Sovereignty on Blockchain: Towards Escape Velocity from the Nation State

11 JUNE 2020 – A tweet by Balaji Srinivasan prompted me to gather some thoughts on sovereignty on blockchains which we also pushed in our June 2020 Otonomist newsletter. In this post, we look at historic precedents for sovereign communities without physical territory, and how the future could have multiple overlapping and competing onchain and offchain jurisdictions.

The Knights Templar: A template for sovereignty without territory or statehood (Source: britannica.com)

Many things we accept as norm may prove the exception against the larger narrative of history.

Pax Americana may turn out a brief period of relative stability and open seas before internecine conflicts and piracy resume; The Chinese Communist Party an authoritarian aberration against a secular movement towards a democratic Middle Kingdom; Central Bank fiat money a deviation from centuries of privately-issued coins.

So it may be with sovereignty, which we have come to accept emanates from the Nation State even though this understanding only dates back to the early 18th Century.

The international law definition

There is broad consensus in international law that sovereignty requires three key components:

  1. A population;
  2. A defendable territory;
  3. Recognition.

Let’s briefly look at all three and see if a public blockchain could ever achieve sovereignty.

1. We, the token holders

First, international law sees a defined — or as a very minimum definable — population as the first requisite towards sovereignty.

Inherent in this approach is the idea that citizenship should not be fluid or shifty: there has to be a degree of permanency.

However, whilst this may hold for the acquisition of citizenship, it is not the case for rescission: we still have the freedom to tear up our passports and choose to apply for nationality elsewhere (though the U.S. recently introduced an exit tax to discourage its nationals from doing so).

This voting with one’s feet, or the right to rage-quit, may not be frequently exercised but it is not a theoretical right: international law accepts that nobody can be forced to remain a national of a Nation State against their will.

This is not the case for the acquisition of citizenship, which is a monoply right of the Nation State.

It exercises this power to grant citizenship in two main ways:

  • Through the monopoly it has on issuing birth certificates, which in turn is linked to the phsyical location you were born, or where (one of) your parents was/were born.
  • Through its naturalization laws, which lets immigrants apply for citizenship of a country if they spend enough time there or can otherwise establish a link.

As a result, it is typically not quick and easy to change your nationality.

Passport shopping

Unless you are rich.

A growing number of typically smaller sovereigns have “golden visa” schemes for rich individuals who invest money locally in return for a second passport.

Arguably, it is one of the biggest injustices of our time that this same facility is not available to everyone, though some Nation States such as Canada have lenient laws that open a quick path towards citizenship for anybody, including refugees.

In essence, golden visas are based on a club concept: you pay to get in, and abide by the rules. The difference is that the club is not a private members’ club but is run by a sovereign and its members are called citizens.

Members only

From here, it is but a small step to accept that such membership can also be granted without a physical link to a sovereign’s territory.

There is historical precedent for this, most notably in the Order of the Knights Templar, a sovereign order of crusaders without physical territory whose sovereignty was derived from that of the Church (in itself a private members club which had proclaimed itself sovereign and ruled — and still rules — itself by Canonical Law).

Admission as a Knight lead to citizenship and passe port in Old French, literally the authorization to pass through a port i.e. the right to freely enter or leave a country.

Meaningfully, this and other privileges enjoyed by the Templars were superimposed upon whichever law of the land they found themselves in.

Back to the future

The Knights Templar may have set a template for the future.

If the Templars enjoyed sovereignty on the basis of membership rather than statehood, why could sovereignty not be granted to a collective of cryptographic token holders who voluntarily subject themselves to a polity in which they together decide the rules?

As a collective, token holders are a defined group with blockchain as proof of membership. Whilst members can easily come and go, as a population they are defined and definable: basically everyone who holds a token and signs using their private key.

Despite the variable nature of this membership, a strong case can be made that token holders of a blockchain clearly meet the first test towards sovereignty: a defined population.

2. Defenseless

Some would argue that such virtual community does not meet the second test of sovereignty: a demarcated, defendable territory.

Here again the precedent of the Templars is significant: Knights were subjects of the Templar jurisdiction, irrespective of their physical location.

Whilst The Templars were in essence a military order, they had as such no territory to defend, no borders that could be invaded, no capital to be conquered.

Their sovereignty was based on a legal fiction that granted citizenship-type rights over a collective of dispersed members.

In the blockchain domain, dispersed members already voluntarily adhere to agreed rules by virtue of holding tokens.

Arguably, each holder (M/F) is his/her own castle in blockchain land, with his/her wallet protected by cryptographic moats. As a collective of wallets, their territory — whilst virtual — is cryptographically defended.

If the second prong of the sovereignty test can be met by extrapolating the going definition of what is a defendable territory to include virtual realms, blockchains as sovereign jurisdictions are within reach.

What’s missing is recognition.

3. Courting or forcing recognition?

In the early 19th Century, up to 1815 Belgium was part of the Netherlands and then France until 1830, when it was granted independence.

Cynics say the only reason it was recognized as a sovereign nation was because Europe needed a bufferzone between its then superpowers: France, Britain and Germany. Less than a century later, Belgium would indeed be the circuit breaker for Britain and France when German troops rushed west.

Belgium owes its independence entirely to the geopolitical calculations of the then major powers. Taiwan owes its status to the present major powers who are making conflicting claims: sovereign or part of China.

Generally, Nation States don’t recognize sovereignty out of magnanimity but because it serves their purpose.

Where does this leave the chances of sovereignty on blockchain?

Tactically, there are two avenues open: courtship or revolution.

Courtship

One way to aim for sovereign status of your chain is to court it.

We know of working groups at the United Nations, pockets of the European Commission, and other legacy Governments and governmental organizations who are quite endeared by the idea of virtual sovereignty.

However, courting them is a tiresome and drawn-out process. Realistically. only when a virtual chain would gain real political usefulness to a legacy Nation State could it lead to recognition as a new jurisdiction. This seems a long way off.

Perhaps we should have higher hopes of legacy Nation States extending their sovereignty to include digital realms.

Abu Dhabi lends its sovereignty to the Abu Dhabi Global Market which grants jurisdictional powers to companies incorporared there. Estonia’s e-Residency too is encouraging, be it perhaps of little practical use.

Irrespective, other countries could take lessons from these experiments, especially smaller island nations without natural GDP who could monetize their sovereignty by lending it out to a virtual realm.

“Citizen tokens” could be offered for sale, with certain rights such as tax domicile embedded. Companies could be formed onchain with automatic forum choice and residency rights attached.

Panama does that to some extent but offchain, and we look forward to the first country that will offer SoaaS: Sovereignty as a Service.

However, even under Soaas, any applicant for sovereign status remains at the mercy of the Nation State’s top down recognition.

This may be the patient route, but it has also been the single point of failure of many libertarian new country experiments, whose quest for sovereignty ultimately remains linked to land (or in the case of the Seasteading project, pods built outside territorial waters)

In this respect, Balaji Srinivasan, ex-CTO of Coinbase turned technology futurologist, in a recent tweet suggests lands should come last.

We think land can be dispensed with altogeter if we take to the barricades and force recognition of blockchain realms by the numbers.

Revolución o muerte!

Such bottom-up recognition would essentially force other countries’ hand by presenting sovereignty as a fait accompli.

One can imagine a decentralized citizen legder which airdrops voting tokens to anybody who opens a wallet and uses smart contracts that let any user participate in sculping its ground rules.

Voting could be quadratic with citizens allocating a set token budget to those issues they feel most strongly about, so they think hard what they’ll vote on.

The digital commons would be collectively curated and all IP freely licensed for use by all citizens.

Entities and companies would derive recognized legal status from their blockchain charter, luring entrepreneurs away from land-based analog jurisdictions to incorporate onchain rather than offchain.

Tax would work more like a GDP dividend: an agreed and smart-contractified periodic adjustment of people’s wallets to ensure a base level income equalization.

A hardcoded right to rage-quit would solve the “tyranny of the majority” conundrum at the heart of every democracy: if you cannot abide by the majority outcome, you can withdraw from a specific project and ultimately leave the polis altogether.

If such scheme were to achieve traction, the sheer force of numbers could lead to bottom-up recognition of a first digital realm as a sovereign entity, pari passu with legacy entities, with passport rights and asylum for all.

History shows that an existing status quo can be defied, peacefully and legitimately, if a revolution is grounded in the wills of millions of people who wish to see the ancien régime replaced by better governance and fairer government.

From our side, we cannot wait for the day such chain, as a first of many, launches in open defiance of the Nation State.*

Only since the early 18th Century did the Nation State become the reigning governance model for sovereign entities. Perhaps this too may turn out to be a brief interlude in a secular search towards a governance model that is truly based on the “consent of the governed” as stated in the U.S. Declaration of Independence.

Reaching escape velocity

Recognition is the ultimate prize: it is what will allow distributed digital realms to reach escape velocity from the gravitional pull of sovereign Nation States.

Sovereignty for blockchains will lead to overlapping and competing jurisdictions that will co-exist in a physical-virtual reality space: A Pokemon Go-type layer of jurisdictional powers superimposed on the realities of physical space which will augment token holders’ rights, irrespective of where they are.

It may feed back into legacy countries actively courting citizens and positively govern for their benefit, creating transparency in how tax is used, and giving members new tools to vote and participate in decision making.

This dynamic will be based on a futureproof, expanded acceptance of sovereignty as a legal fiction, from its mid-14th Century Anglo-French sovereynete or “authority, rule, supremacy of power”, through its early 18th Century understanding of existence as an independent state, to its future meaning as a self-proclaimed digital realm legitimized by its members’ voluntary wish to coordinate around agreed rules, rights and obligations.

*Disclosure: Otonomos, though its Foundation, is actively encouraging the study of political governance models for such chain via its Decentralized Governance School initiative, which is shortly set to open a donation campaign. For more information or to register interest as a donor, please email school@otonomos.foundation.