Vitalik Buterin has published an article entitled “What Do I Think About Network States” in response to Balaji Srinivasan’s explanation of the concept in his book “The Network State”. We have summarized Vitalik’s interpretation of the concept and looked at what he likes and dislikes about the idea as explained by Balaji. Now we will take a look at Vitalik’s recommendations for improving the Network State concept. 

Introducing Phyles for Comparison 

Vitalik introduces us to David de Ugarte Phyles, who offered a vision similar to the Network state in his book “Economic Democracy in the Twenty-First Century”. Phyles’ new governments begin in the same way, with communities based on shared values forming in the cloud and then beginning to control economic life. But while Balaji emphasises the role of the founder, for de Phyles’, there is no founder.  Phyles’ groups begin with and maintain an emphatically “democratic and horizontal nature”. Vitalik observes approvingly that “The whole process is much more organic, and not at all guided by a single person’s intention.”

But Phyles’ vision has structural incentive issues. On the other hand, so does Balaji’s. As Vitalik sees it, “The Network State seeks to use 2010s-era blockchains as a model for how to reorganize human society, and Phyles seeks to use 2000s-era open source software communities and blogs as a model for how to reorganize human society.” Phyles’ open source model does not provide enough incentives in Vitalik’s view. But for Vitalik, an unfettered free market approach to governance errs on the other side. He says “cryptocurrency has the failure mode of excessive and overly concentrated incentives.”

A Middle Way Between Phyles and Balaji

Vitalik likes the ideas both these thinkers present. But to create a viable “Big Compromise” between freedom and order, Vitalik believes we need to bring more democracy to Balaji’s concept. In particular, he is concerned about the founder’s centralised power. From his point of view, a founder is not necessary, merely one possible path to formation. But founders should not remain. In Vitalik’s opinion, “we really need a baked-in roadmap to exit-to-community”, a clear structural method from shifting from centralized to decentralized leadership. This should be automatic, triggered by growth and enforced by smart contracts. In addition, he recommends explicitly “encouraging broader participation in the moral and philosophical development of the community” from the start. 

There is no ambiguity in Vitalik’s opinion on coin-driven governance: “ Network states should be run by something that’s not coin-driven governance. Coin-driven governance is plutocratic and vulnerable to attacks.” Instead, he favors ideas like the “soulbound” concept developed by Optimism, where there is a one-to-one correspondence between citizen NFTs and real people. This will create a form of governance that is “not just shareholder driven” – a form of democratic governance that is “more likely to be aligned with the outside world”.

Vitalik adds a concept to the network state movement – a sort of automated alliance. He bases this idea on functional decision theory arising from the rationalist AI-friendly community. An AI with publicly visible source code can be trusted in a game like the prisoner’s dilemma or a similar real-world scenario. DAOs governing network states could cooperate and trust each other in the same way. Their governance mechanisms could include the ability to recognize similar governance mechanisms in other DAOs, creating a formally automated level of trust. DAOs could even agree on shared policies to take wider public interests outside the network states’ citizenship into account. Vitalik gives an example – “20% of the votes could go to a randomly selected set of residents of the host city or country”. 

This helps solve the problem of negative externalities that Vitalik previously identified. Vitalik says “A world where network states do such a thing, and where countries adopt policies that are explicitly more friendly to network states that do it, could be a better one.”

Vitalik Wraps It Up

After considering the proposition carefully, Vitalik says he wants to see all kinds of voluntary Network State experiments in government, immersive lifestyle communities, quadratic voting for public goods, zoning laws replaced with variable property tax based on resident satisfaction, and tech enclaves where high-risk experimentation is allowed. And he believes that the blockchain, with identity-based tokens, reputation systems, and DAOs is a great way to achieve that. 

But he is also worried that the benefits this idea can create might only apply to people who are “wealthy enough to move and desirable enough to attract” and he is concerned that everyone else will be “left in the dust”.

He leaves us with an inspiring call to action and an optimistic endorsement of the network state concept. In Vitalik’s own words – 

“We need something else too – for the global poor, for Ukrainians that want to keep their country and not just squeeze into Poland for a decade until Poland gets invaded too, and everyone else that’s not in a position to move to a network state tomorrow or get accepted by one.

Network States, with some modifications that push for more democratic governance and positive relationships with the communities that surround them, plus some other way to help everyone else? That is a vision that I can get behind.”