Cryptonetworks and Governments

Public cryptonetworks have some unique features that put them in an ambiguous position vis-à-vis existing legal and administrative systems, especially governments.

First, as decentralized networks without single points of control, they lack a natural geographic or jurisdictional home. Second, many of the proposed use cases for these networks overlap with activities that have historically been closely associated with state power. And third, since cryptonetworks represent a genuine institutional innovation, there is little precedent or experience to build on when trying to determine their legal status and thereby the appropriate regime for their regulation.

What should governments make of these emerging systems, and how might their societal role evolve in a cryptonetworked world? On the one hand, crypto represents an important tool against authoritarianism, and certain aspects of it can arguably be framed as directly competitive with the State. On the other hand, it is also possible to envision a more symbiotic relationship in which well-intentioned governments are both active participants in, and direct beneficiaries of, public cryptonetworks.

Max Weber famously defined the state as a human community that lays claim to the legitimate use of physical force in a given territory — a monopoly on violence. But equally important for the effectiveness and sustainability of governmental power is the legitimate use of symbolic authority: the state’s ability to establish rules, enforce contracts, define formal terms and standards, maintain official records, and empower institutions that have the final say in all sorts of legal and business matters. It is in this second realm of authority where cryptonetworks have the potential to effectively complement or even replace certain functions traditionally associated with governments, and more recently, with large tech corporations as global leaders in information technology.

While exclusive access to large amounts of personal data is no doubt lucrative, both politically and financially, it is also becoming a widely acknowledged security concern and possibly a liability too heavy and dangerous to be borne by any single organization. The idealized vision of scalable cryptonetworks is to address this issue by building an alternative infrastructure for administering information, one that is secure and reliable, easily accessible by anyone in the world, and that offers users unprecedented control and autonomy over their data and interactions. This would mean disintermediating and automating various bureaucratic functions that today require specialized human labor, or result in the accumulation of personal data in centralized organizations where it is often handled with little regard for privacy, or the power imbalance between users and service providers.

But such a vision leaves plenty of room for mutually beneficial collaboration between decentralized networks and centralized organizations, including governments. Forward-thinking network builders can open up new opportunities by engaging constructively with state institutions and seeking ways to test-integrate cryptonetwork services with existing systems without abandoning their core principle of decentralization. Conversely, governments can reduce their bureaucratic overhead by supporting the buildout of a globally interoperable administrative infrastructure independent of the whims of any single nation or private corporation. Ideally, such collaboration would result in more reliable, efficient, and secure public services, and instead of undermining the mandate and legitimacy of national governments, would actually amplify their capabilities for participating in global governance in which cryptonetworks are expected to acquire an increasingly important role.

It may take a while to reach a point where decentralized networks provide systemically important services in a way that traditional institutions find difficult to compete with, or become comfortable enough to actively participate in. But work on a number of compelling networks is well underway, and each new experiment will improve our understanding of where a global and decentralized solution makes sense, and where we’re better off sticking with more local or centralized systems. Either way, the relationship between the two, although complex, is not always or necessarily contentious.

This article was triggered by Joel Monegro’s blog on sovereign networks.

My other writings

How Crypto Is Shaping the Digital Revolution (October 2021)

The Evolving Landscape of Digital Governance (January 2021)

The Great Automaton (December 2020)

Ten Theses on Decentralized Network Governance (September 2020)

Blockchain Networks Are Bureaucracies Par Excellence (May 2019)

Resource Distribution and Power Dynamics in Decentralized Networks (August 2018)