Book Review: The Network State

By Balaji Srinivasan

I

Balaji Srinivasan has written a book. To those who know him from his online persona, a lot of what’s in the book would be familiar. To those that don’t, he was the CTO of Coinbase, general partner at a16z, prolific thinker about all things technology and future, and a crypto afficionado with very (very) strong opinions about how the world should and could work better.

The book itself is the culmination of a thesis he’s talked about for a while, about how people with higher agency can use increasingly online digital tools, digital currency and own governance charter to create nation states that don’t conform to the old idea that geography is destiny.

A network state is a social network with a moral innovation, a sense of national consciousness, a recognized founder, a capacity for collective action, an in-person level of civility, an integrated cryptocurrency, 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.

That sentence aside, this book is one of the most readable books I’ve found in this genre. Part of it is because he’s done the hard work upfront of actually summarising the key points, laying out a roadmap. For instance, he posits what’s needed are 7 steps:

1. Found a startup society

2. Organise into a group capable of collective action (a network union)

3. Build trust offline and a cryptoeconomy online

4. Crowdfund physical nodes

5. Digitally connect those physical communities (network archipelago)

6. Conduct an on-chain census

7. Gain diplomatic recognition

The dream Balaji writes about is a deep one in the human psyche. It is to start afresh. The dream is to leave the current constraints that surrounds you, whether it’s the hard fought freedoms or the yoke of government. And the way to do this, in Hirschmann-ian terms is to Exit, rather than just using your Voice.

So why would you want to bootstrap a country? Well, here there is a litany of complaints that will be no surprise to anyone, from the incompetence of our public institutions to the horror of the capricious nature of laws to the underwhelming nature of our public infrastructure to the ….

And rather than using the time honoured methods of war, revolution, election or buying a cruise ship, Balaji suggests you first build a community of likeminded individuals bound to a vision, create an economy together, and only then go buy a plot of land y’all can call home.

The difference, the key difference, he notes is that today, with the tools available to us of economy and communication, we can actually build a disaggregated community first and then, with the help of an actual economy make it very much real.

There are a lot of tiny, tiny countries, just sayin’

In an interesting way, it’s connecting those news stories that used to call Facebook the most populous country in the world with the news stories that called Facebook’s moderation panel and supreme court a hilarious farce, and make them deadly serious.

(There is a slight bit of irony in talking about methods of financing as crypto during a rather brutal rout in the crypto markets, but I feel that by itself isn’t particularly disingenuous¹. The reason I feel more okay is that routs have happened in other markets too, traditional currencies which actually had underlying economies, so in this instance the assumption that we can build a strong economy is sufficient to imagine that a decent currency can persist.)

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This is actually at least two books, sitting uneasily side by side. One is a startup manual that lays out how a new type of organisation might form. This is cogent, well argued and honestly fun to read! The second is a polemic on the current state of the State, media, and various historical iniquities. This is fairly meandering, and frankly less than compelling, because it covers so much territory and contains so many arguments that they all come out as assertions.

Actually, I take that back. I think it’s best to read this as three books.

• Book 1 is the “how”. The how of creating a new economy, a new community and eventually a new polity. It’s great.

• Book 2 is effectively the “why”, which has a lot of assertions, enough that they overwhelm the narrative with sheer weight at times. It’s also the book most attuned to your biases - which will make you like and nod along to several of them while looking at others in askance.

• Book 3 isn’t a book per se, it’s a bibliography containing a wonderful list of facts and factoids, blogs, essays, videos, academic papers and books. Even if you dislike the actual uses to which these are put to, they are an excellent list of works to have read to understand the modern world better.

Let’s start with Book 1.

II - How to create a network state

Book 1 is the “how” section, and the strongest and most interesting parts of the book. Balaji dives into the 7 steps of how to build a nation in detail, and its a tour de force. The focus on how to create a community that creates an economy within itself and creates value outside is where the book really shines. I really did like the vision of how a neo-country could form.

The steps are actually relatively robust as they stand, and creates a strong argument for creating a new entity. While we have pretty much every pundit in the world focused on Voice as the solution to our problems (here’s how the FDA is wrong, here’s how the government should be more efficient, here’s how scientific publishing should work), we have far fewer Exit proponents.

This also coincides with why Balaji believes we need crypto as a foundational element. It’s not just because the new nation requires a monetary system of some sort, its because crypto afficionados already have multiple attempts at trying to create new cities, like Praxis, or new currencies.

So when he says we need a cryptoeconomy, its because its the combination of an actual economy that needs to be formed, with crypto as the backbone because it’s easier to form that for a decentralised group. Whether crypto is essential (as a totem or a system) is immaterial to the proposition.

I am a fan of Network States the idea because it increases our experimental footprint to learn how we should organise ourselves - arguably the single most important thing humanity needs to figure out.

Generally speaking most ideas on organising society tend to be about reform rather than build. We tend to take what we have and add or subtract a few, depending on your beliefs. Libertarians to remove more laws, Right-wing to remove economic restrictions, Left-wing to remove social restrictions, and so on.

Balaji tends to create what I’ve called a space-age style hunter gatherer lifestyle. It focuses on tight communities (but self selected), strong social norms (created democratically), limited laws (that you choose to adopt and change) and high economic productivity (because you’re a producer economy).

The new world order once this emerges is likely to be akin to a retvrn to the time of the old nation states. Movement amongst them is easy, interoperability is also easy, choice is up to you, and change too. Whether this can have large scale effects like the resurgence of Renaissance or whether it results in internecine warfare like much of India during the EIC times remains to be seen, but as a social technology to push us forward it’s essential. So, let’s have a look at a few of the key 7 steps.

Founders and vision

Balaji’s point about startups being about buying into a vision of the future is especially apt. It’s true, whether historically informed or not, that a vision is probably most startup’s first product. And a vision is what lets startups coalesce and grow, like so much successful slime mold colonies.

The really insightful part here is that social cohesion isn’t a top down product, but something to be built carefully and painfully ground up. It comes first.

Balaji’s point therefore of needing more than just a strong community with economic alignment is crucial. It needs a sense of collective self-identity that’s strong enough that it enables an exit (in Hirschman’s parlance) from the existing system. A crucial point that he doesn’t really talk about is that the economic alignment is not just creating revenues or creating profits.

Imagine living and working alongside your best friends and family, as if in a commune or an old town, but doing today’s work. It’s as if remote working took a giant leap into becoming remote life.

But it has to be a producer economy. The reason we choose which countries to live in have to do with communities and economic opportunity, but the opportunity itself is linked to that economy. It’s not just the consumption of certain goods that matter, or the alignment with others, it’s what you get to produce. The creation of an actual economy is the first step to creation of money and an independent nation state.

Now, does it need to have a founder? I don’t know. But I do know that almost all countries that have self determination today do have one (or usually several) visionary founders. Whether that’s Gandhi, or Lee Kuan Yew, or the Founding Fathers in the US, this has been a well established rite of passage.

Creating a community

But. Balaji does seem to underplay the difficulty of creating a community. I feel it requires vastly more than a moral commandment pronounced as a startup vision. A strong vision is necessary, but not sufficient.

This is because people’s identities are plural. We might join a company with a vision to make knowledge free, put a computer in every desk, or to connect everyone in the world. But that’s only going to be part of our identity.

And we can see highly successful and close-knit communities that still don’t come close to the yearning that’s required to create a state. Y Combinator is a good example. As is Entrepreneur First. As are the legion of OSS developers with incredible devotion and extreme passion. As are the Trekkies. And so on and on.

Maybe its because they don’t have the “one commandment”, but also maybe because there is no one such single strong commandment that they are willing to give primacy to.

It’s difficult for me to envision a strong, cohesive group who have come together enough to create a new state that wasn’t presaged by the feeling that they needed to escape some form of tyranny. Status quo + their communities seems like an incredibly good equilibrium that’s hard to escape!

We need a much much much stronger pull than “keto kosher” to drive us to want to co-create an economy and eventually live with people similar to us. As someone who has immigrated multiple times in my life, I have never looked at the political system of where I’m moving to in much detail, beyond whether it’s a better equilibrium in terms of life and work. On the same spectrum, “FDA free” could very well work, just because there is a segment of population, terminally ill patients perhaps, who will take you up on it. I still question the longer term viability of a negative as the key draw.

But there’s another, and to me a larger possible flaw. Network States could be victims of their success. Imagine if we did start creating new nation states by defining our commandments, creating governance rules we liked, and economies where we’re producers and consumers. Is there a reason you’d only join one? Why wouldn’t you join 10, 20, 100? What stops it from becoming yet another “asset” that you own, or yet another “community” you’re a part of, an asset of an economy that functions akin to a corporation?

The inner finance geek in me looks at this and says “wonderful, now we’ve translated FX risk in an economy to become like equity risk in stock markets”.

Cryptohistory and facts

The idea of cryptohistory, of all small scale trajectories of individuals and individual transactions digitally recorded and quantified, history on a ledger, is both horrifying in its exactitude and incredible in the amount of insight it has the potential to give us.

While this is exciting, the contention that its existence will force a lack of corruption is quite vague. History doesn’t get corrupted through a lack of data. It gets corrupted through lack of consensus on moralities, a lack of agreement on principles, it gets corrupted through a disagreement on ends vs means, turning a blind eye to facets of truth that are inconvenient. It’s in the interpretation that lies lie, not just in the base truth.

Facts and the things we do with facts are not the core for all problems. The distrust of authority to create a history, the inability to verify first hand the actual things that have happened, that’s one part. The inability to draw the same conclusions often from exactly the same few sequence of facts, that’s a whole other thing.

But it also provides a much stronger defense of the elite institutions he rails against than he anticipates. The problems he points to about NYT have very little to do with explicit lies. Even when it does deal with explicit lies, it’s not the lies that are the problem. We all know they are lies. What’s a problem is their ability to create an alternate reality that then defines the narrative for a large number of people, and remains true to enough people despite it including falsities. As Peter Thiel once said, it’s to be taken seriously, not literally.

Our historical records for Ancient Greece are incomplete. But that’s not purely because we don’t know exactly who wrote which parts of Tacitus, or when exactly Livy wrote what. It’s the broader meta-structures we create for ourselves that lead to inevitable interpretation and therefore confusion.

One way to see this is purely to look at the history of financial systems. We have the most detailed tick by tick data of markets over several decades at least. With this, are we able to easily understand or predict them in a way that kills all false narratives? No. Jim Cramer still rules the waves. All falsehoods aren’t solved by facts.

It will solve several problems still, don’t get me wrong. Getting incontrovertible evidence of what happens in China or Russia would sure be helpful! Plausible deniability becomes less of a successful strategy. But is it purely the lack of information that stops us from doing anything about things like propaganda? Or is it something else?

III - Why create a network state

Book 2 is Balaji’s thesis on why we need to create new nation states, and to me is the weaker book by a large margin. It is an overuse of rhetoric as logic. It absolutely loves Hegelian dialectic (thesis, antithesis, synthesis) and the use of creative frameworks to slice reality into digestible buckets.

There should be a word for this particular rhetorical trick. A way of getting seduced by frameworks that sounds great. It's the seduction of cadence and symmetry. It's like poetry overtook logic, and rhythm replaced thought.

I call it frameworkitis.

And Book 2 has frameworkitis in spades.

For instance, part of Balaji’s writing style is rhetorically persuasive mostly through the creation of beautiful inversions. For instance, this sentence:

Unlike an ideologically disaligned and geographically centralized legacy state, which packs millions of disputants in one place, a network state is ideologically aligned but geographically decentralized.

That inversion is great². It’s a brilliant way to hide a thousand different imperfections in either of those subjects, and the multitude of other dimensions which affect them, while making the conclusion seem inevitable. After all, there are more variables than geography and ideology, and even those two are a collection of a hundred other subcomponents.

And this particular form of rhetoric is a core flaw throughout the book that would be familiar to us old consultants. Which is that while we like to create new frameworks that are simple enough to collapse the multidimensionality of the world, they are still like blind men trying to figure out what’s an elephant. And once we create those frameworks we do like to shove the crazy complexity of the world into those three (it’s usually three) buckets.

The benefit of a framework based thinking is that you’re able to come up with cool new hypotheses and new lenses to see problems with. That, as we said, is Book 1. The downside of a framework based thinking is that you start to believe the buckets you created represent truth. The Network State unfortunately does the latter in spades. The book contains so many assertions stated as theses that deciding which ones are unfounded or with flimsy arguments is really rather hard.

An example of an assertion is this, where we’re seduced by the golden trinity once its visible on a chart.

Today’s world is becoming tripolar. It is NYT vs CCP vs BTC. That’s the American Establishment vs the Communist Party of China vs the Global Internet.

This falls into the not-even-wrong category of assertions. It has a grain of truth to it, there are after all multiple poles of ideologies, but whether it tells us anything interesting is a different question! They are not even in the same weight class - one’s arguably the strongest political party in the world running one of the largest and most powerful economies, one’s an “elite” newspaper that’s running out of steam, and one’s an extraordinarily volatile asset that nobody knows what to do with yet.

Balaji’s obsession with New York Times makes me feel its being shoehorned in, because sure it helps some elites talk to others, but to me it feels awfully like a not-very-powerful media coasting on its historic halo.

For the ideas that the older establishment institutions like NYT are collapsing inwards in their fragility, that we do create phantoms to fight with through things like wokeness, and that the tools we use are also tools that can get corrupted, he’s absolutely right. The idea that corruption is all there is, however, seems like a massive overreach.

NYT helps very much if you want to sell books, for instance, or get credibility and accolades in a small section of the elite world. But it’s not powerful even in those domains. It tried to write a takedown of Scott Alexander for unknown reasons and couldn’t even manage that. It tripled his subscriber count instead! It’s just another newspaper today - some shock, some good reporting, lots of garbage, and a decent puzzle section.

Similarly, there are large parts of the book that simply state things as if they are facts - such as the fact that US establishment and global technology are at odds, or that NYT is a uniquely corrupt institution in its conception, belief and ownership, or the idea that reduction in immigration to US has happened because it’s woke unwelcoming, or the very idea that state investments haven’t had real returns³.

Or, lastly, this form of pattern recognition also leads you wildly astray when you try and play the glass bead game and see things which just aren’t true yet.

If you can spend your entire life studying wave equations, diffusion equations, time series, or the Navier-Stokes equations — and you can — you can do the same for the dynamics of people.

The fact that we can study the movements and decisions of large groups of people is something that has beguiled us for a long while. But no, we’re nowhere close to creating eternal mathematical laws for society. Annoyingly, psychohistory remains fictional, much like warp drives.

Frameworkitis is present throughout the book, and it detracts from the arguments. The strength of the “how” book is undermined by the “why” parts, especially as they are interspersed. Even as I’m inclined to give certain arguments around the increasing fragility of the US socioeconomic system, or the rise of a particular set of elites creating chaos, the thrust of the argument that we have no choice but to go build a new country falls short of what it need to be.

If anything I’d be inclined to assert that you should want to create a country for no other reason than you want to create a new company or a new city. Because new beginnings are powerful, and we give up those dreams at the risk of becoming far far less than we are. And that’s a damn shame!

IV - Conclusion

As I said, this really isn’t one book. It’s three books and an idea-menu. It’s Balaji’s crystallised nous. A lot of that is presumably because this is explicitly v1, with further additions, edits and enhancements to come, to embellish and extrapolate from the foundational assertions laid here. It has exceptionally strident claims with solid reasoning right next to exceptionally strident claims with no reasoning.

It’s a rhetorical tour de force that I felt would work quite well in a podcast or a talk, though in book form, where you can actually click to the footnotes, right now it is much less than the sum of its parts. The fact that you can reference the ancient Romans, the Kalman filter, Turchin’s project, Bitcoin, Abelard and Heloise, and many many more, is great.

Book 3, the references and bibliography, is my favourite of the three. But linking them together is much much harder. Chains of reasoning that get too long get convoluted, and more importantly gets fragile. Which means I found it less a treatise than a menu, where there were several insightful things I could pick up on, with the rest just left there.

The Network State is an excellent place to find ideas for the next hundred PhD theses or popular books, on everything from the historical resurgence of marxism to the similarity between group formation and position shifting in a network.

Balaji has an extraordinary ability to link concepts together, which is mostly useful as hypotheses generation attempts in general, even when the links are extraordinarily flimsy. This book is a real life glass bead game. How can you not like a writer that links history of politics, marxism, the spatial model of voting and the virtues of decentralised networks in as many pages!

(As an aside, it’s also worth saying that there is an expectation underlying in the book that reporters both seek and have overwhelming power, the evidence of which primarily is a few excoriating editorials that most people seem to have just shrugged off! )

I love this book though for taking an extraordinarily strident opposition to Chesterton’s Fence. The following paragraph is both stylistically and emotionally the heart of the book. Yes, there are problems in front, but we can solve them.

The reason is that behind every FDA is a thalidomide, just as behind every TSA there’s a 9/ 11 and behind every Sarbanes-Oxley is an Enron. Regulation is dull, but the incidents that lead to regulation are anything but dull.

This history is used to defend ancient regulations; if you change them, people will die! As such, to legalize physical innovation you’ll need to become a counter-historian. Only when you understand the legitimating history of regulatory agencies better than their proponents do can you build a superior alternative: a new regulatory paradigm capable of addressing both the abuses of the American regulatory state and the abuses they claim to prevent.

I couldn’t agree more!

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• Anarchy, open source, and utopia

• The Canon

Few of the other interesting ideas in the book.

• The necessity of strong values as an input to create any self-sustaining organisation. “To recruit producers, not consumers”, as Balaji says.

• The idea that change can come from small seeds grown larger (like startups, or indeed several countries), vs capturing part of the larger power (elections) is an interesting one. Change at the margins vs changing the mean.

• “Frontiers mitigate factions” is an excellent idea; it’s simplistic but it forces us to focus on expanding the pie and explore further rather than focus on factionalisation

• The idea that internet is a centrifuge, separating the layers and people and components, which were all previously mixed together, is a great metaphor and something I sympathise with.

• “Cryptoeconomics is transforming macroeconomics into an experimental subject,” which also I’m highly sympathetic to!

• Huge (biased) love for the Indo-Israeli corridor points, if only because I frickin’ love both countries and the people

• The helical theory of history, in that it rhymes and circles a center of some sort, but it also has a positive direction of movement

• The state or govt administration as a clean dashboard!

1. “It [Bitcoin Maximalism] represents a root-and-branch rejection of the inflation that powers the US government and thus pays for everything.” Except for the recent bout of inflation, sadly.

2. Similarly: “in the 1800s you wouldn’t steal because God would smite you, in the 1900s you didn’t steal because the State would punish you,…”

3. The last one especially annoyed me because it linked to an article about A123 systems filing for bankruptcy. This would be like pointing to an individual failure in Balaji’s startup portfolio and writing the whole thing off.