The Crypto State? | City Journal

Autumn 2020 issue preview

Throughout history, world powers—Spain, the Netherlands, France, Britain—have found themselves routinely replaced by more dynamic rivals. Today, many speculate about whether the United States will cede place to China as the global superpower. What if this is the wrong way to look at the question, though—and what if we’re living through a more radical transition? What if all contemporary states are in the process of being replaced by a new kind of “state,” as different from existing governments as they themselves differed from ancient empires or primitive tribes?

Technological development creates new sources of power, and it’s possible to discern a logic to that growth. First, information: Google knows more about you than your government ever will. Second, community: Facebook brings more people together on a single collective platform than any society, including China or India, can match. Third, currency: Bitcoin is a new kind of money, decentralized and free from political control. Fourth, law: smart contracts are computer programs working without human intervention. All that remains is to combine these elements, and a new form of governance will be born. What might it look like?

In an essay published in 2017, Mark Zuckerberg offers a philosophy of history to explain the rise of Facebook. The arc of that history moves from tribes to cities to nations—and now to something beyond. “Today we are close to taking our next step,” he writes. The truly remarkable thing is not that Zuckerberg thinks that humanity is becoming a global community—implausible as that claim is—but that he thinks his company, which he obviously does not regard as merely a company, can help make it happen: “Facebook stands for bringing us closer together and building a global community,” he says. “In times like these, the most important thing we at Facebook can do is develop the social infrastructure to give people the power to build a global community that works for all of us.”

When Zuckerberg calls Facebook the “social infrastructure” for community, the term is the very one that you would use to define the state. The state makes human communities possible; it builds them, organizes them, and keeps their members together. Or, as Zuckerberg puts it, it supports us, keeps us safe, informs us, and includes and engages us. Of course, Facebook, with no territory and no claims to territory, is dedicated to building a global community not in physical but in virtual space. By freeing itself from geographical constraints, this new community would be open to every person on the planet.

The story of the political travails affecting Facebook over the last few years—and to which Zuckerberg’s 2017 essay was an early response—shows that the aspiration to create a new kind of “state” was far tougher to realize than Zuckerberg envisioned. The problem is that Facebook lives a kind of double life. On the one hand, it says that it wants to enable a virtual community of global citizens. On the other, it is a company incorporated under the national law of already-existing nation-states. In this second aspect, it is subject both to the rules of market competition and to public regulations. Neither is compatible with the global political role to which Facebook aspires.

Cryptocurrencies—and crypto platforms more generally—offer an answer to this difficulty. Already, with Bitcoin, we have seen the advent of a new global infrastructure, where data and transactions can be endlessly recorded in a trusted blockchain ledger, without any of the usual intermediaries: no large multinational corporation captures the data, no banks are involved, and no state authority can tamper with the record. Disputes within the community are automatically settled by the existing ledger, which takes on the role of paramount authority.

As the media theorist Steven Johnson argues, the inventors of the open protocols that shaped the Internet failed to understand that what was being built was a community, and not just a machine. Or perhaps the error was to think that identity had already been defined in the real world and that the online community would merely replicate those external standards. Offline, we rely on public authorities to confirm to others that we are who we say we are. Marital status, property, age, taxes, health and school records, contact information—state authorities zealously keep all these records, and, normally, a society will work better if citizens can trust those authorities to fulfill that task. But online, the scale of information explodes. The vast volume of data collected online now bears no comparison with the primitive records available in the physical world. Thus,…