I have three reasons for wondering if the crypto / Web3 transformation of geopolitics isn’t quite as inevitable as Srinivasan and Khanna believe: first, what I’ve previously called “the stubborn persistence of the physical
”; second, the enduring need for legitimacy beyond code; and, third, the limited market size of nomadic talent. The first of these we’ve discussed many times - see, e.g., TiB 109
, and 183
. Even as the economy rapidly digitises, it’s proven hard to virtualise many of the most important building blocks not just of society, but of digitalisation itself. Semiconductors, for example, have to be made somewhere
, and at least so far nation states have been effective at regulating and controlling their distribution.
One of Srinivasan and Khanna’s arguments is that “rule of law is becoming rule of code” - that is, that smart contracts will supplant politically and judicially mediated “off-chain” agreements. The best argument against this is this excellent essay on legitimacy
by Vitalik Buterin, one of the co-founders of Ethereum, which we discussed in TiB 158
. As Buterin argues, communities’ core preference for fairness
will tend to override even hard-coded outcomes. This will make nation states, as long as there are people who expect to be represented by them, hard to transcend.
Another important idea for Srinivasan and Khanna is that “in a competitive marketplace of jurisdictions where somewhere can be anywhere, no single government has as much authority as people think”. That’s true, but it requires there to be a large group of organisations and, crucially, individuals willing to “shop around” for better jurisdictions. But the evidence suggests that people are (surprisingly?) unwilling to move, even when they have a strong financial incentive to do so. See, for example, this study
that shows that there’s little high-net-worth migration in response to tax hikes.