Diplomatic Relations between Nation States and Network States

We’ve stressed how important it is for a network state to gain diplomatic recognition. Indeed, we gated the definition on this — we go from a network archipelago to a network state only upon recognition by at least one other state.

The reason why is that diplomatic recognition can best be thought of as an admittedly non-binding commitment not to invade. A state with diplomatic recognition also has access to services like global bond markets, passport reciprocity, trade deals, and all the other things that states offer to other states. Remember, even the billion-plus Chinese and billion-plus Indians are each outnumbered by the billions of other people on the planet. So if even the very largest and oldest civilization states need to be conscious of their international image, diplomatic recognition is of existential importance for the smallest and newest nations. It could be the difference between ending up pursued by a neighboring military for an “illegitimate seastead” versus getting time with the UN Secretary General for your tiny nation.

Given these categories, we’ll first sketch what diplomatic relations look like at a high level, and review the differences between network states and nation states. Then we will cover:

• nation-state-to-nation-state interaction: the existing system
• network-state-to-network-state interaction: the parallel system, which will really be network-society-to-network-society interaction, until the bootstrap recognizer
• network-state-to-nation-state recognition: the main event

For short, we can think of these as fiat/fiat, crypto/crypto, and crypto/fiat. Why?

Fiat/Fiat, Crypto/Crypto, and Crypto/Fiat 

By analogy to cryptocurrency, we have three categories.

• nation-state-to-nation-state relations are like fiat/fiat pairs (USD/CNY)
• network-state-to-network-state relations are like crypto/crypto pairs (BTC/ETH)
• network-state-to-nation-state relations are like crypto/fiat pairs (BTC/USD)

The analogy is a strong one as it underlines just how important diplomatic relations are to the fledgling network state. Think about how important the BTC/USD pair was and still is to the bootstrapping of the crypto ecosystem; similarly, the interface between a “fiat” nation state and a “crypto” network state will be of historical significance.

The analogy also holds in a different way: today, crypto/crypto trades are large enough to be their own internal economy, regardless of the outside fiat world. Perhaps at some point, should we succeed, the family of network states organized in the “United Networks” may be comparably important⁷¹ to the nation state organization called the “United Nations.”

The Path to Diplomatic Recognition of a Network State 

Of course, the emergence mode of a network state will have to be a little different from the emergence mode of Bitcoin. For Bitcoin, the BTC/USD interface wasn’t something that was deferred, it was something that happened immediately, and it was the buildout of the cryptoeconomy and the sovereign adoption by El Salvador that took 10+ years.

For an aspiring network state, it’ll need the opposite emergence mode. It’ll have to build an internal community as a network archipelago for many years, gradually building its cryptoeconomy and physical footprint, withstanding all manner of mockery, and interacting solely with network societies and other early adopters.

But once it has large enough population, GDP, and real estate numbers, and has provably exceeded a few UN members in those measures (e.g., >100,000 people, > one billion in GDP, >5 million square meters in footprint), it will start to turn heads and eventually become a serious candidate for diplomatic recognition.

Nation States vs Network States 

We compared nation states and network states earlier, but let’s quickly review.

In nation states, citizens are assumed to be physically proximal; laws are originally written on paper; property rights are enforced at gunpoint; and the borders are primarily physical.

Network states invert many of these characteristics: citizens are assumed to be digitally proximal in a social network, laws are originally written in code, property rights are enforced via encryption, and the borders are primarily digital.

Nation State to Nation State Relations 

We have explored the “nouns” in play — nations, states, network states — but understanding the verbs of interstate relations opens up the universe of chess moves that are simply not available to entities that lack diplomatic recognition.

A partial list of interstate diplomatic, military, economic, and juridical relations follows.

Diplomatically

1. Recognized states enjoy membership in multilateral fora like the UN and G7, which are responsible for “setting the global agenda.”
2. They can participate in treaties which lubricate trade, investment, and security resolutions.
3. States can engage with each other in a symbiotic patron/client relationship.
4. States may maintain embassies on each other’s territory to protect state interests with another state, as outlined by the Vienna Convention on Diplomatic Relations mentions.
5. States may peacefully fork to create new states as Singapore did from Malaysia, as well as fork a governance philosophy, as Singapore did from Britain.
6. Finally, states may merge with each other, as East Germany and West Germany reunified to become Germany.

Economically

1. Trade partner (NAFTA)
2. Territorial Sales (e.g., Louisiana Purchase, Colombo/China port deal)
3. Investment (e.g., Marshall Plan)
4. Sanctions
5. Dollarization (e.g., use of foreign currency to stabilize)

Militarily

1. Military rival
2. Military ally
3. Spy (e.g., ongoing NSA surveillance revelations)
4. Hack (e.g., 2007 Russia/Estonia cyberattacks)

Judicially

1. Visa and migration deals (e.g., US/Australia E-3 visa)
2. Extradition treaty
3. Regulatory Harmonization (e.g., US FDA approval can be ported abroad)
4. Certificate Reciprocity (e.g., recognize marriage licenses across borders)
5. Citation of Foreign Law (e.g., in context of Supreme Court)

This gives a sense of the complexity of interstate relations.

Network State to Network State Relations 

Many of the aforementioned items have analogs in the context of network state relations.

But since this doesn’t exist yet, what would it look like? The closest n analog would be (a) a CEO-led tech company with (b) a passionate social network and (c) a cryptocurrency negotiating with another such entity. Once we think of it that way, we can in fact see how network-state-to-network-state interactions are already foreshadowed by many of the relationships tech companies, social networks, and crypto protocols already have.

Note that like cryptocurrencies, network states (as network societies) will initially take each seriously, while nation states won’t. So the first deals will have to be with each other. Without going through every analog, some examples:

1. Multilateral fora: conferences today, eventually the United Networks or cross-chain votes
2. Trade partner: cross-chain compatibility
3. Visa deals: cross-chain web3 login compatibility
4. Economic ally / investor: hold some of each others’ coins
5. Reciprocity and harmonization: compatibility of formats for data structures like marriage licenses, on-chain real estate representations, and other transaction and record types
6. Physical conflict: this is much harder to do, given that both are so globally distributed.
7. Acquire, merge: one can buy the other, like a tender offer
8. Fork: two network states can split, like many chain splits
9. Hack: try to compromise each others’ chains

Moreover, there are cultural commonalities between network states just like there are between nation states. Just like there’s an Anglosphere, with all English-speaking nations having some degree of fellow feeling and understanding of each other, there’s an Ethereumsphere, where everyone who uses the Ethereum blockchain shares at least some common knowledge and thus basis for conversation.

Network State to Nation State Relations 

Finally, we get to the main event: the recognition of a network state by a nation state. As mentioned, this won’t happen for a while because nation states won’t take network societies seriously. But somewhere around 100k-1M people and billions in annual income, with a serious real estate footprint and a multiyear digital presence, your fledgling network archipelago will start to get traction. It’s all about persistence.

Nation states can’t easily invade network societies, at least not all of the pieces at once, thanks to their physically distributed and fundamentally digital nature. But people within those states (albeit probably not the governments themselves) will try to mock you, cancel you, and otherwise mess with you. Think about what they threw at Robert Goddard, or Uber, or Tesla, and then increase it. If you can nevertheless persist, the resistance to something new will eventually die down. The current thing always does. Then, once you’ve shown some staying power, deals may be on the table.

Precedents for Network State / Nation State Relations

You won’t be starting from scratch. See pieces like this, this, and this acknowledging the reality and importance of “non-state statecraft,” namely deals between heads of state and CEOs of major tech companies.

Or just think about precedents like these:

• Tuvalu brings in more than 8% of their GDP from licensing their fortuitously-granted .tv domain.
• Wyoming extends formal recognition to decentralized autonomous organizations, or DAOs.
• Mayor Suarez of Miami was the first to take his paycheck fully in Bitcoin.
• El Salvador became the first country in the world to make Bitcoin legal tender.
• Virginia bid heavily in the form of subsidies and incentives for Amazon, a company, to build its second headquarters there.
• Nevada gave over a billion dollars in tax credits for Tesla to construct the Gigafactory there.

Each of those represents a legal arrangement between a government and a tech company or crypto protocol. In the case of a tech company, the government is typically signing a deal with a CEO. In the case of a decentralized crypto protocol, the government is just approving use of that protocol for official government business. But these both represent a kind of diplomatic recognition.

Focus on Nimble Governments

Note that the governments doing this tend to be on the smaller side: small nation states, like Tuvalu or El Salvador; cities, like Miami; and state governments, like Wyoming, Virginia, and Nevada. Those are exactly the kinds of governments that will be early adopters for a deal with a network state.

Focus on Regulation, not Tax

Next, what kinds of deals should a network state shoot for in its diplomatic relations? What would it want from a small nation state, or a city, or other government that has at least some legal power to sign something?

The ideal kind of deal may be a limited sovereignty arrangement that opens up new avenues for technological innovation.

First Regulatory Change: +1 Story Building

This excellent tweet encapsulates the state’s hammerlock on the physical world:

It also suggests a good minimum viable product for a substantive deal between (a) a network node of a network state and (b) the physical jurisdiction that surrounds it. That network node should be able to build a new building that is one (1) story taller than it would normally be able to build under the housing code.

For example, if your network archipelago owns an empty lot in Austin, a substantive deal with the city government for limited sovereignty could mean an annual payment in return for the ability to build N+1 story buildings, where normally you can only build N story buildings within the city limits.

Next Regulatory Change: Special Innovation Zones

Think about how small companies will use Stripe so that they can “ride behind the license” of a larger partner, paying a fee to outsource the matter of regulatory compliance.

Now apply that to the relationship between an innovative new network state and a pre-existing, but innovation friendly legacy government. The former can provide the innovation, while the latter can handle the public policy aspects of this “crypto to fiat” interface.

You might be able to work together to, say, legalize self-driving cars in the territory of the network state. Or to allow any willing patient to try the kinds of experimental stem cell treatments that were pushed to corners of Germany. You might even make it legal to build a three or four story building, something that places like Berkeley have made well-nigh impossible.

TODO More Regulatory Changes: SEZs, Passports, Domains

• leasing territory to use as a special economic zone, in return for some annual payment, similar to the relationship of an Indian reservation to the US or Macau to the PRC
• passport reciprocity, with a country
• domain/DNS deals, as with Tuvalu (.tv) and Colombia (.co)
• access to municipal or sovereign financial markets

You don’t have to reach for the sky right away. Pick something achievable, a technological legalization that was on the border of occurring. Make it happen, establish a track record. Then reach for the sky on the next go round.

Crypto/Fiat Dual Citizens Facilitate Interaction

Finally, who would negotiate such a deal? The ideal kind of person is a “dual citizen” of both their adoptive network state and the legacy government. Just like a “Bitcoin American” would push for laws in his home country of America to be friendly to his adopted currency of Bitcoin, so too might a “Novgorod Estonian” try to build a relationship between a fledgling digital Novgorod Republic and their ancestral Estonia.

The best candidates for a network state’s bootstrap recognizer will be small and commercially minded republics, perhaps located far away from the body of the network state’s physical footprint, yet with enough dual citizens in common to make diplomatic recognition of some kind more than a purely economic event.