Crypto 2010 and Network States 2021
Similarities Between Early-Stage Crypto and Current-Stage Network States
In this article, I will be outlining three similarities I see between two related paradigm shifts. The first paradigm shift was early-stage crypto. The second paradigm shift is the current stage of 1729 and network states. The three similarities between both of these shifts are related to
Identifying a *very* large and systemic problem.
Updating old and outdated systems.
The builders that participate in both spaces.
My perspective on the comparison between early-stage crypto and current-stage network states comes from two different experiences. The first is co-founding a bitcoin exchange in 2011. The second, is participating in 1729 since December 2021. While there are also differences between early-stage crypto and current-stage network states, this article will only be focusing on the similarities.
Side note: If you’d like more context about what 1729 is, please check out my first article “1729: A New Kind of Country”
The Problem: Fiat and Government
In early stage crypto, there was a large and systemic problem identified. The problems were and still are much more important than a particular industry or product. The problem is and was to improve upon our financial system and the existing options. More specifically, the problem of fiat currency was and is the capacity to give more money and wealth to a small group of already-rich people, while simultaneously devaluating everyone else’s assets. Also, before crypto, accredited investor laws prohibited anyone who was not already rich from investing in many of the most lucrative investments.
Nobody was really sure what cryptocurrency would lead to but this image summarizes my thoughts on early-stage crypto starting in 2010.
The current stage of thinking behind network states has also identified a large and systemic problem. Governments in their current iteration are holding back progress in a variety of areas, and/or creating problems. A large portion of the internet is dedicated to pointing out the problems that people see with current systems. For example, inequality of opportunities, wars, authoritarianism, general incompetence, and corruption. Also, almost nobody seems to be happy with the response to Co-Vid. Of course, while the critiques of Co-Vid policies come from very different angles, the one constant is that almost nobody in the west seems happy about these policies. There are also other issues that are not common topics of conversation in the mainstream, yet still very important. One example is the lack of progress in longevity and transhumanism.
Apart from specific issues, there seems to be an even bigger issue about which there is surprisingly little dialogue or debate. Most governments and states do not have a coherent vision or mission, which citizens help create and execute. Most government-citizen relationships fall into three categories or some combination of the three.
Citizens who are unaware of the plan.
Citizens who think that their government is incapable of actually executing their plan. Usually this is because of some combination of corruption and incompetence.
Citizens who are aware of the plan and are essentially forced to participate without a voice in the process.
The following image sums up how I currently feel about network states, very similar to how I felt about cryptocurrency in 2010.
Outdated Systems: Fiat and Governments
Fiat currency then and governments now are essentially outdated systems that have not been updated along with technological progress. If you are looking for a good frame of reference, I would suggest comparing cryptocurrency and the internet to the reformation and the printing press. This interview with Josh Rosenthal on the Bankless podcast gives a good summary of this comparison.
The societal and technological advances in the times of the reformation pressured governance structures, such as nobility and the church, to change.
I am well aware that many may disagree with me on what is wrong with our current governance systems. My thoughts are “perfect, go start a different network state, compete with 1729, and make us better”. One of the concepts I think the United States got right is the idea of individual states being “laboratories of democracy”. Different states try things out and see how well it works. Individual citizens can move to a place depending on which mission and vision they prefer.
In early stage crypto, a digital version of fiat currency was used almost exclusively by most of society. This digital equivalente of fiat was almost exactly the same as its paper equivalent. There were three major differences between paper fiat and digital fiat.
The first was that you could send it digitally.
The second, it was even easier to create a very large quantity than when it was necessary to physically print it.
Third, fiat currency in its digital form can not be held by an individual but only a bank. Digital fiat, just like paper fiat, was designed to lose purchasing power every year.
In other words, currency had not been updated at all to keep up with technological change. Fiat is still a huge part of today’s world, however, cryptocurrency now provides an alternative to fiat in a way that few could have imagined a decade ago.
Today’s government structures have also not adapted to changing technology. As such, a schism of worldviews and power structures are forming. In the shortest terms, Balaji would describe these systems as BTC, NYT, and CCP.
The version of governance for those that support or sympathize with BTC will look very different from any current structures.
To a large extent, governments have adopted technology in the same way that fiat currency adapted technology. The underlying system hasn’t changed at all, even getting governments to make digital versions of their previous paper systems has been an insane ordeal. There are no DAOs for resource allocation. No smart contracts for bidding on projects or paying contractors. When crypto currency burst onto the scene, governments didn’t even ask the right question let alone arrive at the right answer. The question they asked was essentially, “which 100-year-old asset category does your invention fit into?”.
Most of the non-crypto solutions to fiat boiled down to asking investment banks to be fairer or hoping that some grass-roots politician would fix the situation. Most non-network-state solutions to current government issues boil down to electing a theoretical slight improvement over our current politicians. Some have also tried to buy an island or a plot of land. These different approaches seem reasonable enough to try. However, so far they don’t seem to have produced the desired results. In other words, when was the last time you heard someone say that their government made significant progress over the last decade?
Whether the problem is fiat or governments, I believe the solution lies in building superior alternatives that compete with the existing systems. These competitive models can either give alternatives to individuals or replace current structures completely.
Builders of Crypto Vs Builders Network States
There are similarities between those that were involved in building early-stage crypto and those who are currently involved in building network states. In early stage crypto, those involved tended to be outsiders to the financial system. For example, as far as I know, there weren’t any higher ups at investment banks or central banks. Meanwhile, in the current stage of network states, those involved tend to be outsiders to our current system of government. For example, there do not seem to be many who are higher ups in our current system of government. In both cases, it was and is a group of “outsiders” attempting to build alternatives and / or replacements to the current systems.
There are pros and cons to having a group of outsiders work on creating alternatives to financial and governmental systems.
Some pros to the outsider approach are
As outsiders, we can better understand the problems of other outsiders.
Since we are unconstrained by current “best-practices”, we are more likely to consider outside the box ideas that might just work.
Since we are not currently part of the system, we don’t have the temptation to work within it. I see this as a positive because I don’t see many, if any, governments that have been 10X improved from within during the last decade. In other words, trying to reform the system from within has been tried a lot and has an unsuccessful track record.
I see one huge con to the outsider approach. You may miss some important knowledge that the current system possesses. For example, in the early days of crypto, many exchanges had problems with chargebacks and losing user deposits. If traditional finance experts were more incorporated into early-stage crypto companies, this might have been avoided.
In terms of Network states, let’s say you want to keep a network state safe. On one hand, I applaud the idea of using trying to come up with newer and better ways to use technology to defend a network state
However, on the other hand, having the knowledge of someone with decades of experience in a currently-existing military, might also be very helpful.
A Quick Recap
Crypto and Network states both identify large, systemic problems of financial and governance systems. The diagnosis and value proposition of both crypto and network states are similar. Essentially, both systems are outdated, not working for most, and need to be updated. Lastly, both of these movements have started with outsiders to the systems which they look to provide alternatives to.
If 1729 seems particularly interesting to you, I would love to connect. Feel free to contact me on Twitter at @BerkeleyWanner. You can also pre-order Balaji’s new book here
Thanks for taking the time to read about 1729, stay tuned for more!