The Three Nation Problem

The world is heading into a Three Nation Problem, and one of these nations is not like the others

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Dear Bankless Nation,

There are two types of nations in the world today. The fiat Nation and the Silicon Valley Nation. Both depend on the same model: extract resources from their constituency in order to grow their domain.

But a new player has entered the game: the digital nation.

Ethereum and Bitcoin are two digital nations that offer an alternative. A minimally extractive alternative equipped with a blooming economy of financial and identity tools for self-sovereign individuals.

Borderless nations that exists outside the scope of the other two Nations.

But there’s a problem. A three body problem. Trinary star systems don’t last. They collapse to binary systems. And the three nations will eventually become two.

How will it happen?

Which will survive?

David explores.

- RSA 🏴


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Writer Wednesday

Bankless Writer: David Hoffman, COO at RealT, Co-Host Bankless podcast & POV Crypto

The Three Nation Problem

Nation-States, Tech Monopolies, Crypto-Networks. 

These are the players. Three different types of Nations, all competing for the same scarce resource: people. 

The 20th century was defined by a bloody series of ideological wars, centered around competing visions for nation-state architecture. Out of this brutal and bloody chaotic century emerged a single victor: classical liberalism and free-market economies.

Chaos turned to order, and the world entered the most prosperous and progressive decades in recorded history. With the question of “what values best construct a nation?” answered, humanity was free to build, innovate, and progress. Globalization and free trade stitched the world together into a more coherent global society, and rapid innovations in tech produced new products that redefined the human experience. 

The stability of the last 50 years allowed the birth of technologies that would ultimately come to threaten the world order. New technologies and organizations emerged out of this progressive period that are incompatible with the world that created them.

The Web2 giants of Silicon Valley have internet dominions that are designed to capture and coerce people into their control. Homomorphic encryption undermines those in power and enables privacy and secrecy to those at the bottom. Cryptocurrencies invalidate the concept of state-owned money and hamstrings the state’s ability to both understand where all the money is and collect taxes upon it. 3D-printed guns and weapons undermine the state’s monopoly on violence. 

As a result of the rise of subversive technologies, the Nation-State is under new pressures to retain its level of control over its constituency. This fight began on Thursday, July 31st 2020, as the 4 leaders of the world’s biggest tech giants were summoned to U.S. Congress for a hearing centered around the topic of monopolies and antitrust law.

To me, this marks the beginning of what will come to define the next decades in world history.

The tech giants of Silicon Valley are no longer corporations. Rather, Apple, Facebook, Google, and Amazon are Internet-Nations, focused on the capturing and commoditization of their constituency; an activity previously exclusively available to Nation-States.

The Silicon Valley giants, with physical offices and real people, are the lowest hanging fruit when it comes to technologies that intrude on Nation-State power. And they’re an easy first target for the Nation-State to go after. 

The Nation-State, under the guise of antitrust and consumer protection, will work to reduce the power of these new Silicon Valley Nations, either by fracturing them or absorbing them. 

The Wheel

The story does not begin here. Go even further back, and you will find the same story play out in the 19th century as well. 

At the end of the 1800s, Nietzsche proclaimed “God is Dead!”. Nietzsche was an atheist and didn’t mean that there was a God who had actually died, rather than our idea of one had. After the Enlightenment, the idea of a universe that was governed by physical laws and not by divine providence was now a reality. Philosophy had shown that governments no longer needed to be organized around the idea of divine right to be legitimate, but rather by the consent or rationality of the governed — that large and consistent moral theories could exist without reference to God. Europe no longer needed God as the source for all morality, value, or order in the universe; philosophy and science were capable of doing that for us.

“God is Dead!” was less a proclamation, and more a warning. Nietzsche was warning that, if humanity was no longer organized around God, then we better find something different and new to organize around, or else chaos would consume the world. Without the scaffolding of Religion, the societal structure would collapse, and rebuilding it would be a long, arduous process filled with debate and conflict. 

This is exactly what happened. Religion, the main organizing force of the people, was relegated to history without a viable successor to offer an alternative organization schema in order to keep the people of the world stabilized and coherent. The world, absent of any organizational substrate, fell into the most bloody and brutal century in human history. 

Out of the chaos emerged the world order that we know today. Democratic Nation-States that uphold the values of classical liberalism. However, out of this stability emerges technologies that can disrupt and that his world order. 

Tech Giants are Nations Too

In my previous article “A Bankless Nation”, I expanded the standard definition of a ‘nation’ to be more inclusive of different organizational schemes. 

“More expansively, 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.”

Nations have three components:

  1. A defined in-group (a constituency)

  2. Businesses that provide for and support the constituency 

  3. Rules and regulations for how to behave (laws)

These three requirements exist as a means to an end, which is to produce an economy. The basic pattern of nation formation is this: 

  1. A nation is formed and the rules are written. 

  2. Using the rules of the nation as guidelines, the people of a nation go forth and create businesses in order to support themselves.

  3. The nation taxes everything to support itself. 

This was true for organized religion and nation-states, and it is also the pattern that defines the Silicon Valley tech giants. 

Facebook Profile. Amazon Prime. iPhone. Gmail. 

These are your passports to the respective Silicon Valley Nations.

Your iPhone and iCloud account are how you define yourself to the Apple Nation, and it's how Apple comes to know who you are as an individual. Your Amazon Prime passport allows Amazon to know what products you like, so it can sell you the best one, and receive your taxes. Your Gmail account and the ‘log-in with Google’ option is Google’s Empire, reaching out to every ‘log-in with Google’ website and extracting the data found there in order to best understand its constituency. Your Facebook profile is your self-recorded history and your social-graph; Facebook knows who you are, your interests, and who all your friends are. 

Meanwhile, the United States census is conducted by door-to-door pollsters, offering little-to-no incentives for anyone to participate in. The efforts made by the U.S. to collect the same data as Silicon Valley is futile.

Out of this envy, jealousy, and resentment, the United States summoned the four leaders of the Silicon Valley Nations to answer to how their “companies” threaten the competition and free-market economy held sacred by the Nation-State. 

Competition and free markets inside Nation-States are good for the people, as they protect entrepreneurs and individuals from the coercive nature of monopolies. The incentives of the individual citizen of a Nation-State align with the Government of a Nation-State in that neither wants a love-triangle with a monopoly that taxes the citizenry and threatens the government. 

Aligned incentives do not mean the same incentives, however. The Nation-State is threatened by monopolies because monopolies threaten the Nation-States monopoly over its constituency! From the perspective of a Nation-State, a monopoly growing inside its borders is cancer that must be removed, or else that cancer will spread across the whole body, and extract the sources of the body for itself, at the cost of the organism as a whole (also I also wrote a passage comparing the Nation to an organism in A Bankless Nation).

The Nation-State and Silicon Valley Nations depend on the same model: extract resources from their constituency in order to grow their domain. The Nation-State taxes and the Silicon Valley Nation ‘takes a cut’; at the end of the day it’s the same thing, and there’s only so much pie to cut from. 

Additionally, the Nation-State needs the capabilities of the Silicon Valley Nations if it is ever able to defend against further incoming subversive technologies like encrypted messaging, cryptocurrencies, and 3D printing. In order to retain its ability to control its constituency, the Nation-State will have to bring the Silicon Valley Nations into its fold. 

The Achilles Heel

The Nation-State will always have a leg-up on the Silicon Valley Nations. Silicon Valley Nations are not fully Digital like the Bitcoin and Ethereum Nations.

They are still pen & paper-based and ultimately answer to the call of the Nation-State.

It’s Congress that summoned Jeff Bezos, Tim Cook, Mark Zuckerberg, and Sudar Pichai to a hearing, not the other way around. At the end of the day, AMZN, APPL, FB, and GOOGL are all U.S. traded companies, with physical offices and real people. At the end of the day, the Global Settlement Layer for anything non-Digital is the U.S. Military; Silicon Valley Nations will never be able to escape this.

Google, Amazon, Apple, and Facebook cannot just “escape into the Cloud”. They exist somewhere, and this will always allow the Nation-State to enforce obedience. 

The Third Body

Meanwhile, while the antitrust wars ensue, new nations are growing like weeds in an entirely new plane of existence. 

The Digital Nations: Ethereum and Bitcoin. 

The Bankless Nation. The body of people that leverage the financial and identity tools built on top of crypto-economic platforms in lieu of the same tools found in their respective Nation-State. The Bankless Nation is the composition of many individuals who have all opted-out of holding their wealth inside the dominion of the Nation-State, and instead keeps it inside of the Self-Sovereign Digital Nations of Bitcoin and Ethereum. 

By enabling capital outflows, Digital Nations offers a significant check upon both Nation-States and Silicon Valley Nations. Bitcoin and its hard-capped supply is a direct antithesis of the Nation-States' ability and desire to print any amount of money it needs to sustain itself (and fund the Military that protects its own existence).

The mere existence of Bitcoin threatens the ability of a nation-state to extort taxes via both inflation and confiscation. 

“Hey there [Nation-State]. That’s a nice money printer you got there. It would be a shame if, I dunno, something BROKE IT”. 

  • Bitcoin, probably

Ethereum and its Turing-complete capabilities offer a platform to recreate any product or service found in the physical world, but without an extortionary intermediary. Beginning with Wall Street and the over-financialized world, then moving on to the Silicon Valley Nations, Ethereum offers a platform to build alternatives to any business model that extorts too much from its users. 

“Hey there [Silicon Valley Nation]. That’s a nice market you’ve got cornered there. It would be a shame if, I dunno, someone AUTOMATED YOUR BUSINESS MODEL”’

  • Ethereum, probably

Like the Nations before them, the power that enables both Bitcoin and Ethereum to do these things comes from the constituency behind each Digital Nation. No nation is without a constituency to help nourish it; Bitcoin and Ethereum are no exceptions. 

The larger the constituency of the Bitcoin nation, the higher the BTC price is, the more liquid BTC is, and the more fees Bitcoin miners receive; three things that are both offensive and defensive strategies against the Nation-State.  

The larger the constituency of the Ethereum nation, the more customers there are for a DeFi protocol, and the more incentive there is to build one. The more DeFi protocols there are, the more customers there will be, and the more economic activity there is on Ethereum. As Ethereum grows, so does the incentive to migrate and store wealth inside of Ethereum instead of inside the Nation-State. 

Liquidity begets liquidity, and economy begets economy. These phenomena are the fuel for these Digital Nations, and they come from how these Digital Nations serve their people first and foremost. 

Unlike Nation-States and Silicon Valley Nations, Bitcoin and Ethereum are opt-in nations. You are made a citizen of the Nation you are born in, and Silicon Valley Nations provide you with products and services so important to living life that you cannot be without them. However, there is no coercion from Bitcoin and Ethereum. All constituents of these Digital Nations are there by choice and are happy about their choice (or else they would leave!). Nation-State and Silicon Valley Nations have no defense against this extremely non-violent Digital Nation weapon.  

“People should not be afraid of their governments. Governments should be afraid of their people.”

– V, V for Vendetta

Ultimately, the Digital Nations are constructed by the people, for the people, which continues the saga of classical liberal values as “the people’s choice” for how to best construct a Nation. 

Nation-States and Silicon Valley Nations are both top-down nations. For these nations, power resides in the few, and control is imparted upon the many. A few hundred people in Washington DC summoned the four leaders of the four Silicon Valley Nations and questioned them about how they treat their constituency. 

However, in the Bankless Nation, there is no one to summon and no regulations to adhere to. In the Bankless Nation, the market regulates itself.

As the two articles The Protocol Sink and Global Public Goods and The Bankless Nation (pt. 2) illustrated Ethereum offers a landscape for brutally efficient free-market competition. With no central regulatory authority restricting permission to build on Ethereum, the protocols and applications present on Ethereum are subject to the most brutal of competitive climates. 

Competition is good for the consumer, and all the Ethereum sub-nations must be producing sufficient value for their users to entice their patronage. The Ethereum protocols are the financial tools available to the Bankless Nation as a means to achieve a better life for themselves. 

The Bankless Nation is a re-emergence of the Nation of the Many. There are no central figures that coordinate their respective cornered market. The Bankless Nation is the nation that is governed by the free market, not top-down centralized planning from the few. 

Trinary Star Systems

Trinary Star Systems are inherently unstable. You never find a trinary star system in the galaxy, because if they ever form, they don’t stay alive for long. Three gravitational bodies in a rotational dance around each other are destined to eventually turn into a two-person dance, either by ejecting one of the bodies into space or through one body absorbing another. Either way, a two-body solution is a destined result. 

The orbiting dance that three gravitational bodies create together is inherently unpredictable and chaotic. Even with intimidate understanding of the state of the system, the velocity and mass the bodies involved, predictive models of the future states of the system are destined to critically fail. Over time, too much chaos builds to be able to accurately predict the long-term outcomes of a three-body system. 

Given the quasi-steady orbital properties (instantaneous position, velocity and time) of a group of celestial bodies, predict their interactive forces; and consequently, predict their true orbital motions for all future times.

Wikipedia; the describing the difficulty of the “n-Body Problem

I believe that the Three Nation Problem will result in a Two-Body Solution as the Nation-State inevitably absorbs the Silicon Valley Nations more formally into its domain. The Nation-State is the all-absorbing Leviathan, which is responsible for harnessing all parts of its domain in order to protect the common good. This Leviathan however has become so large that it cannot respect the rights and liberties of the individual while protecting the nation as a whole to the best of its ability. From the perspective of the Leviathan, what’s the loss of a few cells in order to protect the whole body?

The integration of the Nation-State and Silicon Valley Nations is the most frictionless path forward. Silicon Valley Nations want to be free from regulation, and Nation-States want the power and influence of the Silicon Valley Nations. Rather than these two parties fight and resist each other, it seems more plausible that they will join forces instead.  

China

China offers a common enemy for the Nation-States and Silicon Valley Nations. China, as its own Leviathan, has already combined its Nation-State and Silicon Valley Nations together.

This is why the rise of China is such a threat to the rest of the world.

Its Nation-State has absorbed it’s tech-sector to what is effectively a tool of the state. The Chinese Nation-State and its Silicon Valley equivalents, Huawei, WeChat, Alibaba are already one single unified body. 

The Chinese government is a threat to the power and dominance of the USA. While the USA focused on military and physical defense, China slipped through the cracks via technology and data. By creating a wall between western technology and its citizens, the Chinese government was able to protect and foster its technology sector in order to construct an all-seeing-eye that has full visibility into every single cell of the Chinese Leviathan.

In order to match the size and capability of the technologically-integrated Chinese Nation-State, the USA Nation will need to follow suit. Gone are the days of power by force; here are the days of power by power, knowledge, influence, and subversion. 

The Chinese state is everything that American values oppose. An oppressive, authoritarian regime that is controlled by coercion and fear. In order to combat this threat, however, it seems likely that the USA will continue its own creeping authoritarianism, both as an answer to the Chinese threat, but also the threat of decentralized subversive technologies from its own citizenry. 

Conclusion

The stage is set for the Three-Body War.

The ideological wars of the 1900s brought bloody and brutal physical conflict. I do not believe the people of the world have the capacity to repeat this. Globalization brought mutual humanization and respect and a distaste for violence across larger scales. The internet has enabled common humanity far more than what existed in the 20th century. 

However, the ability to wreak havoc doesn’t necessitate violence. As technology progresses, the threshold for being able to cause significant harm lowers. The innovation behind deepfakes, artificial intelligence, and fake news campaigns democratizes the tools needed for significant global disruption. 

Since the end of WWII, stability defined the world order. This stability has allowed for the creation of large structures that have helped define the world around us and coordinate with our fellow humans. Now, however, this structure has become too rigid and too oppressive. The order of this world has smothered freedom and limited creativity and expression. The ‘many’ feel left out and disenfranchised, and feel bitter that the gargantuan structures that they have helped erect have been built for someone else.

Digital Nations offer fertile landscapes to those that feel excluded from prosperity in the existing system.

There are greener pastures in the Bankless world, where the sovereignty of the individual is respected and extortionary financial institutions and rent-seeking middlemen are replaced by public goods and minimally-extractive protocols. 

The relegation of the Nation-State as secondary organizational schemes to the digital scaffolding offered by Digital Nations will be an important step to joining the people of the world together. 


Action steps


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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