Bitcoin Nation – SHOW ME THE INCENTIVE (Pt.2-Ch.9)

My new book “Bitcoin Nation” was published on the 15th anniversary of the Bitcoin Whitepaper, October 31, 2023. You can read it below, one chapter per week. Or buy it here:

Let’s return to the present. Regardless, whether you consider my vision utopian or dystopian. No matter whether you agree with my analysis that totalitarian governments are the only possible alternative. There is likely one question burning in your mind:

“Why would states agree to this?”

The incentive structure for the bigger states is obvious. They can only gain by allowing citizens from other states to join. Especially as long as they can keep the monopoly on their heartland.

Why on earth should a small state allow its citizens to leave, though?

As Charly Munger once said:
“Show me the incentive, and I’ll show you the outcome.”

While not obvious at first glance, there is still a strong incentive pressure on small states to agree to the increasing digital citizenship invasion.

The first one is simply “might is right”. The so-called “rules-based world order” is only propaganda. If you speak privately to any politician in poorer nations, they are all aware that they serve purely on the grace of the United States and other big military powers. Whenever a leader tries to rise up against the US, he’ll either face assassination, invasion, or a coup. The only alternative for them is to ally with another nuclear power, e.g., Russia or China. Small and poor countries have no choice, but to accept a dictate by the superpowers.

Of course, other incentives exist as well. Already today, some countries offer services to ex-pat citizens. If you have a US passport, then you are liable to pay taxes, even if you live abroad. As a compensation, you receive all the freedom of movement this passport grants you and often, the US government will try to bail you out if you get in trouble.

US basketball star Brittney Griner is a prime example. She was imprisoned in 2022 in Russia for possession of marijuana. After 10 months in prison, US diplomats negotiated a prisoner exchange, freeing her.

Furthermore, the US already has tax treaties in palace with several countries, clarifying which portion of the taxes a US citizen pays will go to the United States treasury and which to the host state.

Such tax treaties are not simply brute forced on “third world” countries, but are voluntarily accepted by top 5 economies like Germany. The benefits of such tax deals are usually mutual. Germany has higher taxes than the US, so businesses and high net-worth individuals have a reason to hold their assets offshore. Thanks to the treaty, the US will report German citizens who try to hide their profits in the US of A, to German tax authorities.

The treaty is thus profitable for both governments, but to the detriment of the citizens.

As you can see, the first miles on the road to Bitcoin Nation have already been travelled. The next steps will likely happen purely out of governmental self-interest as well.

To put it in a nutshell:

State governments don’t plan to create Bitcoin Nations, nor to voluntarily give up their territorial monopoly. They will gradually progress to this end because they want to keep the wealth and power for their elites as long as possible. In a world, where the demographic bomb is making this exponentially difficult to do in traditional state structures, Bitcoin Nations are unavoidable, unless states are willing to commit horrific crimes.

Bitcoin Nation – THE DAWN OF A NEW ERA (Pt.2-Ch.8)

My new book “Bitcoin Nation” was published on the 15th anniversary of the Bitcoin Whitepaper, October 31, 2023. You can read it below, one chapter per week. Or buy it here:

In the following chapter, we will take a mental journey through the next decades and centuries, under the premise that Bitcoin Nations become a reality. This journey will obviously not happen as predicted, it is meant as an inspirational exercise. If I do my job well, you will hopefully return from this trip burning with excitement for Bitcoin Nations and ready to work hard on making them a reality.

It is the year 2042. The United States of America have just announced that they will now be extending their digital citizenship program with a real estate option.

Citizens paying for the top-tier membership will now have the option to convert any landownership

they have to US territory. Shortly after, the UN ratified a note clarifying that the US move is covered by the right to self-determination.

Any citizen who converts property in countries who signed the UN note will be able to convert the land to US soil. Upon payment of a small fee, the title will be transferred within 30 days. Property taxes, will be guaranteed to be less or equal to the current property taxes for the first 20 years.

For “national security reasons”, it is agreed that conversions between nationalities are only possible for territory outside the US mainland.

As a result of this last addendum China, Russia and many Brics nations refuse to ratify the UN note and instead propose their own digital citizenship concept. They do not enable to fully transfer territory between each other, but rather allow to rent territory for max. 99 years for private and 50 years for commercial use. Rented property is essentially treated like a consulate of the digital citizenship nation.

Over the next decade, the competition for skilled labor and investment forces more and more nations to allow territorial sovereignty. The big states, China and US, gobble up more and more digital citizens until they encapsulate over 60% of the total population.

In 2062, the growing tensions between the two giant nations results in a crisis, with more and more digital citizens moving into the competing mainland. Pressure is mounting that the mainland exception clauses are deprecated.

With the danger of WWIII increasing daily, diplomats are desperate for a resolution. In an unexpected turn of events, a delegation from the Bitcoin Nation sends an offer to both territorial market leaders.

The following deal is proposed:
All 2 billion members of the Bitcoin Nation, whether they already have any other digital citizenship or not, offer to subscribe to a digital citizenship by whichever of the big nation offers it certain privileges.

Since, the Bitcoin Nation accounts for only 20% of the world population, but 51% of global GDP, this deal is irresistible and the United States make an offer. This offer is quickly followed by a better Chinese counteroffer.

After several weeks of negotiations, the UN note is updated to now allow all digital citizens to switch their territory to a nation of their choice. To prevent a new colonialism, where nations coerce their citizens to let the government inherit property, a market solution for property ownership is found. Private residential property can be only passed on to heirs that also inhabit it. Otherwise, every property is put up for auction regularly, where corporations, citizens, and nations can bid on a property ownership, limited to a max term of 99 years.

This moment will later go down in history, as the moment when large-scale wars were finally ended.

This new system greatly favors the Bitcoin Nation, which by the year 2140 has acquired 80% of the population. It is not a giant super state, however.

The Bitcoin Nation only offers a very basic human rights protection service and diplomatic services with all the small independent nations.

All other topics are federally organized in location and preference-specific clusters that have not much in common at all.

Bitcoin Nation – THE DISCOVERY OF LAW (Pt.2-Ch.7)

My new book “Bitcoin Nation” was published on the 15th anniversary of the Bitcoin Whitepaper, October 31, 2023. You can read it below, one chapter per week. Or buy it here:

Since at least the time of the ancient Greeks and Romans, law codes were public documents, with the purpose of giving people guidelines to live lives that do not create conflicts. If conflicts still arise out of violation of the law codes, the ancients tried to compose comprehensive processes to resolve the conflicts.

In this sense, Roman law was an evolution from previous purely religious law codes, in that it assumed that laws were not to be dedicated by a god and interpreted by prophets. Instead, the Romans recognized that there is natural law, which can only be discovered and is ingrained in the nature of our universe and man made-law.

Natural law is essentially what I described in the previous chapter as “ethics”. Every action that conflicts with the ethics – which result from the properties of consciousness – conflicts with natural law.

An ideal law code would be in complete harmony with natural law. Unfortunately, this is not practically achievable. To understand why, we need to take a look at the praxeological aspect of inter-person conflict.

Let’s say Person A accidentally or intentionally destroys Person B’s favorite art piece. To reverse the violation of B’s natural property rights, A would have to replace the art piece to B, plus pay B for the damages that occurred to him while he was devoid of his property.

Let’s assume the artist who created the work is long dead. Thus, necessarily A can only reimburse B with another good or service, not an exact replica of the artwork.

The conflict is unresolvable if A and B don’t find a good or service that B values as high or higher than the artwork, while A values it lower or as high as the artwork. If no good can be found, where the valuations meet, one of the two will always feel betrayed. So, while in theory every person has their individual ordinal valuation of goods, in this conflict, a man-made law is required on how to resolve such unresolvable subjective valuation conflicts in a manner that is most satisfiable.

Another aspect is the practical consideration of preventing repeat offenders. From a purely natural law perspective, it would always be enough, if the offender restores the damage he has done. Since crimes are not always discovered and not always justly resolved in practice, it is necessary to oversize the compensation in cases where intent is suspected.

Now here again multiple problems arise. Intent is only known to the individual and cannot be proven or disproven beyond doubt. Furthermore, the exact proportion of crime to punishment is hard to determine.

Let’s assume a thief is caught stealing 1 Bitcoin. Should he be fined 1 Bitcoin, 2 Bitcoin, 10 Bitcoin?

Well, obviously this depends on multiple variables. One is, how much Bitcoin the thief already has in possession and how often he gets away with crimes.

A first-time offender, who steals out of boredom and opportunity, might be prevented from becoming a repeat offender, when sentenced with a fraction of his net worth.

A professional thief who stole 100 Bitcoin before being caught, stealing another, will laugh about any sentence less than 100x his latest catch.

The mother who is trying to feed her starving child will likely not be stopped by any fine.

As you can see, there are several hurdles one needs to overcome to create a “just” law code:

  1. The discovery of natural law through scientific philosophy is incomplete.
  2. Valuations are subjective and some conflicts thus unsolvable.
  3. Intent and crime detection rate need to be taken into account to prevent repeat offenders.

If you agree with the logic of the previous chapters, then you surely have a hunch, what my suggested solution to these issues is?

Of course, the free market.

In a society comprised of Bitcoin Nations, law will likely improve over time for two reasons:

Firstly, people can easily switch legal systems, if they are not satisfied with their current legal framework.

And secondly, competing legal systems will need to find arbitration methods to resolve conflicts that arise from differences between people who subscribe to incompatible law codes.

This necessarily forces each legal system to continuously outcompete others and requires that any nation who wants to grow their membership numbers negotiates treaties with other nations, where it is specified how conflicts between their members shall be resolved.

To see how all the market processes described in this book could play out in real life, let’s have a bit of conjecture time.

Bitcoin Nation – THE FOUNDATIONS OF ETHICS (Pt.2-Ch.6)

My new book “Bitcoin Nation” was published on the 15th anniversary of the Bitcoin Whitepaper, October 31, 2023. You can read it below, one chapter per week. Or buy it here:

A thorough discussion of morality and ethics would fill entire libraries, so I cannot hope to do it justice here. Rather, we will focus on pointing out the most fundamental popular misunderstandings and point out a way to create a framework of continuous improvement for ethical standards.

The first misconception about morality is that it is postulated either as subjective or as objective. This is a false dichotomy. In reality, ethics is grounded in objective reality, but since objective reality contains individuals capable of subjective value judgments, these need to be accounted for in any objective ethical framework. The result is necessarily a framework of objective outlines, with subjective nuances.

A second major falsehood is the notion that ethical frameworks offer a moral guidance that results in people being able to decide whether they are “good” or “bad”.

In reality, it is theoretically and practically impossible to be 100% good or 100% evil. So any ethical framework that tries to win over people by soothing their conscience and telling them “Atta boy”, is really just a marketing scam and not any moral standard.

Third and most importantly, most modern ethical textbooks confuse two different concepts. They try to simultaneously describe what are the most “good” behaviors and which behaviors lead to the optimal outcome for human society. While often aligned, the two concepts in numerous instances couldn’t be more diametrically opposed.

If you don’t take anything else from this chapter, please try to internalize the following:

Ethically correct, aka “good”, behavior is a luxury.

Your interests are often conflicting with the interests of other persons. Only those who have met all their basic needs are free to engage in ethically correct behavior. Those who are not can only be “good”, if they sacrifice themselves. And that is also bad.

At this point, you are probably asking yourself where my judgments on what is positive and what is negative come from. As mentioned, a full ethical framework cannot be deducted here, nor am I claiming to have one. There is a lot of serious scientific-philosophy work yet to be done.

What I can give you is the basis of my ethics, which is objective and which can be your starting point if you’d like.

What is objectively valuable?

Austrian economists would likely deny that there is anything objectively valuable in the universe at all because value is subjective.

While this consideration is true for things, it is not true for conscious beings. Even though we have not fully understood, what consciousness is, beyond the fact that it exists, its basic properties are not only known, they are the only thing in the entire universe we can absolutely be certain of.

This was logically proven by Descartes, in his 1641 book “Meditations on First Philosophy”. Specifically, in his famous statement “Cognito ergo sum.” (lat. I think, and therefore I am). By sheer logic, he formulated the apodictic proof that even if the whole universe was a demonic hallucination – or in modern interpretations a simulation – you could still be certain that your consciousness is real and that you as an individual exist.

So, if consciousness is real, and one of the fundamental properties of consciousness (at least mammal consciousness) is the ability and mandatory habit to subjectively judge value, what can we deduct from this?

Let’s explore this with a thought experiment:

For an unknown, unlucky reason, you are the only consciousness left in the universe.

How valuable is the universe? Well, obviously as valuable as you subjectively judge it and yourself to be.

If you die, how much value is left in the universe? Zero, since there is nobody to perceive value. In conclusion, the value of your life must have been as high, as your valuation of yourself and the universe.

So, while we cannot quantify nor objectively measure your value judgements, we still can say with the same certainty that we can claim “cognito ergo sum” that objectively your life must have value.

Starting from this basis, we now know that any thorough ethical framework must include the desires, concerns, and value judgements of all conscious entities, while it can exclude all non-conscious things.

As a rule of thumb, we can then also deduct, that whenever your interests do not conflict with other conscious entities that pursuing these interests is morally neutral. If your actions help another conscious being, i.e., perceive a benefit from your actions, they are morally good. And when your actions conflict with the interests of other individuals and are perceived as hurting them, they are bad.

Obviously, most of your actions that affect other individuals will be perceived as beneficial by some and as detrimental by others. So the morality of your action is seldom purely good or bad. In the end, you make the value judgement, which portion of good and bad actions you are comfortable loading onto your consciousness.

An absolute hierarchy of objectively more good and more bad actions is hard to construct, although there exists a way to at least determine an outline to make statements on some aspects of morality objectively. For example, murdering a person is worse than slapping them in the face because the latter is a brief discomfort, and the other removes all the subjective value this person perceived from the universe and deprives all the individuals valuing that person of said value. I will leave further discussions on objective versus subjective aspects of morality to later books or other authors for now, and try to shift your attention to the translation of ethical baselines into societal frameworks and laws.

Bitcoin Nation – THIS WILL NEVER WORK (Pt.2-Ch.5)

My new book “Bitcoin Nation” was published on the 15th anniversary of the Bitcoin Whitepaper, October 31, 2023. You can read it below, one chapter per week. Or buy it here:

Despite my argument that we cannot end up in a worse place than we are today, I know some will object to the vision of nationality independent of territory, for various reasons. Let me address the two most common concerns, I have encountered when presenting this concept so far:

Corporations will abuse this to not obey laws and avoid taxes.

Today, big corporations already have essentially freedom to choose in which jurisdiction they pay taxes and to lobby the laws in any way they want, often barring small competitors from the market. Before I came in contact with the idea that territorial states may not be the only option available, I thus advocated for a world government.

Unfortunately, such a world government would have the enormous downside of being easily corruptible by large corporations and the corruption or totalitarian takeover of the world government would be recoverable only by global civil war, if at all.

The real question is thus not, whether big corporations could influence the law, but whether their influence would be less than today.

I see an excellent chance that this is the case, and that the influence of big business would wane over time in a world of bitcoin nations. The reason for this is simple. If a nation wants to attract citizens, it needs to provide superior state services. These state services would likely depend a lot on the size of the nation and how strong its contractual network with other nations is. This means that the incentive to have contracts between nations in place that exclude or punish businesses who engage in regulatory arbitrage is forceful. Indeed, much stronger than it is in the current system.

No territorial monopoly means anarchy.

The most common objection to transforming states into nations is that of impending anarchy. Firstly, this is a mistake in definitions, since anarchy – i.e., the organization of a society based on voluntary cooperation – is not the same as anomy – lack of moral standards in a society. Furthermore, a world of bitcoin nations would likely start from the exact same legal framework as is in place in our territorial state society, today. This is due to two main reasons:

First, and foremost, bitcoin nations will most likely arise by states offering digital citizenship, not from the ashes of a broken-down society. Secondly, a society that allows its people to switch nationality at any time, will only have citizens if it effectively guarantees the rights of these citizens, including providing them with protection from amoral actors.

This again leads to the conclusion that a decentralized society of nations would likely improve their moral standards over time, thanks to the incentive structure.

Now, many might object that there even is something akin to “improved” moral standards. So to fully resolve this counter-argument, we will need to discuss the fundamentals of ethics.

Bitcoin Nation – THE DEMOGRAPHIC BOMB (Pt.2-Ch.4)

My new book “Bitcoin Nation” was published on the 15th anniversary of the Bitcoin Whitepaper, October 31, 2023. You can read it below, one chapter per week. Or buy it here:

Population statistics indicate that sometime in the 2030s, most Western states will experience the effects of the demographic bomb. Namely, over half of the population will be over 65 and out of the workforce.

This situation is impossible to overcome for the current Western social security and welfare systems. Especially in light of the enormous debt levels, states have racked up already.

The only way out for states is to acquire skilled workers from other regions. Naturally, the only continent that still has birth rates higher than the replacement rate comes to mind, Africa. Unfortunately, the education system in most parts of Africa is far from the quality and capacity needed to sustain the Western high-tech industrial output. A problem that is next to impossible to fix in time to educate enough highly skilled workers to replace retiring boomers and gen-x. So, unless Elon Musk’s Tesla Bot is ready and capable by the end of the 2020s, Western states will have to face harsh competition trying to recruit skilled labor from other declining populations or from India.

Especially, the United States of America is in trouble if they want to keep their position as the dominant military and economic power. Their advantage is that right now, they are still the most popular target for skilled ex-patriots. It is unlikely that the small minority of people willing to uproot themselves and move across the globe will be enough to spare them from the demographic bomb, however.

At some point in the near future, it is probable that the US will join the movement of digital passports and starts offering their state services to people abroad.

At first, this will look innocent enough, so other states do not feel threatened. For a payment of a flat tax, high earning individuals will get a US passport and all the benefits it brings with it. Later, when the tax situation gets more and more desperate, the portfolio of state services for digital citizens will expand. If US citizens get into trouble with the law in host states, the US will use its diplomatic and military might to claim jurisdiction and bail them out. At some point, the United States likely will push for a UN resolution that expands the right to self-determination to the individual and the property they inhabit. With that move, the US of A would not only gain access to the most productive workers, but also to the land and resources owned by high-net-worth individuals.

Of course, from the perspective of the early twenty twenties, such a fundamental change in the organization of states may sound far-fetched, but I think it is far more probable than guessing a coin flip. The pressure to gradually implement such a system is extreme, thanks to the demographic bomb. Furthermore, the incentive structure is so strong for both states and individuals that by the time the USA would push for an individual right to self-determination, other large states would likely already have copied the digital citizen model. Maybe they would have even tried to outcompete the US in terms of digital citizen benefits.

If you are still unconvinced that my predictions are not lunatic, consider the alternatives.

One possible alternative is a society of ever waning social nets. Such a society would drive unproductive people to flee to countries that still offer a social security system, collapsing the state finances of such countries. This would leave these states with only two options. Either, they would need to attract productive workers even faster than unproductive ones. Or fend off unproductive immigrants militarily, again requiring a surplus in young, productive citizens.

Another alternative is a society that avoids the demographic bomb by totalitarian measures, either killing off or deporting aging citizens. Killings, would likely alienate the citizenship, causing young people to flee while they can. Deportations, on the other hand, again require enough young, productive citizens to fend off immigration.

So, regardless of which of the above approaches a state takes, if any other big nation chooses to offer digital citizenship and credible protection against totalitarian governments without the need to uproot oneself, it would outcompete.

Really, the only scenario I can see, where territorial states remain without having at least limited digital citizen programs is one, where robotics and AI offset the loss of productive workforce caused by the demographic bomb.

Even in such a scenario, a nation that offers digital citizenship, will have an advantage, since it can attract the most successful AI and robotics talent, even if these people or companies are not willing to physically move to the country that nation originates from.

Let’s recap:
There is a strong incentive over the next couple of decades for states to create digital citizenship models. By market competition, digital citizens will likely receive more and more services. Ultimately, the remote digital state service providers will likely offer a similar portfolio as today’s territorial states.

Totalitarianism or a technological miracle are the only alternatives to the digital citizenship approach.

Does this mean that the end of states for the benefit of decentralized nations is inevitable? No. While the competition between states ultimately may lead to a fine-grained patchwork map, this is far from certain.

While I see a chance that all state services may be digitizable, and a nation might thus consist of different nationalities houses, it is unlikely in a city where every single street houses multiple nations.

Not so much because it is impractical, but rather because humans like to surround themselves with like-minded individuals.

Thus, I consider a world of nations that consists of tiny decentral countries the size of cities or counties much more likely than a nation-only world, where every household chooses their nationality willy-nilly.

The beautiful thing about the likely occurrence of digital citizenship and free market competition between nations is that it must over time lead to better and better outcomes on average.

Even if this disruption of traditional state structures may cause a lot of chaos and confusion in the first few decades, in the long run, the game theory of free markets guarantees that the outcome improves over time.

This means nothing less than that we have nothing to fear and should loudly advocate for digital citizenship models, before totalitarianism takes over even more states.

If today’s territorial representative-democracy states truly are the best form of government humanity can construct, they will win out in the end. Yet, even if in the end we find ourselves where we started, we’d be better off, since states would have proven their business model and their representatives would have a far greater claim to legitimacy.

Bitcoin Nation – BIRTH OF A NATION (Pt.2-Ch.3)

My new book “Bitcoin Nation” was published on the 15th anniversary of the Bitcoin Whitepaper, October 31, 2023. You can read it below, one chapter per week. Or buy it here:

State, country, nation. These words are often used synonymously in modern English. An unfortunate circumstance, created by teachers emphasizing creativeness over precision when teaching to write and grading essays. Combined with the fact that some encyclopedia writers seem to have mistaken the warnings in Orwell’s 1984 for instructions, modern English and most other languages have been mushed to the point where precise communication is nearly impossible. Thus, any discussion must necessarily devolve into an argument about definitions. So, since every word nowadays means everything and its opposite, let’s try to agree on differentiating definitions for the remainder of this book.

With “state”, I mean a territorially organized country, with a government that claims a monopoly on violence.

With “country”, I mean any territorially organized form of governance, not necessarily with a monopoly on violence.

And when I write “nation”, I refer to any group of people that voluntarily bands together under a governance structure, regardless of whether it’s organized territorially or with a monopoly on violence for a governing body.

Based on these definitions, you may understand why I posed the question in the first chapter, whether a state on a bitcoin standard still deserves to be called a state. While I am not opposed to a nation organizing as a state per se, in the following few chapters, we will discuss why I think a nation should organize neither as a state nor a country. In fact, we will discover that there seem to be only two options for the long-term future. Either nations without states, or states, where the rulingclass is its own nation, suppressing the citizens whom they consider inferior to themselves.

While writing these lines, I can almost physically feel the discomfort my definition of nation will give some of my readers. Nationality is something people deeply identify with and consider as immutable as the color of their skin or who their parents are.

Especially in my home state of Germany, this discussion about “true nationality” can take grotesque dimensions. When foreigners migrate to Germany, they, their children and often even grand-children, will be considered and commonly consider themselves foreigners, no matter if they have a German passport or don’t even speak the language in their supposed home country.

If I consider my own family, some of it migrated from Eastern Prussia after WWII, an area that is now and historically mostly was Polish. So, is this branch of my family Polish or German?

The bulk of my bloodline has been in the same area for centuries. Still, just the last five generations had four different nationalities. They were considered Austrian, Bavarian, citizens of Salzburg and lastly German.

In essence, the concept of conflating nationality with country of residence is the underlying issue. As mentioned previously, humanity started as family groups that were not necessarily bound to a single territory. So that a nation had a strong component of shared bloodline, shared values and interests is natural. After nations settled in countries and later even became states, people who most accurately can be described as one nation, were spread over different states and countries. With the loss of distinction between these words, the nationalist conflicts arose. In essence, nationalists weaponize the emotional bind one has to their nationality and home turf to confuse people into killing their fellow nationals on behalf of a state.

So, how can we detangle this dilemma and properly define our own nationality?

In a nutshell, I think nationality always is and always was a choice. You decide who you are and with which group of people you identify. Bloodlines are for biological reasons a common ground often chosen, but not necessary in my opinion.

As Balaji explains in “The Network State”, a nationality can be any group of people that bind together out of a shared interest. This overlap of interests can be very broad or very specific. Maybe everybody who considers Bitcoin the best money can be part of a giant “Bitcoin Nation”. Perhaps this nation will split into sub nations because the “Atheist Vegan Bitcoin Nation” cannot stand the “Christian Carnivore Bitcoin Nation”. And perhaps people can belong to several nationssimultaneously, just like myself, who currently considers himself European, German, Bavarian and a Bitcoiner.

How such a nation based on shared interest could get started, is explained thoroughly in “The Network State”, so I will make it very short here. Essentially, Balaji’s thesis is that thanks to the internet, people with shared interests can easilyorganize and band together, regardless of where they primarily reside. If such a group gets large enough, it can lobby itself into being recognized as an entity in international diplomacy, maybe even acquire land and create a sub-state in an area of a host state.

I agree with the first portion. People can organize easily via the World Wide Web and possibly even get recognized as a nation by the UN. What I don’t understand is why this nation should become a state. Quite the opposite, a globally organized nation turning itself into a new Venice or new Hanseatic City, will likely suffer the same fate as these small states did.

Much preferred, in my mind, would be that such a group gets states to recognize it as a decentralized nation. Whether this is possible and how economic incentives and game theory may strongly favor this option shall be discussed in the following paragraphs.

The legal basis for people splitting into their own independent nations is clearly stated in the UN resolution 1514 of 14 December 1960. People have the right to self-determination, including ethnic groups and nationalities in colonial or amalgamated states (e.g., Yugoslavia) being able to vote for their independence. In practice, this right has been applied rather arbitrarily, unfortunately. While the Scottish people were able to vote on independence, Catalans were refused to do so, or rather their vote was not recognized.

The underlying issue, for this right, lies in what I explained above. The words “nation” and “ethnic group” are not well-defined. And for any given geographic region, you will always be able to say “This is a mixed population, not one nation, they have no right to vote”. Thus, the only real path to getting recognized as a nation, is by getting a group big enough, to be too big to ignore.

Over the internet, this shouldn’t be a problem. The more authoritarian states turn, the more people will want to opt out. No matter, if these people want to create one giant new nation or many small ones. Initially, they all share the interest in getting this wish recognized. The best strategy for them seems to be a unified fight to get recognized as a new, decentral nation. Then, once this nation is officially recognized by major states, to sort out the details and split further if necessary, or organize the big nation into smaller federated nations.

This is only one part of the road to success for new, decentralized nations. They might also arise from existing states, for self-interest reasons of these states’ elites.

Bitcoin Nation – WHY DO WE NEED STATES? (Pt.2-Ch.2)

My new book “Bitcoin Nation” was published on the 15th anniversary of the Bitcoin Whitepaper, October 31, 2023. You can read it below, one chapter per week. Or buy it here:

Without states, we would live in a dog-eat-dog world, where the strongest takes what he wants from the weak, where murder, rape, and chaos would reign.

Along these lines, most people argue why a state in its current form is necessary.

Let’s have a very brief look at why and how states evolved.

Our understanding of the history of the early days of pre-civilization humans is very limited. As far as we know, they lived in small family tribes, hunting and gathering for survival. When times were good, they’d live in abundance. When times were tough and food was scarce, some tribes would murder other tribes for food and

other contested resources. The weaker or more peaceful tribes would either be wiped out or move to less contested territory.

Over time, some weaker tribes figured out that they could band together and fight off the smaller strong tribes. This triggered a feedback loop, with peaceful and aggressive tribes banding together in ever larger groups to conquer and fend off the other tribes. The larger groups were less mobile, thus requiring the development of new tools, like agriculture, to continuously sustain large groups of Homo Sapiens in one static location.

It can thus be said that the state developed not to get rid of the dog-eat-dog world, but rather just to breed ever bigger dogs. If you look at the history of military conflicts, states have never been peaceful for extended periods. As states got bigger, the wars got bigger.

You might object to this analysis, by pointing out the fact that at least the citizens inside the states experience less violence than without a

state because the government peacefully resolves conflicts among citizens and fights crime.

This is not accurate from my perspective. As long as the state is successful in gaining resources for its elites from the outside, it is peaceful to its citizens. When it is not successful at procuring resources from abroad, it turns on its citizens. The conflict “Right vs. Left” is not really a political conflict, these are simply two different positions of a continuously swinging pendulum.

Over time, most states first turn to robbing the outside to grow and when this is not possible anymore, they then turn against their citizens to enrich the elites. This process can be observed in the USA today.

This process is reversed, if a state is newly created out of the rubble of a state that militarily failed. It thus cannot hope to gain resources from the outside, and will first turn inwards and exploit the mass of citizens, to enrich a small elite. This happened in post-WWI Russia and post-WWII China. Once such a state gets powerful enough, it will again turn on the outside to procure resources.

In the end, as we saw when discussing the impact of expanding the money supply, the violence, and free market restrictions imposed by both types of states do not really make anybody richer. They make a small elite comparably richer, but overall, they hinder economic growth and cause inefficiency.

This can be clearly seen, when you look at historic examples of states that tried a different, more liberal, more market-oriented approach. Be it historic Venice or the Hanseatic Cities. These small city states, focussed on free trade andpersonal liberties, having their law codes mostly created on a voluntary basis by merchants. This allowed them to amass untold riches and, despite their small size, afford enough military power to fend off bigger states for centuries.

Unfortunately, a small territorial size, in the end, is fatal. As soon as these states made a tiny mistake or competitors had grown enough in sheer relative population size, the small free cities would be forcibly integrated into larger empires andplundered for their riches or entirely wiped out.

Since free societies require a large part of voluntarism and consent, they necessarily must besmallif organizedterritorially.Findingenough like-minded individuals in one geographic area is just too hard. Thus, when a small free state grows, even if it is organized democratically, the more it grows, the less it can stay democratic. It may still claim to be, but in reality, democracy will at some point turn into a dictatorship of the masses, which will then quickly be usurped by elites. Within a couple of hundred years at most, every democracy in history has turned into some form of authoritarian state. A trend unfortunately currently being witnessed in most Western countries.

There is one counter example, however. The Jewish Diaspora may not have left their homeland voluntarily, but it is a great example of how a small nation could organize itself in a non-territorial way, grow prosperous and survive millennia of persecution. I greatly admire the achievements of the Jewish nation.

Long before modern telecommunication technologies, the Diaspora managed to organize itself, have a law and education system largely independent of territorial host states and create a trade network that made some of their membersspectacularly wealthy.

Of course, this wealth has triggered envy, so just like the small free city states, Jews were continuously attacked, and many conspiracy theories created to discredit them. Unlike the territorially organized free nations, the Diaspora could not be conquered and assimilated or eliminated. Whenever one territorial host started persecuting the Jewish people, the decentralized governance network allowed the diaspora to organize and get as many of their nation out of danger as possible. Thus, while they suffered unspeakable tragedies, as a nation, they survived.

In light of this success story, my proposal for future nations is to organize in such a decentralized way. Which of course raises the next question:

What is a nation?


My new book “Bitcoin Nation” was published on the 15th anniversary of the Bitcoin Whitepaper, October 31, 2023. You can read it below, one chapter per week. Or buy it here:

“Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of Government, except for all those other forms that have been tried from time to time.” — Winston Churchill

Modern democracy is a better form of government, compared to most historical forms of government. Still, most sane people will admit that it has many flaws.

Unfortunately, most people deny the possibility of fundamental improvement. It is, in my opinion, deplorable that most Western countries have enshrined a version of representative democracy into their constitutions without any mechanism to improve it over time and incorporate new technologies.

Most constitutions in place today were created before the internet, some even before electricity was widely used. If one looks at how much everything in our society has changed in the past 200 years, how can one conclude that we cannot organize our society better?

The question of how to better organise a nation has plagued me for many years. And while I offered several suggestions in my previous works, on how to better our governance, today, I do not stand behind these ideas anymore.

Not because I believe that they wouldn’t be an improvement, but rather because I doubt that any enshrined solution is a viable one.

What is needed is a form of governance that continuously improves over time, not another cast in stone system like the current one.

The difficult question is:
How to achieve continuous improvement?

A process to do so is known in other fields. It is called the market. In the free market, products and services adapt to the needs and zeitgeist of each era and usually get better over time.

What we will thus try to accomplish in this chapter is an investigation on how a nation’s governance could be subjected to free market processes.

In the first step, we will flip the question at hand on its head:
Why is national governance not subject to market forces today?

The answer to this question will surprise many socialists:
To a certain extent, they are.

If I am unhappy with the state services my home country provides, I can leave and apply for citizenship elsewhere.

There are several big showstoppers to doing so, which inhibit the market forces to a point where they are barely visible.
The first one is the fact that, unlike your internet provider, you cannot switch your sovereign without moving. Since most people, like me, are deeply rooted in their birthplace, moving is not an option.

The second obstacle is immigration and emigration policies. For many nationalities, it’s next to impossible to move to another country of their choosing. And even if you are lucky to have a passport that opens you many doors, the wealth taxes inflicted if you leave can be devastating.

To put it in a nutshell:
States have a territorial monopoly on violence. And this monopoly all but blocks free market choice of nationality from occurring.

For most contemporary people, this answer is where they stop their investigation. Since a state is defined by this monopoly, and we obviously need states, too bad, nothing can be done, move on.

One group of thinkers has gone further, however. Namely, the Libertarians, most famously Austrian Economist Murray Rothbard.
He envisioned a society where only market forces and natural law rule. Unfortunately, his and most other libertarian thinkers failed to put up a practical plan on how to get there. Rather, they wanted to enshrine a libertarian society the same way representative democracy is enshrined today. To make matters worse for the libertarians, their ideas have been usurped by Ronald Reagan in the US and under the name neoliberalism by Margaret Thatcher in the UK. Under the free market flag, they implemented cronyism via their policies. They did this to such an extent that it tainted the words “libertarianism” and “liberalism” so heavily that in most people’s minds they mean almost the opposite of what Rothbard or Mises meant with these words.

From my perspective, the original libertarians had many good ideas, but made one fatal mistake, which, if corrected, may make their dreams a reality.

For a society where governance is subject to the free market, you don’t need to first abolish the state, nor create a new territorial form of governance. The only outcome this would have is a mob rule, which to end states were invented in the first place.

The real way to get there, in my mind, is that the territorial monopoly of the state must be broken inside the current system and that the rest will follow automatically.

How to achieve this?

My proposal is simple:
Allow people to choose their state services provider, like their internet provider. Why should your nationality be any more tied to the place you live at than your internet service?

At first glance, this thought might seem ridiculous to you, please hear me out. Not so long ago, in my home country, Germany, phone and internet services were monopolized by government run companies. This was justified by the fact that it supposedly is not economically viable to have more than one infrastructure in place, and thus the state needs to provide it. After the monopoly was broken, however, it turned out that not only can having more than one telecom infrastructure be economically viable, but the existing infrastructure can be rented out to newcomers in the market. Today, the ownership of the telephone wires to my house does not limit my choice of providers.

Why should it be different for the state?

Bitcoin Nation – THERE IS NO SECOND BEST (Pt.1-Ch.10)

My new book “Bitcoin Nation” was published on the 15th anniversary of the Bitcoin Whitepaper, October 31, 2023. You can read it below, one chapter per week. Or buy it here:

To recap, so far, we have learned, why money works optimally when it has a constant supply. We then discovered that gold had been the best technology for money during the last 5000 years and that Bitcoin now mitigates the key downsides of gold.

The obvious next question is:
What will be the next money after Bitcoin?

As you may have guessed from the title, of this book, the author’s position is that there will not be a better Bitcoin for millennia to come. I do not want to just postulate this; however, I want to give you a few key arguments for why I think this is the case.

As history shows, besides brief transition periods, every local economic system tends to use one single money only. This is due to the strong network effects money has. To be the optimal medium of exchange and unit of account, it’s best to not have to convert between different moneys. And since network effects grow exponentially with the number of users, once a certain user threshold has been passed, any new monetary technology has to be significantly better than the dominant one to replace it. A little better is not enough.

This is why platinum couldn’t challenge gold as money and why copper was always only used as a sneaky replacement for gold and silver, not a market choice.

Now, you may think:
“Gold and silver were two competing moneys for thousands of years.”

This is a fair, yet incorrect point. Silver was just a substitute for gold on small transactions due to gold’s lack of divisibility. The truth is, it was merely one bi-metallic money standard.

Countries like China, who tried to remain on a silver standard, when the rest of the world was on a bi-metal standard, got wiped out economically for using inferior money.

The economic ping-pong between the gold standard and Fiat money is not a free market phenomenon, but has always been one of manipulation and force, which was possible due to gold’s monetary flaws.

Thus, the question you need to answer, when wondering whether Bitcoin will succeed, is:
Is it better enough to overcome the power of incumbency in gold?

It is a moot point, though, since we are currently in a global Fiat standard. So, even if you are unsure, if Bitcoin could have outcompeted the network effect of gold 100 years ago, today it just has to outcompete Fiat.

Bitcoin will succeed if it’s better money than gold, which I think I have argumentatively proven in the previous chapters. And since Bitcoin is already dominant in the cryptocurrency space and has amassed an estimated 200+ million users worldwide, it is larger than most Fiat currencies already.

I think it is thus fair to say that the next Bitcoin would have to be significantly better money than Bitcoin. And such a money is unlikely for two reasons:

The primary reason is that Bitcoin maximizes the security of its stable monetary supply, so a better money on the key parameter is not even theoretically possible.

A money that is not only better on other monetary parameters, while simultaneously as secure in its scarcity as Bitcoin is hard to imagine. One that is so much better on these parameters to overcome Bitcoins network effect is getting exponentially less likely with every new Bitcoin user.

On top of this problem, any next-gen money would have the issue that Bitcoin already happened. While Bitcoin could grow into scale in a decentralized way, it was possible only because those in power didn’t take it seriously.

Any money trying this now would not have this benefit of flying under the radar, and would thus likely be usurped by centralized powers.

Far more futile to such a money would be if it was successful, however. Because if money became a technology replaced every couple years by a better one, it would mean that it lacks the properties of transposing a transaction over time.

Digital scarcity can be discovered once and implemented in a technology once. Every copy must necessarily just be a copy, and as such subject to being copied itself. If it can be copied, it is not scarce.

Bitcoin is the one shot we have. If we screw Bitcoin up, there is little hope that we will ever have sound money again.

Luckily,I think the chances of Bitcoin succeeding are excellent, as long as all Bitcoiners stay vigilant and informed. Bitcoin truly is hope. Not just for a better money, but for a better, more sustainable society.

If you don’t believe this, yet, I hope to convince you of this vision in the next couple of chapters.

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