What is a Network State?

Key points

• The Network State is a socio-political concept proposed by former Coinbase CTO Balaji Srinivasan, built on blockchain and adjacent technologies.
• Such entities exist not only online but also in the physical world.
• That physical presence is achieved by acquiring land across the globe and linking the plots into a networked archipelago.
• In principle, any community of like-minded people can aspire to become a network state.

Why create new states?

The idea of the Network State is set out in the eponymous book by entrepreneur, investor and former Coinbase CTO Balaji Srinivasan. In it, he proposes a playbook for creating network states—alternative political entities built on blockchain and other innovations.

According to Srinivasan, social and political change proceeds more slowly than technological change. He attributes this to the global dominance of nation-states. In such a setting, reforms and experiments with new forms of social organisation are limited: political careers are inaccessible to most and require integration into existing institutions of power.

Unlike officials, entrepreneurs do not need to embed themselves in corporations to start a venture; market competition increases variety and quality, generating public benefit and driving progress. As Srinivasan puts it, “it is much easier to get onto the Forbes list than onto the list of presidents of the United States”.

The Network State seeks to harness market dynamism to accelerate social progress—using modern communications and cryptocurrencies, anyone can found a start-up society much as a founder launches a business.

The founder is not constrained by legacy and can freely experiment with the parameters of a community that may later become a network state.

What are the fundamental principles of a network state?

By Srinivasan’s definition, a Network State is “a social network that offers a moral innovation, possesses a sense of collective self-awareness, has a recognized founder, the capacity for collective action, a certain level of correctness in interpersonal interaction, an integrated cryptocurrency, a government based on consensus and constrained by social smart contracts, possesses an archipelago of physical territories, virtual capital, conducts an on-chain census that shows the network state has sufficient people, land and wealth to achieve a certain degree of diplomatic recognition”.

By the key points of this definition the author means the following:

• moral innovation—a shared ethical idea embraced by all citizens (netizens) of the network state. It should be succinctly expressed through a “One Commandment”, a formula shared by all participants;
• the founder offers a vision for the network state and has exclusive authority to make decisions about the project’s development;
• cryptocurrency underpins economic functioning, enables accounting and resident identification, facilitates voting and participation in crowdfunding campaigns;
• land—the network state’s property in the physical world, used by its members. It may be distributed worldwide;
• diplomatic recognition distinguishes a network state from other possible forms of community organisation.

Srinivasan also distinguishes “start-up society”, “network union”, “network archipelago” and “network state”.

• a start-up society is a founder-led community united by a single idea, existing online and taking collective action based on its values;
• a network union is a mature start-up society with a blockchain-based internal economy and a large membership. Network unions can defend their interests vis-à-vis traditional states and large corporations;
• a network archipelago is a network union with physical assets: land, property and so on;
• a network state is a network union that has secured some diplomatic recognition and political sovereignty.

A start-up society need not evolve into a full-fledged network state, just as a new business may not aspire to become a global corporation.

What might the “One Commandment” be?

Moral innovation is the foundation around which all the above formations are built. It unites members, gives them a shared identity and a purpose for collective action. The “One Commandment” may concern a preferred way of life—for example: “Veganism is the most beneficial and ethically acceptable diet for humans”—or a value statement: “Cancel culture harms society”.

Community members act in a coordinated way both online and offline in line with the “One Commandment”. For instance, members of a vegan start-up society may spread materials on the benefits of eschewing animal products or open a restaurant, while members of an anti-cancel-culture society may help find jobs for people dismissed after online harassment.

Why does a network state need land?

Cloud first, land next (but not land never) is the principle that start-up societies should organise online before acquiring land and other non-digital assets. Through networked communication and collective practice they can develop ethical rules and a sense of belonging, as well as design a blockchain architecture for self-governance and decision-making.

Acquiring land is needed for co-living and to open businesses. At the first stage, Srinivasan recommends buying plots outside major cities in areas neglected by corporations and states.

Territories acquired by a start-up society are linked into an archipelago via the network.

What role does blockchain play?

Blockchain is the core infrastructure of a network state. It allows participants to verify identity, own and exchange digital assets, take governance decisions, register property rights, enter legal relations with other citizens, marry, and so on.

All interactions of netizens recorded on-chain keep the state’s statistics current. In a Network State, consensus-based smart contracts play the role of laws.

Srinivasan allows for multiple citizenship: using Web3 login, a person can take part in several network states at once.

One of the most important ideas is the on-chain recording of all significant verified events (the ledger of record), a “provable history” that helps avoid manipulation of the past and shows the state’s trajectory.

How does the Network State differ from earlier utopias?

According to sociologist Pavel Stepantsov, Srinivasan’s hypothetical project belongs among contemporary techno-utopias—a way of problematising social relations that arises from attention to new technologies of organisation, observation and making community members visible.

Unlike the grand projects of the 20th century—anarchism and communism—in which technology plays the role of an instrument for achieving political ends, these utopias understand technology as a “form of life”. Social relations are derivative of innovation. Technology shapes new forms of social interaction.

“Srinivasan is often considered a follower of libertarianism, but that is not quite the case. Libertarianism is based on the philosophy of utilitarianism: if we achieve an optimal economic state, then the social component will follow it. Srinivasan’s project emphasises the importance of norms of communication and the moral underpinnings of human communities. It is more sociological and resembles the theorising of the sociologist Norbert Elias, who assumed that supra-individual structures arise from the interaction of people and reproduce themselves by creating moral norms and values,” the expert explains.

What are the criticisms of the Network State?

Ethereum co-founder Vitalik Buterin, in the article “What I think about the network state”, outlined several points “he has problems with”:

• the leading role of the founder. Centralisation and one-man decision-making suit small start-ups, but as projects scale an asymmetry of power may emerge, and a founder’s decisions may constrain the development of digital states;
• inaccessibility for people without substantial means. The concept fits citizens of developed countries who can choose a jurisdiction, but most in the developing world cannot fully participate in a network state—they are restricted in their freedom to choose jurisdictions and cannot move between enclaves;
• the insufficiency of an “exit strategy” to solve global political problems. “Exit” means non-participation in political life, including emigration. Free states will allow citizens to leave their jurisdictions, whereas authoritarian ones will close borders and block the emergence of parallel societies within them;
• the problem of negative externalities. The “vulnerable world” hypothesis suggests that scientific progress increases everyone’s access to destructive technologies. To prevent threats, authoritarian measures may be required. A deregulated world of network states raises the chances of a man-made catastrophe.