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.