beliefs and morals, in a common community.
Similarly, Vitalik Buterin recognizes this need for common beliefs and community:
“Network states can also be viewed as an attempt to sketch out a possible broader political narrative for the crypto space. Rather than staying in their own corner of the internet disconnected from the wider world, blockchains could serve as a centerpiece for a new way of organizing large chunks of human society.”
What do crypto-natives believe?
The Sovereign Individual was published 25 years ago, but it set the stage for the modern crypto movement as we know it.
To understand what it means to be a crypto-native, consider the “OGs” that came before us. The early investors into Bitcoin and the broader crypto industry were the “geeks”, like Hal Finney, who were intrigued by the cryptographic principles behind the blockchain; the suits, finance minded types like the Winklevoss brothers who saw it as an asymmetric bet on a new financial world; and the libertines like Roger Ver, who saw in crypto the chance to wrest control from the state.
True crypto-natives are united by a belief in freedom and inclusion.
Freedom means the ability to choose the action which is right for you and maximises your own happiness. As proposed by the utilitarian philosopher John Stuart Mill, our liberty should end where it harms others in the process of pursuing it.
Beyond freedom, the crypto-native also believes in inclusion.
DAOs are a textbook example of inclusion.
DAOs empower even the smallest members a barrier-free, code-based way to shape the direction of their communities that they voluntarily participate in. For example, even in the face of the OFAC sanctions against Tornado Cash, any developer can fork its freely available code and create a new version of the protocol.
True DeFi protocols are by nature permissionless in that any one can interact with them. Anyone can spin up their own ERC20 token on Uniswap, list it, and trade it actively on a myriad of permissionless platforms.
The Bankless Nation as Network State
In my mind, the Bankless Nation and the Bankless DAO as a group of crypto-natives is a prime example of the Network State.
Thousands of members across the Bankless community work on a myraid of different projects across crypto education, media, consulting, finance, governance, DAO tooling and more (see here for Bankless DAO’s greatest hits). Yet all members share a common understanding around a core set of philosophical beliefs around financial sovereignty and inclusion, and a common medium of exchange (BANK).
The only missing ingredient (in the Balaji sense of the Network State) is a physical homeland or series of homelands, although one might count the annual Permissionless conference, other Ethereum conferences, and meetups.
Holding a dual citizenship in the crypto world
In the throes of the current bear market, there is no better time for crypto-natives to be building. Join a DAO, read a crypto newsletter, write a blog post, pick up a technical skill, do a podcast, solve a practical problem.
Perhaps most importantly, build relationships. The bear market weeded out the crypto tourists, and the people remaining are the true crypto-natives. Indeed, building in the bear is a reliable way to meet like-minded folk serious in their convictions.
Put simply, when the excitement of the bull party is over, the bear market is the best time to solidify your second citizenship in the crypto world. Just as the Chinese or Jewish diaspora exists as an entity outside of whatever nationality they hold, crypto citizens hold “dual citizenship”, one “officially” in their physical nation state, and one “unofficially” in the crypto world of their choosing.
Blockchains make it possible that more and more of our lives will be lived in this second citizenship and identity through the places we stay in, the way we store our finances, and how we interact with each other.
In one sense, this metaversal existence already exists, what with the many anons holding court on Crypto Twitter with their multi-ETH PFPs, or sashaying through the Sandbox and other early metaverses. In the physical world, we are also seeing crypto-friendly cities like Malta offering second citizenships for investment and/or buying of real estate in the small nation of half a million.
But what does it mean… for the world?
If crypto is as big of a game-changer as its advocates believe, and threatens to bring a wrecking ball to traditional institutions, can the world survive its aftermath?
How long will it take for a steady-state equilibrium between real world nation-states and the crypto world after its disruption? What should be done about increasing inequality, or a destabilized world order that privileged the crypto “firstcomers” but not the rest of the world?
One way to approach this is via a “veil of ignorance”. This idea put forth by the philosopher John Rawls goes something like this: Imagine if you were to be born in a world where you wouldn’t know your race, intelligence, social background, height or gender — what types of institutions would you design?
For Rawls, the ideal world that would emerge from beyond this “veil of ignorance” would be one that permitted inequality to exist as long as the bottom is getting richer.
Such a world might permit the existence of tax havens for the ultra-rich, as long as the less well-off also enjoyed increasing prosperity and perhaps protected by a universal basic income/safety net.
Reality will force some sort of compromise between the two. Applied to crypto, this necessitates a more inclusive institutional design that onboards new users equitably, while reducing the power of whales and insiders.
As for the world order itself, with the rise of the crypto friendly small states such as Malta and El Salvador, we are beginning to see the beginnings of a new equilibrium. Large authoritarian regimes like China may set the agenda to control the blockchain, appropriating it for control of all individual transactions, the very antithesis of freedom.
Large nominal democracies like the United States will attempt to regulate the crypto economy, protecting its right to taxation. The logic of the nation-state to preserve its power through any means necessary will lead to crypto refugees leaving in droves to economically-freer societies that are temporarily tolerated.
But with hyperinflation and the increasing prominence of a cryptoeconomy, the larger nations will take stronger action against these smaller economies engaging in regulatory arbitrage. Some form of compromise such as a contribution to global public goods from the small crypto-friendly jurisdictions might be inevitable, with the threat of global war.
The future of Sovereigns
Despite all these trials and tribulations, the genie has been let out of the bottle.
The combination of sovereign ideals with blockchain technology will lead to new ways of being and the rise of individual autonomy.
The direction is towards greater freedom for those individuals with the ability to understand and take charge of their own finances. For the crypto-natives, our country is code, and the time has come to create a new equilibrium between individuals and the state.