The Audacity of The Network State

And how web3 is tilting the traditional political axis

Somewhat discreetly, an immensely important piece of techno-socio-political literature was published on July 4th of this year. The author is Balaji Srinivasan, and the book is The Network State. I don’t want to go too deep into analyzing the entire contents of the work, as there are too many paths to explore, but I highly recommend taking a gander. Ethereum founder Vitalik Buterin already gave a nice summation here, mostly in agreement of theory and application, with a few minor qualms on tactics and general concern for humanity. Although the lack of relative hype around TNS is somewhat surprising to me considering Balaji’s stature in the VC/Crypto community, the work is too multi-dimensional for a modest Substacker such as myself to do it justice with some quasi-attempt at a John Updike review piece. There will be much said by many on this topic over the coming decades, as the book itself is a living document that will be updated and edited as history morphs around it. In the meantime, I want to highlight one of the suppositions he posits that leads to the little crack in society in which a Network State can plant its seed.

But first, let’s catch everyone up with a definiton. What is The Network State? In his own words:

“A network state is a highly aligned online community with a capacity for collective action that crowdfunds territory around the world and eventually gains diplomatic recognition from pre-existing states.”

It starts with a founder of a “startup society” who garners support around One Commandment, a purposeful morality issue that all members agree upon (and is currently lacking in society writ large), and enlists all of those who opt-in to make their collective net worth anonymously available on a blockchain. These people, united through a common cause, distributed geographically around the world, could eventually link up with other startup societies and form a “parallel society”, and eventually a “network archipelago”. As the disjointed networks gain more and more resources in the form of capital and real estate, they can eventually apply through normal diplomatic measures to be officially recognized as a Network State.

The purpose of all of this stems from what I am going to dive into, but more generally, it is the overt end-state of what I microcosmically described in The Creator Economy about how web3 enables users to speed-run multitudes of governance structures to let the “market” decide what the people want. Where I was describing a not-insignificant subsegment of the global economy, Balaji (in-explicitly, btw) shows how ALL governance (including capital-G Governments), could be (and maybe he hints a little at should be) subjected to such protocols. This is the audacity of Balaji. IMO one of the smartest people on the planet, described by others as an “expert on everything”, wants to essentially optimize the world. It would sound crazy if it wasn’t so damn plausible.

But.. why? What is so wrong with the current brand of democracy that one would want to “crowdfund territory to eventually gain diplomatic recognition”? Well, ask 100 people and you will probably get 100 answers. It’s no secret that American politics have gotten more polarized over the past few decades, but Balaji’s supposition is that web3, specifically Cryptocurrency, is the hub of the wheel that is going to tilt the traditional 4 quadrant political axis. But first, some history.

History is at the very foundation of TNS, and it is imbued throughout the text in the form of excessive citation. It is also the basis on which a startup society founder should cement his or her One Commandment, for it is only through factual historical necessity, and not fear or speculation, that a startup society will prosper. One such piece of history that Balaji hangs his archipelagos on, is that the traditional Left and Right are constantly changing places over time. This is neither good, nor bad, it is just simply a fact that society progresses forward heliocentrically. The Revolutionaries (the have-nots, or the traditional Left) band together over a unified moral cause to revolt against the Elites (those in power, the traditional Right). If/When the Revolutionaries win, they attain economic superiority, which enables them to inflict their moral superiority. Thus the Revolutionaries (when they win) become the Elite, in perpetuity. The most prescient and obvious example of this is with the American political labels of Democrat and Republican. It was the Southern Democrats who comprised the Confederacy in the Civil War, and it was the Republicans who fought for their moral supremacy to abolish slavery. It wasn’t until they were firmly ensconced in power, inflicting their supremacy, that a new moral superiority slowly rose in the form of Civil Rights, and the party titles inverted as the Democrats became the party of the oppressed working class, and revolted against the Republican establishment, eventually accomplishing desegregation and women’s suffrage.

It is here where Balaji suggests we have reached a new inflection point. The Democratic Party has firmly achieved its moral and economic superiority. He has plenty of his own citations, but if you doubt this, a simple test would be to look at the top 5 cities by GDP in America (NY, LA, CHI, SF, DC) and guess which party is economically in control. Economic control dictates moral control, which has slowly perpetuated into such things as Cancel Culture and Deplatforming. Whether you agree with each individual Cancellation or Deplatforming is not of consequence. The consequence, to drill into this one issue narrowly, is that we are in an age where Media has unprecedented power, and to silence someone based on mob rule, or worse, a single editor’s opinion, is akin to limiting their ability to pursue “life, liberty, and happiness”, or more explicitly their Freedom of Speech. This should not be a controversial statement to anyone.

This inflection point, however, is not traditional in the sense that the current “woe is me” Republican Party revolts against the “coastal elite” Democrats on grounds for moral superiority. Despite the fact that Right is becoming the Left (meaning Republicans are once again becoming the party of the working class, while Democrats do represent the educated/elite), they do not have enough traction within their faction. We are at a unique point in time in which there is a Right and Left (or rather, Top and Bottom) within each Party, that is just as conflicted with themselves as they are with each other. Ask a Libertarian if they are happy with the decision to roll back Roe, or ask a Centrist Democrat if they think student debt should get cancelled. The 4 quadrants are fractured, and the horizontal axis is shifting vertically.

In a moment I will diverge from Balaji-ism and supplement with some more of my own analysis, but I want to address his macro view on US and China. Balaji suggests that China will be an ever-increasing totalitarian force, and that the US, with it’s Politics connected to it’s Media, will attempt to copy some of China’s tactics, and fail miserably, leading to what he calls American Anarchy vs Chinese Control. The endpoint is the same tilted political axis I diagram below, but I want to add a little more color to the prism, within the perspective of the ethos of web3.

But first, a quick review of the 4 quadrants. The upper left is the Authoritarian Left. They want economic equality and wealth redistribution but at the expense of personal liberties. This is the quadrant of vaccine mandates. The upper right, the Authoritarian Right has similar psychological traits regarding the infliction of moral superiority upon the masses, but more laissez-faire economics. This is the quadrant of rolling back Roe. The lower right, the Libertarian Right, favors ultra freedom in both speech and markets. This is the quadrant that favors privatized solutions over subsidized ones. The lower left, the Libertarian Left, values social equality above all else, but argues for redistribution of wealth to level the playing field. This is the quadrant of Universal Healthcare.

Historically, the axis that defined Left vs Right was the vertical axis that was really defined by economic control. The inflection point we are seeing in real time, is that the prominence of the horizontal axis, or social control, is becoming more prevalent as the true political partition.

As web3 aims to decentralize institutions like, idk, Finance, and provide new structures for governance and redistribution that one can opt-in to, rather than be subjected-to, the actual bickering over economics becomes less important than the ability to have the bickering over economics.

In other words, as top-down social control becomes more and more the norm, the Authoritarian Left and Right start to look the same.

Web3 technology plays a unique role in this as there are only really 2 main tenets as to why a blockchain is even useful: immutability (trust) and censorship resistance (privacy). In a world where (reconnecting back to Balaji) the country that controls the global reserve currency (which in of itself is under threat - according to Ray Dalio), is becoming increasingly Authoritarian, it makes sense that protecting USD would become the most important tool in the toolkit. Any third grader nowadays can tell you the effect that the monetary policy has on the economy, and any fifth grader can tell you that the Fed has become more and more political with each passing administration. Advanced seventh graders taking Español say that sounds “no bueno”. Recall a little bit of history and the pre-fiat Executive Order 6102 in which FDR commandeered the gold that Americans were “hoarding”, citing a “national emergency”. If you think that was super-duper long ago and not relevant to today’s world, consider that both Biden and Trump were born merely a decade later. It is not difficult to foresee a weaponized Fed, or an outright ban on cryptocurrencies.

The point is that there is now another option for currency. Rather, there are many other options for currency, and in web3 one is able to freely trade them as they see fit, without being subjected to state-controlled inflation, or repossession. As Balaji describes it, the Blue Left vs Red Right becomes Bitcoin Orange vs Dollar Green. Said another way: Libertarian Orange vs Authoritarian Green. Within the Libertarian Orange there still exists a difference of opinion in wealth redistribution, but that is the beauty of web3 governance protocols, and the vision of The Network State. These two groups are already playing nice in the sandbox, perhaps unbeknownst to the mainstream (or even themselves!). Venture Capitalists are on a mission to make it easier for artists to get paid by cutting out the middleman. Artists are stoked on the ability to actually monetize their own creations. Black is white. Up is down. Even politicians are saying that crypto regulation is “pre-partisan”. Web3 has one of the most vibrant and diverse diasporas of participants of any ecosystem that I can think of. “Liberal” Venice Skater Dudes flipping NFTs mixing it up with “Conservative” TradFi bankers leaning on DeFi to yield farm market alpha. There can be a startup founder that “Atlas Shrugs” themselves a secluded community in the mountains where only builders and engineers are allowed, while a separate startup founder can create an inner city community that bands citizens together to eradicate homelessness, and the two communities can freely exchange currency and goods and services, along with the freedom to exit either society as they see fit.

Bitcoin has previously been called “schmuck insurance”, protection against uncertainty that someone in a high place might do something stupid. Some have called it “inflation insurance” up until the point in which everyone realized that its value is still directly correlated with monetary policy. I would call it “dystopia insurance”. BTC/Crypto at large is correlated with inflation up until the point in which the government steps in and outlaws it. That is where the lines are drawn and sides are chosen. It’s already happening, although it may not be overt, because the lines are perpendicular. When you come to the realization that the Big Tent parties can’t choose sides because both stand to lose support, it becomes clear that history is going to repeat itself. The Revolutionaries, with their moral superiority once again revolt against the Elite ruling class. But this time, with Crypto. It’s kinda crazy, but it’s kinda not…