The Network State by Balaji Srinivasan — How To Start a Digital Country

What if there was a way to start your own country without being elected or waging a revolution or a war?

A real country.

The Network State by Balaji Srinivasan is a guide on how to do exactly that — how to start a country, first digitally and then in the real world.

With, of course, blockchain technologies and crypto as the backbone of this new country.

The Network State is an intriguing, daring, but also scattered and disorderly vision of a new use case for crypto in book form. It is Dr. Srinivasan’s proposal of how crypto and blockchains can upend societies and their formation as we know them and bootstrap the formation of entirely new ones.

This article looks at:

The essence of a network state
The components that make a network state
Dr. Srinivasan’s reasoning for why we need network states
How other societies and communities differ from a network state
What a network state looks like
Vitalik Buterin’s view of network states.

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Who Is Balaji Srinivasan?

Dr. Balaji Srinivasan is an angel investor and entrepreneur. He is the former CTO of Coinbase and a former partner at Andreessen Horowitz, with a BS/MS/PhD in Electrical Engineering and an MS in Chemical Engineering from Stanford University.

More importantly, though, he is a thought leader in the blockchain space and one of its most well-respected voices. The Network State is his distilled view of the socioeconomic and political developments in the world and how the evolution of technology (blockchain in particular) allows citizens to react to undesirable changes in the socioeconomic order.

What Is a Network State?

The Network State is a concept created by tech entrepreneur Balaji Srinivasan to bootstrap the foundation of a new country. Conveniently, Dr. Srinivasan provides a one-sentence definition of a Network State right at the beginning:

“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 re-existing states.”

The idea is based on one fundamental premise:

Blockchain technology will allow the foundation of new societies that can eventually evolve into digital nations and states.

Dr. Srinivasan sees cryptocurrencies as a way to bootstrap a digital country without having to go the traditional route of winning a war, seceding (peacefully or otherwise) or claiming unsettled land (a concept that has become obsolete in modern times).

We have already seen how fervently communities have formed around cryptocurrencies. Bitcoin and Ethereum especially come to mind. But Dr. Srinivasan dares to propose a more ambitious vision of what blockchain technology and cryptocurrencies can accomplish: distributed ledger technology allows people to start new countries without abandoning their old (real-world) ones.

And they can do so with the following seven simple steps.

The 7 Steps To Forming a Network State

Only seven simple (but not easy) steps lie between you and the new digital country of your dreams

Founding a Startup Society

Each Network State begins as a community aspiring to improve on an existing purpose. Dr. Srinivasan gives the example of a "Keto state," where citizens rally around the idea of keto diets. The citizens of this hypothetical state would focus on following a keto diet but also extrapolate from this “north star.” For example, following a keto diet is the guiding principle in this example. But this network state would expand on that by having a particularly strong culture of healthy diets and exercise. Adding more complexity, it could have free peer-to-peer healthcare services between its members and free gym access.

More abstractly, a new network state introduces a "moral innovation" to give its citizens a sense of purpose and drive to change. A mere startup (without the “society”) focuses only on commercial innovation, while a startup society starts with a new moral premise.

Importantly, Dr. Srinivasan posits that a network state needs to have a recognized founder giving it direction, at least during its initial stages.

Organize the Society Into a Group Capable of Collective Action

A network state is initially similar to a union. Its people organize and strive to drive positive change for their group by taking collective action according to the purpose they follow. For example the “Keto State” would organize its “Keto citizens” to buy suitable staples, help each other with diet plans, and other actions that create change.

Build Trust Offline and a Crypto Economy Online

A network state is backed by a cryptocurrency that acts as the ledger of truth and the backbone of its economy. However, to develop the startup society into a high-trust society, it needs to build trust offline. Therefore, a network state, while decentralized, has a footprint in the real world. The Keto State may want to organize and record best practices on a blockchain and establish a Keto State economy with its own cryptocurrency as a medium of exchange, even though Keto citizens may live in entirely different parts of the world.

Crowdfund Physical Nodes

Eventually, the society manifests its footprint by building physical nodes. This can range from single apartments of its citizens to entire areas of land purchased from its funds. Keto State communes may spring up or even entire farmlands that belong to Keto citizens.

Digitally Connect Physical Communities

Dr. Srinivasan envisions the capital of a network state to be online — either in some form of an online community or in the metaverse, enhanced by AR and VR. Its members, while physically distant from one another, become thus digital neighbors. Keto citizens would gather in their digital Keto capital to engage in their civil society.

On-Chain Census Tracking Its Growth

Dr. Srinivasan quotes CoinMarketCap as a ledger tracking existing cryptocurrencies, which records all publicly available information about a cryptocurrency. In similar fashion, a network state has a ledger of its existing members, which allows it to track its metrics and build clout with other organizations.

Diplomatic Recognition

The final step — in a way a “stamp of approval” by existing entities — is diplomatic recognition. The final frontier of a Keto State would thus be to become a member of the UN, thus legitimizing this new way of starting a country.

TLDR: a network state is a society of people rallying around a common purpose, which populates land first digitally, then physically, and finally gets recognition for this decentralized nation.

Why Do We Need a Network State?

Now you may say:

“Even if all of this blockchain country-creation LARPing worked, why do we need that? Don’t we have perfectly fine countries already existing?”

Dr. Srinivasan begs to differ. That is why he spends the better part of the book explaining and detailing his view (and grievances) of what is wrong with the current socio-political order and how network states could remedy that.

So there’s a short answer, a long answer, and a visual answer to this question.

The short answer:

“No, our existing countries are not perfectly fine. Just look at how messed up the U.S. is. And China is actually much worse. Also, starting from a blank slate is easier than fixing an already existing broken state.”

The long answer (still compressed for clarity):

Blockchain innovation allows us to experiment with political, technological and societal innovation like new forms of government and economic collaboration.
Blockchain and specifically the Bitcoin network can be used as an undisputable record of truth. Bitcoin is the most decentralized and lindy crypto (lindy = the longer it’s been around, the higher the chance it will stay around). You can back up information to its blockchain, meaning it beats all centralized ledgers of information.
Although society is more decentralized than ever (remote work, people moving out of urban areas), power and truth-keeping are also more centralized than ever, both within the U.S. and internationally.
People need a Leviathan, that is, something to believe in. It used to be religion, then it was the state. In the future, it will be networks.
U.S. society is divided, China is challenging its hegemony, and people don’t want either solution but a “new center.”
Conclusion: since societies are increasingly polarized, the emergence of this new technology makes its application in the envisioned way inevitable.

The visual answer:

This graph is Dr. Srinivasan’s view of the current order. Many people voluntarily sign up for the two established choices and some opt for the new choice (BTC). However, Bitcoin maximalism also isn’t the answer, so a network state would move in the middle of this triangle and provide a new center people can opt in to.

Do Network States Already Exist?

Short answer: no (obviously).

Here are examples of other networks and communities that are not network states:

Political parties have (on paper) the purpose and desire to introduce moral innovations to better the lives of their voters (or so they say). They also have founders or at least highly visible leaders. And they have groups capable of collective action. But political parties don’t have crowdfunded territory or a crypto economy. Most importantly, they attempt to change existing structures instead of creating new ones (unless we are talking about revolutionaries).

Communities or followings also have a shared purpose (see the Keto example). But they either lack leadership (like a community following a subreddit) or physical meetups. They also rarely organize into groups capable of collective action.

Social networks are not network states, since their users belong to separate tribes. They are N-Networks, a network of different networks. However, network states develop from 1-networks, a network around one common node, such as a community sharing a common history and vision.

Blockchain protocols are a prerequisite of a network state, but not equivalent to it. Though they have collective action, their focus is too narrow, like the Bitcoin community focusing solely on producing the best form of money.

City-states are already existing in real-world polities; but unlike network states, they are not decentralized and don’t strive to be. Dr. Srinivasan views network states as the evolution of city-states.

What Does a Network State Look Like on a Map?

A network state has a physical and a digital appearance.

In the physical world, it is an archipelago of interconnected enclaves. Its citizens crowdfund territories in the real world, which are all collected and connected via Web3 logins through the dashboard tracking the network state’s development. Think of a state like Indonesia, but spread out across the world.

In the digital world, a network state is a densely connected subgraph of a large social network. Imagine something like this:

Think about how a network like Facebook reaches more people than any empire in human history. And then think about your relationships with some of the people on Facebook or other social networks. Even though you are physically distant, some relationships are probably much closer than with people that are physically close to you (like your neighbors). A network state works in a similar fashion.

What Does Vitalik Buterin Think About Network States?

Network states are a daring vision, so of course, Ethereum founder Vitalik Buterin has a few thoughts on the topic. In a blog post, he responds to how he sees some good and some bad in the idea. Vitalik writes:

“I want to see startup societies along these kinds of visions exist. I want to see immersive lifestyle experiments around healthy living. I want to see crazy governance experiments [...]”

Vitalik’s feedback is quite in-depth, so here are his main arguments:

GOOD:

Network states could help organize the funding of public goods around shared values.
They can create new regulatory environments. People can experiment with voluntary opt-ins (e.g. new medical treatments), which may be more efficient and innovative but are risky to try at scale.
Network states could successfully scale good governance. In politics, getting elected and governing well are two completely separate skill sets. Successful network states would scale ideas that do well on a small scale and do away with the pressure of getting elected.

BAD:

Vitalik disagrees that network states need to have a founder. They should at least have a goal of an “exit-to-community,” meaning the final state of the network state should be leaderless (similar to Bitcoin’s community).
Network states in Dr. Srinivasan’s form are for the highly-skilled and those that have capital to crowdfund estate and exit their existing polities. Lower-income groups do not have the capital to organize in the same way.
Network states impose negative externalities on the real world: what if hypothetically all highly-skilled people from a country exit to a network state?

Final Thoughts

The Network State is an exciting vision of a future that is arguably already playing out. At least in the English-speaking world, people increasingly organize in online communities building their own “nations.” Although they still don’t incorporate cryptocurrencies and blockchains as arbiters of truth, highly-aligned communities may well experiment more with tokens and economic incentive structures in the future.

A final subjective note: it would have been good to see Dr. Srinivasan diving deeper into the practicalities and challenges of creating network states. For example:

What institutional and logistical challenges would a network state face when scaling?
Case studies of existing network state attempts.
How network states interact and integrate with existing nations and identities.

Dr. Srinivasan elaborates over three chapters on his understanding of the current and possible future order. This serves as a quasi-justification for network states but feels protracted. Only the first and final chapter deal with the core concept.

Still, the Network State is recommended reading for blockchain believers. You can download the book as a free PDF here.

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