A Bankless Nation 🏴 (Part I)

Bitcoin and Ethereum are Digital Nations; a new paradigm for how humans organize and coordinate

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Dear Crypto Natives,

Aliens visit earth. They see our cities, our tech, our moral code.

They’re curious—what are you doing here?

The humans respond—we’re trying to get coordinated.

Coordination.

That’s human progress in a nutshell.

And what happens when we invent a better way to coordinate—a new nation?

David explores the Bankless Nation today.

🏴

- RSA


🙏Sponsor: Aave—earn high yields on deposits & borrow at the best possible rate! 


WRITERS CORNER

By Bankless writer: David HoffmanRealTBankless podcast & POV Crypto

A Bankless Nation - Part I 🏴

In this essay, I breakdown the concept of a ‘Nation’ into its fundamental components in order to create a new lens for viewing what a ‘Nation’ is. Together, we’ll go back into history and look at historical examples of Nations, summarize what made them successful, and scrutinize what made them break down. We finish with an illustration of how Bitcoin and Ethereum are the next iterations of Nations. While Digital Nations like Bitcoin and Ethereum exist in a new paradigm, they embody the similar roles and constructions of the Nations that have come and gone throughout time. 

Part II of this essay explores these Digital Nations on a deeper level, especially as it relates to the individual and how they can meaningfully impact one's life. Stay tuned for Part II by subscribing to Bankless!


🎙️Hungry for a podcast episode on this? Subscribe to Bankless Podcast now so you don’t miss next Monday’s episode where David and I discuss A Bankless Nation in detail! - RSA


Digital Nations

From outsiders, this industry is frequently called the ‘cryptocurrency’ or ‘blockchain’ industry. This nomenclature is woefully inaccurate, and disguises and diminishes what these systems actually are.  

  • ‘Crypto-’ refers to cryptography, which is the mathematical system of proofs and assurances that underpins the rules for making updates to the system, but is not the system itself.  

  • ‘-Currency’ refers to the native scarce asset of each composed system, but is not the system itself. 

  • ‘Blockchain’ refers to the shared ledger database; the source-of-truth that is used by all the other components that compose the system but is not the system itself.  

This is a perfect example of the “blind men feeling the elephant” parable. None of these things represent the system in its entirety. Naming these systems after one of its components is missing the forest for the trees. Calling Bitcoin ‘a blockchain’ is selling its true potential terribly short.  

These systems are holistic compositions of different interconnected components, woven together by a system of incentives, rational agents, and inputs/outputs. The emergent product of this composition is far greater than the sum of each individual part. Finding a precise name for the emergent product of these systems has been difficult. In fact, the only name that truly encompasses the entire body of these systems are the names themselves: Bitcoin and Ethereum.

Really, though, Ethereum and Bitcoin are neo-nations. Like physical nations, Bitcoin and Ethereum are composed systems of incentives, agents, and input/outputs. They are unified bodies of stakeholders, economic agents, software, and hardware. Like the nations before them, they act as tools, or infrastructure, that enable individuals to help achieve their personal goals.  

Defining a Nation

Wikipedia’s definition of a ‘Nation’:

A nation is a stable community of people formed on the basis of a common language, territory, history, ethnicity, or psychological make-up manifested in a common culture.

This definition of a Nation is biased in favor of the physical nation-states we know today—USA, France, China, etc. More expansively, however, a nation is an organizational schema that humans use to organize and orient themselves to the world around them. Nations are systems that humans use as scaffolding for their daily activities; they create the structure for the constituent components that compose them. Not only have many nations come and gone with the passage of time, but many different types of nations have emerged, matured, aged, and then eventually died, as new nations are born in their place.

Nation-Organism

A nation is a composed system of many different independent parts, each working to achieve its own individual goals. These independent components are woven together by a central protocol that produces consensus and coordination between each component. The goal of each independent component is to thrive to the best of its ability, and the collective output of all discrete components helps the composed system achieve its main purpose: to produce a healthy and nourishing environment for each component-part. The success of each individual component contributes to the success of the system at large, which can then produce a better environment for the components to operate within. This feedback loop is how the Nation-organism grows.

Nations are like bodies. They are creatures with internal organs, protective defensives, and dangerous offenses. They consume resources, generate outputs, and produce waste. They are primarily concerned with their own survival. They have defensive and offensive systems that keep them alive. They live in a place of scarcity and must compete with others to do what’s best for itself. Nations often band together in order to improve their individual chances for success. 

Nations are tools that humans leverage to access stability in their lives. They offer organizational structures that people depend on for coordination, trust, and protection. The Nation achieves its sustenance by charging taxes, which the people are largely happy to pay so long as they perceive the cost to be an overall benefit. The Nation protects and organizes the people, the people pay the taxes for the upkeep of the nation. 

A nation is: 

  1. A mesh network of independent components

  2. A protocol for those components to interoperate and communicate

The protocol enables the components to stitch together in a seamless and efficient manner so that the efforts of one component benefits the others. The protocol is responsible for coordinating all its constituent components. The faster and more efficiently a protocol can coordinate two constituent components, the fewer resources the nation consumes. As a result, the output of the production of the economy is maximized, which allows for further growth of the constitution components.

The protocol of a nation is its DNA. It is the code that dictates how the rest of the body should form and develop. The body of a nation are compositions of different systems and agents at different scales:

  • Cells: The individual people of a nation; primarily concerned with their own survival and livelihood. Each cell has one specific role and is familiar with only its own local environment

  • Organs: Collections of cells that have naturally organized themselves in order to achieve a larger goal. 

    • The heart (resource delivery)

    • liver (healthcare system)

    • brain (government)

    • kidneys (waste removal) 

    • skin (borders & military) 

    • immune systems (police force)

      The organs of a nation are the institutions that make up the key functions of survival for the nation at large, and a breakdown in one single system can cause the breakdown of all others.

  • Body. The body is the emergent result of the effective functioning of the constituent organs. The body is the nation.

Using this lens to look back into history offers a different perspective on what nations are, and how they act. Different nations offer better or worse scaffolding for their components. The differing DNA of various nations makes a critical difference in how the nation manifests at maturity, and how successful it is over the long term. So far, there has been no such thing as ‘the Eternal Nation’; they all are born, develop, mature, and die. Each nation has a relative fitness to the world around it. The changing environment around a nation stresses a nation and challenges its ability to adapt to new stresses and new inputs. 

Scaling Trust

Looking at the progress of the human story from a macro-view, the scaling of trust, coordination, and commerce across larger groups of people could be viewed as the prime objective of the human species so far.

If someone were to ask us: What are you doing here?, humans could answer We’re trying to get coordinated! Or perhaps, humans first need to “get coordinated” so they can begin to formulate an answer to the question “What is our collective purpose?”. Either way, our prime objective as a species is to create a nation that can enable coordination on a large enough scale so that we can begin to work collectively towards a common goal. 

The nations that have been discovered and built across time have had differing results in their ability to scale trust and enable commerce. The ability to scale trust and organize humans depends on how efficient and effective the nation is. Not all nations are good at organizing people, and nations that are inefficient at scaling trust will ultimately succumb to ones that are better at that function. This is the natural march of evolution and progress. 

Dunbar’s Number

Dunbar's number is a suggested cognitive limit to the number of people with whom one can maintain stable social relationships

Dunbar’s number for humans is about 150 people. Most species, mammals especially, operate in social groups and have their own respective Dunbar’s number for how large a group can grow before the natural social system of checks-and-balances breaks down, and the group fractures into two. 

Dunbar’s number is ultimately about trust: how well a group of agents can maintain an accurate memory of who they can and cannot trust. Dunbar’s number maintains that it is impossible to know more than 150 people with enough information about each individual to maintain a trustful relationship with every person. 

Real-world manifestations of Dunbar’s number can be found in the different ways species comprehend, and act on, fairness (and therefore, their trust in others). Here are three salient examples that illustrate how all mammals bend towards trust: 

  1. Vampire bats consume from 50 to 100 percent of their body weight in blood every night. A bat who fails to source food will quickly perish, unless it can solicit food from a friend. The key to survival for these animals is an elaborate system of food sharing, which is based on reciprocal altruism, and the trust that if you fail to find food, your kin will have your back. Most importantly, bats that decline to share food with a friend in need, will not be shared with by others in the future.

  1. Two Rheses Monkeys are rewarded for completing a task. One is rewarded with a Cucumber (an okay treat), while the other is rewarded with a Grape (a great treat!). The first Rhesus Monkey refuses to accept the cucumber treat in protest! The trust that the Rhesus monkey had in its caretaker is SHATTERED, because of the obvious favoritism. 

  1. Babies. Even before the age of one, babies have been shown to understand the significance of fairness, and the benefit of trust and collaboration. Watch, as children observe a puppet-show that depicts some puppets helping others, and other puppets thwarting others. Afterward, babies show a clear preference for the puppets that have been shown to be helpful to puppets in achieving their goals, apparently because they know that they can trust that puppet!

When it comes to relationships, trust is a lubricant. Trust is the substrate that underpins not just families and friendships, but also business ventures and economies. Exchange and economic activity between trusted parties is easier and more efficient when the parties trust each other.

The macro-view of the human species shows us discovering new and better systems for establishing greater levels of trust, across further distances. Dunbar’s number resembles the basal layer of trust systems, created by the evolutionary fitness that social groups have over individuals. Every new Nation that humans have discovered have been layered on top of a foundation of trust in others. 

Protocol-Economy Duality

Protocols support economies that support protocols. 

Nations, or organizational schemes, are protocols. Protocols dictate the rules of the system, in order to establish standards that everyone can rely on. Protocols, and the standardization they create, are crucial for efficiency. If everyone can assume that everyone else is operating within the same standards, the heavy-lifting of coordinating is already taken care of. 

“Internet Protocol” or IP, is the communication protocol that computers use to establish connections. The entire Internet is built upon the fact that all computers are using the same IP. It’s entirely possible to build a brand new internet with a totally new IP, but since we are already using our current protocols (and they are working just fine) everyone needs to be using these protocols to connect to the “the internet”. 

Photo

Because everyone is using the same IP, everyone is on the same internet. As a result, the internet has been a huge boon to global productivity, not just in communication and commerce, but also in interpersonal socialization and culture creation. 

The purpose of a protocol is to increase the speed and efficiency at which humans can progress. ‘Progress’ is being used expansively here; protocols help us achieve our individual or collective goals faster, whatever those goals may be. 

Religion, nation-states, the internet, trade-agreements, all represent protocols that dictate how one should communicate and coordinate with others. Each of these things gives prescriptive rules and regulations that need to be collectively followed in order for the protocol to work, and in order for the people who use it to progress. 

Neutral and Non-Neutral Protocols

Protocols enable efficiency, but they do not dictate where that efficiency should be pointed; only humans can do that. Neutral protocols do not establish what our goals should be, they only help us to achieve them

Throughout history, we have seen examples of protocols that had subjective human values ‘baked in”. These protocols tend to wreak havoc at maturity. When a non-neutral protocol has a monopoly upon its domain, it can exert its subjective influences unchecked. See: all religious wars and conflict, communist Russia, the Maoist revolution.

The best protocols are the ones with no subjective values ‘baked in’ at the protocol-level. The internet is a good example of this; using the internet does not force you to become a communist in order to use it. This is why the separation of Church and State is so important; the subjective values of the Church shouldn’t be imposed on others who do not consider themselves part of the Church. The ability to ‘opt-out’ of a protocol is critical. A protocol should be infrastructure for the individual to express their own values and desires, but not to impose them on others. 

To Foster Economy

Good protocols help us achieve our own unique goals without dictating what those goals should be. This can be difficult, as many people’s goals conflict with each other. The only way that a protocol can help us all achieve our goals, without benefiting one party in particular, is by confining the scope of a protocol. 

Good protocols foster economies and only that. Having a strong, robust, rich economy is how a protocol helps everyone achieve their own personal goals, without having to concern itself with what those goals are. Producing a strong economy is the best way a protocol can help us achieve our own subjective goals while retaining credible neutrality about what those goals should be. The ‘economy’ is a tool that people use to achieve their own personal goals, and a neutral protocol establishes a neutral economy. 

Protocols Throughout Time

Protocols have come and gone across human history. Each new protocol improves and iterates on the protocols before it. Over time, the protocols that have embedded subjectivity, systemic frictions, and limits on freedoms are replaced by new protocols with fewer of those things. I’m focusing on the three main paradigms of human organizational schemes (protocols) throughout history, although there are plenty of intermediary steps that won’t be discussed (animism, monarchy, etc)  

Religion

Defined by Wikipedia: Religion is a social-cultural system of designated behaviors and practices, morals, world-views, texts, sanctified places, prophecies, ethics, or organizations, that relates humanity to supernatural, transcendental, or spiritual elements.  

A social-cultural system of designated behaviors and practices. 

In other words, religion is a protocol for how to act in order to be in accordance with others. The goal of religion is to create social unity and cohesion across large scales. “Righteousness” is the quality or state of being morally correct and justifiable; a way to measure the trust that one can safely place in an individual. If someone is righteous,  they can be trusted. It’s a medieval form of credit scoring. 

Religion scaled trust across individuals, even when the individuals spanned large geographic areas and did not know each other on an interpersonal level. By publicly bearing the same religious banner, two individuals were able to gain some assurances about how the other would act before they spent time getting to know each other.

The protocol for a religion is typically written down and formalized in a sacred text. The Bible, Torah, or Quran are the instantiation of the protocol in physical form. These texts are the documentation of the protocol, which dictated how the protocol, and people following the protocol, should operate and behave in accordance with each other. Disputes and disagreements were resolved by referencing passages in the documentation that illustrated what God intended for certain behaviors, and God’s word is Final. 

Costs and Drawbacks

Subjectivity

No organizational scheme is perfect, and as an organization scheme, Religion had many flaws. Perhaps the most critical is the subjectivity of interpretation of the protocols documents. Two people could make loose or tight interpretations of the protocol, which would result in different prescriptions for how to act. These two different versions of reality were ultimately the source of protocol forks, and created the splintering of consensus from one central belief system, to many different factions. 

Commitment to an Out-Group

At maturity, organized religion tends to fall apart. Each religion has a ‘win-conditions’, or ‘end-game’ that inherently put them at odds with any other competing religion. Wars have been fought over this, and conflicts continue to this day. The primary way religion scales trust is by creating cohesion with an ‘in-group’, which simultaneously commits to the existence of an ‘out-group’. In order to establish internal cohesion, religions commit to limits on their maximum scale. 

Internal Costs

The doctrines that are prescribed by religions include some nonsensical rules. The adoption of rules that do not reflect the good of the group as a whole is a limiting factor on the scaling of trust, and adds friction to the system at large. Any effort that religion places on genital mutilation ceremonies, or restrictions on certain behaviors like drugs, homosexuality, or lefthanded-ness, is wasted effort that was better deployed elsewhere. 

Religions tend to oppress and persecute certain groups of people, without any real significant gains to the system as a whole. Prescriptions that oppress in-group members is not ideal for the stability of the system as a whole; it kills the incentive for members of the in-group to help maintain the system. Why would they align with a system that oppresses their freedoms? When a new nation arises, they have the incentive to defect.

Non-Resistance to Capture 

As the protocol of organized religion expanded, it became a target for coercion and capture by interested parties. When a protocol grows in power and influence, the incentive to capture control over it increases commensurately. While the protocol of following a religion worked for stitching people together, its ability to control people and exert influence became too enticing. Ultimately, these systems came to be headed by those who were not aligned with the protocol itself but instead were interested in the power and influence one could have at the helm of the ship. Leadership over religious protocols ultimately led to corruption and breakdown. 

In the end, the non-neutrality of religious protocols limited their scope. The commitment to an out-group, the frictions in following the protocol, and its inability to maintain capture-resistance ultimately left a sufficiently large void for the establishment of alternative nation schemes to step in. 

Nation-States

The nation-state offered a stronger way to scale trust and organization across people, with fewer costs than organized religion. Nation-states brought an attempt at formalized ‘protocolization’ and the instantiation of ‘credible-neutrality’ in the underlying system. The ‘Constitution’ of a Nation is an ‘if-this-then-that’ codebase for how the nation-state system should operate. While it did not completely remove subjectivity from its interpretation, it made significant progress in reducing it. 

The protocol of the USA Nation made a clear effort to establish “credible neutrality” in the system. The first amendment to the USA brought the ‘separation of Church and State’, in an attempt to restrict the subjective values of one group from being forced upon others.

The main innovation of a nation-state was the removal of a permanent, unchanging, set of rules and rulers, by creating a protocol for changing the protocol. Sometimes, humans mess things up and we should be able to make corrections without having to live with the mistakes we’ve made, simply because “it is the way”. 

Maybe if religion had accepted protocol updates, it would have realized that the oppression of homosexuality or the stoning of non-virgins might not be in the interest of the group as a whole. However, the word of God is final, and the only way to not practice these things is by forking the protocol into something more sustainable. 

A ‘protocol for changing the protocol’ is the feature that enabled the scaling of the nation-state far beyond what organized religion ever could. This feature is what allowed minority groups to voice their opinions and say “we don’t like this!”. This has worked decently well, at least compared to religion. By allowing for problems to be voiced and solutions to be agreed upon, the ‘protocol for changing the protocol’ was able to have ‘software updates’ that allowed for efficiency improvements, and reduced the overall costs to the system. The nation-state protocol could be updated to be more inclusive and could scale to a larger set of people. 

Nations are composed systems. A nation is not one singular thing, but rather a mesh network of interconnected, independent parts, each with an input and an output. This system is split into two parts: the nation, and its economy. The ‘protocol’ of a nation is the rules and laws, encoded into some document that everyone inside the nation agrees is the set of documents that dictate the rules of the land. The economy is both the thing that nourishes the system that governs it, as well as the thing that gives legitimacy and purpose over the governance of the system. Fostering the economy is the whole point of a nation. 

Scaling the Nation-State

The USA, as the exemplar model for a nation-state protocol, is a system for maximizing trust, communication, and commerce throughout its domain. The Federal Government of the USA is the ‘protocol of protocols’. The Fed is the protocol that all 50 states agree to abide by. Each of the 50 states is also a “sub-protocol”, which is designed to be more finely tuned and appropriate for its relevant constituents. Inside the states are counties, which are sub-protocols of the state, and then finally districts, which are sub-protocols of counties. Four orders-of-magnitude define the entire composed protocol of the USA, and enable the scaling of trust and commerce from any part to any other part of the USA. 

This structure is similar to the concept of ‘sharding’, in which different domains of the protocol only are responsible for managing their specific region. The Federal Government is the Main Chain that allows for the Washington State shard to communicate with the Florida shard, as well as all the individual County shards inside the State shards. 

This protocol-of-protocols-of-protocols system is what allows for open borders and free trade across the entirety of the USA nation. Protocols are about creating standards. Federal agencies like the FDA allow for the exchange of foods and drugs across state boundaries because they are all following the same rules. Standards and protocolization generate efficiencies by scaling trust and is what enabled the USA Nation to scale trust and commerce across its domain.

Case Study of a Superior Protocol

The Cold-War between the USA and USSR was a war over who had the better protocol. ‘Better’ is defined as ‘which protocol produces a stronger economy’ because whoever has the stronger economy can out-spend the other. These two nations never had any concrete reason to fight each other directly.  However, when two Alphas are placed in a space with limited resources,  something’s gotta give. 

Ultimately, the Cold-War between the USA and USSR was an ideological fight over how a nation-state protocol should be designed. The outcome of this fight was determined by the relationship between each protocol and the respective economy it produced. At the start of the Cold War, the winner was fated to be whichever protocol produced a healthier, more robust economy. 

The success of the USA protocol over the centralized regime of the USSR illustrates an important point about how nations should be constructed. The USA protocol emphasized personal freedoms over compelled service, which resulted in a more robust and effective economy. When left to their own devices, humans discover how they best fit into the national system. The central planning and coordination of the USSR largely ignored the desire for autonomy and independence. Instead. it placed subjective desires on how the economy of the USSR should be, and how/where the humans inside of it should go. 

The values that were instantiated in the protocol of the USA were more closely aligned with how humans naturally act. Limitations on what the protocol has control over allowed for the constituents of the USA protocol to access maximal freedoms, and resulted in an economy that was stronger and more robust than the one the USSR produced. The Cold-War was ultimately won by the USA because its more robust economy allowed it to outspend the USSR.

The lesson learned is this: the people when given maximum autonomy auto-organize themselves into an efficient, interconnected economy. The free-hand of the market guided the American economy into prosperity and gave the USA protocol the resources it needed to out-compete the USSR.  

Spontaneous Order. “The evolution of life on Earth, language, crystal structure, the Internet and a free market economy have all been proposed as examples of systems which evolved through spontaneous order.”

Importantly, this adds another data point to consider the overall trajectory of these systems. The centralized and dogmatic structure of the USSR protocol more closely resembled the highly restrictive protocols determined by Religion. Religion, and the USSR, both limited the freedoms of the individual, and the ability of these systems to scale trust and organization was hamstrung. The inefficiencies created from the restrictions on the individual lead to the downfall of both systems. Clearly, systems that emphasize individual freedom and liberty seem to do better than those that don’t. 

Costs and Drawbacks

Subjectivity

While individual sovereignty and personal freedom is a core value of modern successful Nation-State, in reality, they are merely the “ought” side of the gap between what is and what ought to be. The Declaration of Independence declares the values of the USA: that all men are created equal, but it does not actually back that up and enforce it; it’s just a suggestion. 

Internal Costs & Non-Resistance to Capture 

At large scales, the incentives of the governing body of the nation-state protocol and those that live under its rule, become misaligned. The governing body of a protocol has the incentive to stay in power, and thus may direct more resources and capital to this effort than is desired by the people. As a result, those that make up the governing body are willing to strike deals with the devil and sell their legitimacy as a governor of the state to the highest bidder. In order to get re-elected, a state representative needs funds, and they can easily access those funds by doing favors to those with capital. 

The formalization of governance of a nation-state is also explicitly stating where energy and effort need to be allocated in order to express influence over the system. As a result of clear, formalized rules, a roadmap and checklist are created for parties who are interested in influencing governance. Certainly, everyone is interested in influencing governance; that’s the whole point of a democracy. However, when capital is also allowed to express its influence in ways that are more direct and effective, the protocol loses its credible neutrality, and the people lose the ability to express their will.

The result of this is that those with capital exclude themselves from taxes, and make those with less means pick up that slack. A prominent criticism of the two political parties of the USA is that they are only allowed to fight over the issues that the wealthy elite allow them to fight over. Any political party or movement that suggests the wealthy elite should begin to pay their fair share of taxes never seems to get elected into power. 

Over time, the constituents of any nation-state may ask themselves, “Does the cost of living inside my nation-state equal the benefits my nation-state is giving me?”. I believe we can take the success of the populist-right movement behind Donald Trump, as well as the energy behind the populist-left movement behind Bernie Sanders, as evidence that people are beginning to think that the costs of a nation-state are too high for the services they are offering. 

Anger and rage are the emotions that arise when an individual is blocked from being able to make progress toward their goals. If two people are faced with the same problem, but one has a clear path forward and the other sees a brick wall, the former may experience excitement and optimism while the latter may experience anger and frustration. When the constituents of the USA see those with capital easily and effectively achieving what they want, but their local senator won’t pick up their phone call, anger follows. As a result, many people have adopted the attitude of “burn it the fuck down.”

The lack of voice from The People offers the incentive to defect from their current nation system. Just as the Pilgrims crossed the Atlantic to escape the tyranny of the Monarch, people today are crossing the chasm between the physical nation, to the Digital Nation. Digital Nations are a ‘clear path forward’, instead of a brick wall, and offer people the ability to ‘opt-out’ of their physical nation-state system, at least to some degree.

The more the people feel unheard, the more frustrated they become from a lack of progress, the more incentive there is to move into the next paradigm of Nations.

Digital Nations

Bitcoin and Ethereum are Digital Nations. They are the next iteration of a Nation system. Importantly, they live on the Internet; the tanks, infantry, fighter jets, and nuclear bombs that instantiate the power of physical nations have no impact on the livelihood of these Digital Nations. Because they live on the Internet, they have the ability to reach the entire world population and require none of the costs of a centralized government or military to do so. Using these Digital Nations as scaffolding for commerce and economy, humans are able to take a significant leap forward in their effort to ‘get coordinated’.

The components of Bitcoin and Ethereum map onto the functions found in previous iterations of nations.  

  • Currency. Each nation has its own native money. 

  • Defense. Miners/Stakers are the (defense-only) military for a Digital Nation and are paid out the funds generated from taxes on the economic activity inside the digital nation. 

  • Police. The protocol of a digital nation defines the rules for making updates to the shared ledger. The protocol acts as its police force, ensuring the rules of the Nation are followed. 

  • Borders. The blockchain database defines the borders of the digital nation. Data and information is either in the database, or it’s not. ‘On-chain’ vs ‘off-chain’.  

  • Businesses. Native businesses offer products/services in exchange for the native currency

  • Patriots. Nations of both physical and digital types have their respective loyalists who participate in serving something greater than themselves. Physical-nations have patriots who serve in government; digital-nations have ‘maximalists’ who evangelize and entice others to join their cause. 

  • Values. Nations of both types have in-group identities. “What it means to be an American/German/Argentine/Korean” etc. is strongly reflected in the dichotomy of Bitcoiners and Ethereans and the lack of understanding or appreciation the two camps have for each other.

Digital nations are the next path forward in large-scale human organizations. The digital nation has made more significant improvements in its architecture than its legacy counterparts, while also shedding some of the biggest flaws of legacy systems. This is achieved by applying innovative new technologies (generally surrounding cryptography), but more importantly by reducing the scope of what they are responsible for. 

Physical nations have an undefined and theoretically unlimited scope over things. Infrastructure, healthcare, defense, peace-keeping, financial & economic regulation are just a few of the things that physical nations typically concern themselves with. However, often-times nations attempt to take control of things that are deemed ‘too far’ by members of its consistency. Like religion, nation-states have historically made attempts to control and regulate things that are far beyond measures that help the economy. 

The main force that prevents total totalitarian overreach from a nation-state is push-back from its constituency. The control and influence of physical nations will expand as far as the people allow it to. This is a tug-of-war that sucks energy from everyone involved, and ultimately is a systemic tax on the effectiveness of the system. Those that dedicate their lives to checking the reach of the government could have done other, more effective things with their energies if the protocol of the nation had the ability to formally restrict this.  

Hard-coded restrictions

Digital nations are exclusively concerned with value, and value management. That’s it. The Bitcoin and Ethereum nations have no concern with any of the following characteristics:

  • Gender

  • Race

  • Religion

  • Age

  • Language

  • Ability

  • Nation-State citizenship

  • Personal connections

As a result, Ethereum and Bitcoin treat all people equally. Each person is treated exclusively by objective standards; what money and assets they hold according to the blockchain. In these nations, all men and women are created equal, and there are no if-ands-or-buts about it.

For the first time, humans have created a version of a nation that does not require the existence of an ‘out-group’. Bitcoin and Ethereum have the structure of a Nation from something with defined borders and defined out-groups, to something more closely resembling the Internet. No out-group, permissionless access, and no ID required. Nations are systems that are meant for maximizing scale of coordination, and Bitcoin and Ethereum are the first nations that could theoretically host the entire globe as its citizens. 

Reducing the Influence of Previous Nations

Each physical Nation-State has its own native monetary system. The main purpose of this is as a tool for maintaining the power and control that the nation-state has over its constituents. The ability to control money and value is the largest tool in the toolbelt of a nation-state to retain its legitimacy. The ability to control the value of money, along with the panopticon-level visibility that nation-states have overall money, assets, and commerce within their nation gives nation-state a high level of power and control over their domain. Losing this privilege to the digital nations like Bitcoin and Ethereum would be a significant blow to the power of the state. 

If the constituents of a physical nation elect to store and manage their value inside of digital nations like Bitcoin or Ethereum, then traditional nations will no longer have this responsibility. If the citizens of the world choose Bitcoin or Ethereum as their money and finance platform, nation-states lose their monopolistic control over these systems. As a result, the nation-state loses the ability to fund themselves, as the monetary system they control is not used or desired by the people. 

[Bitcoin] challenges the State’s most treasured privilege: its ability to finance itself through inflation and seigniorage. - Nic Carter, A Most Peaceful Revolution

Every Nation has a certain set of beliefs or values that are built into its protocol. Perhaps the most important belief that digital nations have ‘baked-in’ to their protocol is the belief that money and value should be managed by independent public utilities, not a centralized body of people with subjective beliefs. Money is a public good, not a tool of the state. According to digital nations, no group of people should be able to print money, for better or for worse. 

This belief is explicitly stated in the genesis block of Bitcoin: “Chancellor on Brink of Second Bailout for Banks”. 

Ethereum embodies the same values but in a more expansive way. Where Bitcoin is a concrete instantiation of “separation of Money and State”, Ethereum is the instantiation of “separation of Economy and State”. The values of Ethereum or, “what it means to be an Etherean” is a belief that the economy can and should operate as independent infrastructure from the purview of the Nation-state.

Just as the Nation-State decided that the Church does not belong in governance, Bitcoin and Ethereum similarly dictate that the Nation-State should not govern money & economy, but instead be controlled by it. 

According to Digital Nations, the Nation-State should be a subject of money and markets, rather than money and markets being subject to the Nation-State. The adoption of Bitcoin and Ethereum are statements that the Nation-State should be subject to the same rules of economics that the rest of us are. 

Bitcoin and Ethereum say to the Nation-State: “No, you cannot print money for free. No, you cannot ban or control goods or services you deem illicit.”

Conclusion

Part I of ‘A Bankless Nation’ is primarily concerned with drawing a line through the progression of the various organizational schemes that humans have discovered and leveraged throughout history. The claim here is that Digital Nations like Bitcoin and Ethereum are the next iterations of scalable infrastructure to enable global coordination and commerce.

Part II of this article will go down the rabbit hole of the constituent parts of these digital nations, including their own sub-nations like MakerDAO, Compound, annd Uniswap. (teaser: these are all sub-protocols of the main Ethereum protocol, in the way states are sub-protocols of the federal government). 


The ideas and concepts discussed here largely stand on the shoulders of others. For further reading on the subject, please see the following: 


Author bio

David Hoffman is the Chief of Operations at RealT, co-host of the Bankless podcast, and co-host at POV Crypto. He writes for Bankless on open finance and Ethereum topics. Check out his talk on how ETH accrues value and this accompanying post.


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