Book Review: The Network State by Balaji Srinivasan

In 1890 the United States census bureau announced the closing of the frontier. For its entire history up to that point, the area west of European settlement was seen in the US as a place of opportunity and freedom. But it also represented a social escape valve; a place where people who were unsatisfied with the direction of society could strike out and start their own. 

While American anxieties about the conclusion of westward expansion fueled investment in military and empire, people from around the world arrived by ship to its cities, driven by the same principle that drew wagon trains over the horizon.

The choice to exit a society, to leave and begin anew with the hope of finding greater prosperity elsewhere, was in many ways the quintessential feature of democracy and republicanism in the US for over a century.

In Balaji Srinivasan’s 2022 book The Network State, this principle of democracy-as-exit becomes the basis of a new society rooted in the values of decentralized finance, cryptocurrency, and web3. 

Srinivasan is described as an “angel investor.” He’s also the former chief technology officer for Coinbase and, since starting a biotech firm in 2007, has played a part in tech and crypto startups ranging from Cameo to Ethereum. 

The Network State relates Srinivasan’s plan for how and why people committed to the principles of infinite frontier and immutable money should start a country on the internet. 

Traditionally nation-states attempt to draw a coherent society under the control of a state by emphasizing shared language, belief, or cultural practice. The network state is slightly different.  

The network state is a social network with:

• a sense of national consciousness,
• a recognized founder,
• a capacity for collective action,
• an in-person level of civility,
• an integrated cryptocurrency.

Other hallmarks include, a consensual government limited by a social smart contract, an archipelago of crowdfunded physical territories, a virtual capital, and an on-chain census that proves a large enough population, income, and real-estate footprint to attain a measure of diplomatic recognition.

This is not uncharted territory in the web3 space. The “smart city,” or the “blockchain city” are concepts that should seem familiar. Even traditional nation states have a history of founding new capitals or high-tech utopias in the desert, which are meant to transform society and the way individuals live their lives.

What distinguishes the network state is Srinivasan’s willingness to offer an ideology of transformative change, one that presents anarchism to the statist and imagines a state for the anarchists. 

But the book is not the policy manual of a technocrat. It’s a political treatise that attempts to chart a middle way between the totalizing leviathan of the modern state and the myopia of its competitors.

In fact, nearly half of the book is devoted to its second chapter, which sets out to teach a crash course in interpretive historical methods. Notably, neither history nor political theory is portrayed here as the domain of objective fact. Instead, the founders of a network state must endeavor to hone their interpretation of subjective historical perspectives. 

These new founders must have, first and foremost, an interpretation of history that locates the society and its people as successors to the existing order. That’s because new “startup societies” cannot be solely driven by technological genius but instead by what Srinivasan describes as moral innovations, which are only possible if the founders of a nation-state have understood their place in a historical trajectory:

“Without a genuine moral critique of the establishment, without an ideological root network supported by history, your new society is at best a fancy Starbucks lounge, a gated community that differs only in its amenities, a snack to be eaten by the establishment at its leisure, a soulless nullity with no direction save consumerism.”

Storing history on the blockchain

Though critical of rising millenarianism around climate change and economic crisis, there’s a sense throughout the middle three chapters that the current order of sovereign nation-states is morally and fatally flawed. Therefore, the need to create a new state and a new understanding of history is made incredibly urgent.

To that end, one capacity of a theoretical network state would be to construct a blockchain ledger to track and maintain a cryptohistory. By associating historical documents with metadata stored on the blockchain, it would be possible to authenticate or reject historical arguments. Such an archive, Srinivasan suggests, could form the basis of a mathematical theory of history. 

In Isaac Asimov’s Foundation series he imagined a method of modeling the future actions of large populations, a science he called “psychohistory.” The story follows the rippling effects of Hari Seldon’s prediction that Asimov’s fictional empire would eventually fall, giving way to thirty millennia of dark age. 

The similarity to this science fiction concept is not lost on Srinivasan. In fact, he writes that with such a ledger, “…we may be able to develop Asimovian psychohistory from all the data recorded in the ledger of record, namely a way to predict the macroscopic behavior of humans in certain situations without knowing every microscopic detail.”

From this perspective, the gaps in our understanding of history (and of the future) are comparable to those gaps already filled in by modern science. Quantum computing and cryptographically maintained historiography will lend the network state the ability to steer away from the historical limitations of its forerunners. 

For four centuries the Westphalian nation-state has dominated history. The rise of centralized banking and fiat currency has greased the tracks for social, political, and economic development. To imagine the collapse of these systems is to imagine one of the most significant transformations to ever befall human society. Therefore, the viability of a new type of state must be predicated upon some sort of upheaval or transformation of the conditions that prop up the traditional state and its legacy capital. 

Srinivasan foresees a coming conflict between three sides, what he calls the “tripolar moment.” On one side of this tripartite is the statist ideology of the US establishment, the liberals who Srinivasan calls “woke capital.”  Next to them there’s “communist capital,” embodied in the totalizing state of the Chinese Communist Party. Finally, there’s “crypto capital,” otherwise referred to as “the people of the network.” 

In Srinivasan’s teleology of collapse, woke capital will increasingly struggle against economic and political crisis. As the world led by the US establishment encounters the realities of this future, nation-states will have to decide whether to descend into anarchy or embrace the authoritarian tactics of the CCP. 

Ultimately, the tripolarity of the moment is actually a contest between the nation-state with increasingly Chinese characteristics, impending anarchy in the West, and a middle way embodied by the network state. 

A network state for all

A good startup pitch presents a compelling problem and a solution that’s possible but, without required investment, currently out of reach. But often in these pitches, the relationship between the compelling problem and the proposed solution is tenuous. 

For instance, we might consider a question like, “how do we measure the consent of the governed?” Or, “what is the social contract,” and, “what do elite institutions owe to every citizen (or user)?”  These are the questions that might come up in the pitch of a startup society and they’re therefore anticipated in The Network State. 

Signing a “social smart contract” could be used to signal a user’s consent to be governed. This act of signing means giving some degree of control over to administrators, who in turn exert authority over a user’s adherence to laws and social norms.

This might be sufficient for moderating a purely online community. But Srinivasan writes that there is an assumption that the network state would become increasingly terrestrial. The book is vague on how a startup society governs an increasingly physical network state. Srinivasan writes:

“The short answer is that for a long time, it doesn’t — it leaves that to the surrounding legacy society, much like a centralized crypto exchange collaborates with traditional offline law enforcement. Eventually, if and when that startup society becomes a network state — in the sense of achieving diplomatic recognition from a legacy sovereign — then it can potentially take on physical law enforcement duties.”

Equally vague is how decisions will be made in the network state. Srinivasan’s description of how users log in and consent to be governed with a smart contract, giving up certain authorities to “administrators,” is actually one of the few moments in the book where detail is offered on the power structure and decision-making aspects of the network state. 

As with a startup pitch that struggles to explain how the product solves a compelling problem, Srinivasan struggles to explain how rules are enforced and decisions are made. In The Network State and in his public persona, Srinivasan is openly skeptical about the connotations of democracy. He warns in the book against interpretations of history “where political power is used to defeat technological truth.”

In fact, democracy is not mentioned often in the book and, when it does come up, it’s often in derisive quotation marks. “Democracy,” for Srinivasan is a term used by the people of the state to justify the types of policies that have created legacy financial systems, the hegemony of fiat currency, and the type of redistribution of wealth and power that’s prevented the petite bourgeoisie from joining the ranks of the ultra-wealthy.

In the tripolar struggle between the US establishment, the CCP, and the people of the network, democratic voice in political affairs is the distinguishing characteristic between statists in China and statists in the West. But for Srinivasan “voice” through “democracy” is ultimately an illusion.  

The democratic choice that matters most in the network state is contained in the decision to “opt-in” or “opt-out” of a society. If the barrier to entry or exit is sufficiently low, then people will be able to vote “with their feet,” as it were. 

If one were to read The Network State without any first-hand knowledge about human society, then they might be forgiven for assuming that there are no social problems to be solved aside from those presented by state surveillance, legacy financial institutions, vague social contracts, and the media outlets that obfuscate and manipulate the truth about all the above. 

It would be a lucky thing if that were the case, because Srinivasan’s book largely punts on the question of who holds power and on what basis. Besides, if one has an issue with how things are run in one network state, then they can freely leave and go to another or start their own altogether.  

But the hard questions about power tend to follow people over the edge of the frontier and beyond. Those who descend from immigrants, as most do in the US, should be familiar with this reality. People who left the old world for the new or left settled society in the eastern US for the opportunities in an unsettled west were not free of power or its attendant challenges.  

Experimental societies that resulted from exiting settled life in the US tended to reproduce intensified versions of whatever systems of power had dominated them before. Religious orders seeking a society governed by godly doctrines became insular and dominated by a worldy class of “elect.”  Communal societies eventually surrendered to the demands of profit and the market. Even the United States itself, founded in a revolution against the British model of state and economy, adopted both within half a century of the founding. 

The Network State is a thoughtful and necessary work in a web3 space otherwise defined by deeply flawed and unserious claims of social transformation. But more work is required to explain how and for whom this future will exist. 

For the minority with something to save and something to invest in the future, maybe the hard questions about power are actually resolved as subjects of the network state. It is, of course, they who should hold power. It is, of course, they who should wield it. But for the vast majority of people in the world who lack the benefit of that material position, they may reasonably ask what role they will play in Srinivasan’s network state.

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