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If you’ve been following me for a long time, then you’ve probably heard a rant about “Blockchains are countries” a time or two, which follows a similar methodology to Balaji Srinivasan’s Network State thesis. This metaphor is a belief I’ve held for a few years now. I’ve been an everyday participant in the crypto industry since late 2016, but it didn’t really become apparent to me until I began in-depth NFT research during the evolution of the Historical NFT niche in 2021. Just a year later, I joined Emblem Vault in November 2022, and it all became quite clear shortly thereafter.
You can find half a dozen similar deep dives and essays about my findings on culture, history, and trends on this same Medium channel.
Balaji Srinivasan’s book “The Network State” explores the concept of a new form of governance where communities are built around shared beliefs and values, facilitated by blockchain technology, social media, and the internet. These network states operate as decentralized digital nations, allowing people to organize and govern themselves independently of traditional nation-states. Srinivasan argues that this model can lead to more efficient, transparent, and democratic systems, ultimately redefining the nature of citizenship and statehood in the digital age.
Balaji has laid the thesis it out quite emphatically so I wont so much time on the culture of it and more on the components. If you spend a portion of every day in the digital world, then it’s quite clear that the borderless nature of the internet is creating a global economy where tribalistic lines are drawn through interests and not geography. The proliferation of social media, digital marketing, and fintech has led us to a blended financial and attention economy that gave birth to what we call crypto today.
History doesn’t repeat itself, but it often does rhyme. It’s a cliché phrase that feels cringe to say, but then again, you can’t change human nature. It’s a monkey-see-monkey-do world out there. What is tried and true in the real world will be tried — and maybe true — in the digital economy.
Content creators are the entrepreneurs of the digital economy, crypto is the financial system, and the internet is the digitized mother earth. Once you begin to understand that the digital space is just the physical world reincarnated, staring at you from across the screen, it all begins to make a little more sense. Now, if you take your eyes off the phone and look up every once in a while, you’ll realize how many building blocks make up the society you exist in. Maybe a lightbulb will go off for a few of you, and you’ll realize that all of what you see will eventually be replicated in its digital essence right back across from you on that screen sitting in your hand. Then maybe you’ll ponder, “Wait, who’s going to build all of this stuff?”
Let’s walk through this step by step, comparing the real world and its digital version. It may sound ludicrous to compare the evolution of the modern world to its digital successor, but I promise you there are some very stark parallels. When you break it down to the abstract, society is just as predictable as the common degen trying to make it all back on a pump.fun celeb coin.
Just as you can break down our universal structure to quantum physics, you can break down our digital counterpart to the binary code of 1’s and 0’s. Some even argue these may be two of the same, but maybe that’s a conversation for another day.
Please spare the “aktually” rebuttals for the sake of moving through this thought experiment. There will be plenty of holes, gaps, and referential misses throughout this essay. This is likely due to my incompetence or the mere common sense that the digital world may not house its real-world counterpart yet. Let’s try and get the meat-and-potatoes of the logic jotted down here, folks.
Once you move past the fabric of our realities, we’ll fast forward to the foundations on which both stand: planet Earth and the internet. Our home was born approximately 4.54 billion years ago. The World Wide Web was born sometime between 1989 and 1991. Both are composed of fundamental building blocks of life that took some time to get to where we are today. Earth is made up of rock, water, grass, etc. It didn’t just appear on day one, just as the modern-day internet is built on TCP/IP Protocol, which was modeled after ARPA’s Arpanet. Evolution is what got us here.
Next comes life. Homo sapiens currently inhabit planet Earth and the internet, entering planet Earth in much later stages and commandeering the internet as the first civilization. Unironically, Homo sapiens are juxtaposed as the successors to human civilization on Earth and predecessors to the eventual artificial intelligence that will inhabit the digital world. Humanity is considered civilians of the planet but users of the internet. Just to point out the difference in evolution. Although it’s likely AI will be considered civilians of the internet and not users.
Human beings are social creatures in almost every sense of the term. We socialize, we have sex, we party, and we play rock ’n’ roll. Inside our oxygen-filled globe, the attention economy began as mythology, folklore, hieroglyphics, manuscripts, letters, newspapers, radio, and eventually television. Once the internet was born, the attention economy evolved from websites to applications, and the commoditization of your eyes via social media was born.
Value systems, or the financial economy, have existed since some of the earliest forms of social organization. Financial markets are a byproduct of value systems. Whereas the stock market couldn’t exist without a dominant medium of exchange, like the US Dollar. Maybe this is surprising to many, but the US Dollar is around a century old. Some of the earliest mediums of exchange used by early humans were seashells and salt. It took humanity many centuries of trials to land on a battle-tested medium of exchange system, which was then utilized within the creation of the first financial market of the Amsterdam Stock Exchange in 1602. Fast forward a few hundred years, and we land with the dominant MoE in the US Dollar and the dominant financial market in the New York Stock Exchange, all owned and solely operated by the United States.
Once the internet was introduced, our financial markets were imported into this new and emerging digital ecosystem. Payment rails were created, and the Fintech industry was born, but there was something missing. The internet had its very own native attention economy through social media, but it didn’t have its own native financial economy. All transactions were flowing through century-old schemes, and the mediums of exchange utilized were operated by nation-states. Well, in 2008, Bitcoin was introduced to the world, and the internet’s first native value system was born a few months later. Although Bitcoin was not the first attempt at “Internet Money,” it came after its predecessors who paved the way, including Digicash, Hashcash, e-gold, and RPOW.
The phrase “tech” is one of the only industry classifying terms that exist within context. In today’s world, when one references tech, they are more than likely referring to the digital economy. The internet, smartphones, AI, social media, computer chips — all of this is considered tech. There is not much consideration to the context of the term because it is universally known when referring to the modern world.
So what happened to the tech of yesteryears? Oh, you mean the auto industry? Oil? That’s not tech; that’s energy. Electricity? That’s the power company, some may interpret. Once upon a time, these foundational pillars of our society were considered the tech industry. They were the new kids on the block or the hot girl at the party, per se.
Modern-day technology is primarily considered the digital economy. Funny to even say, but traditional technology is just considered part of society. The flashiness has disappeared, and the zeal has faded.
So what will be considered tech when the digital economy inevitably becomes the dominant home to harbor human attention and existence?
Once a society develops assets and industries, it will need to establish a legal system to determine property rights, ownership, and rules & regulations. Law codes, or bylaws, have been a part of humanity since some of the earliest civilizations dating back to Mesopotamia over 4,000 years ago. The earliest law codes established principles and punishments for crimes, which included fines, punishment, and even death.
As the world developed, these legal systems became more sophisticated in order to adopt emerging tech, value systems, and human rights. Each country developed its own framework that was sufficient for the relative problems that surfaced in their jurisdiction. Fast forward 4,000 years, and Common Law has become the most popular type of legal system, which is a byproduct of a democratic political system.
Now, consider the digital economy that is borderless and programmable by nature, introducing a new dynamic to how trade and social interactions are conducted globally. The idea of “geofencing” was introduced in the early days of the internet, which meant that users of the internet were bound to the laws of their geographic location. This wouldn’t pose a problem until a native internet currency came online in 2009. Well, in 2015, the successful execution of a smart contract platform called Ethereum would introduce native legal systems to the digital economy, and the rest is history.
Blockchains are countries. L2s are states. Dapps are cities. Cryptocurrencies are money. NFTs are items. Smart contracts are legal systems. Interoperability protocols are transportation vehicles.
The list goes on and on. There are dozens, if not hundreds, of analogies between the real world and the digital ecosystem. Crypto provides an ownership layer that has not existed on the internet before. JPGs were “right-click-saved,” internet currencies were double-spent, websites were DDoS’d, and applications were back-doored. All of these actions circumvented the internet’s security systems. Within seconds, your digital items were stolen, data phished, and online storefronts compromised. These gaping security holes are a product of Web2 and its “read, write” model. Web3, as cringe as it sounds, introduced a novel layer that would allow digital nomads a way to finally take ownership over their nations and assets. As Chris Dixon states in the title of his most recent book, we are entering the “read, write, own” era.
The industries of crypto exist as sectors just as the industries of America or any other country do. Once you can make the parallels between a crypto market and its physical counterparty, it all begins to make sense. You may even be able to figure out where your expertise or edge may lie. As Naval would reference, does your real-world specific knowledge translate to the digital economy?
• Blockchains have holders; countries have citizens.
• Blockchains have language written; countries have language spoken.
• Blockchains have code-based jurisdictions; countries have geographical-based jurisdictions.
• Blockchains have L1 consensus models; countries have economic models.
• Blockchains have political spectrums; countries have political spectrums.
• Blockchains are home to diverse culture; countries are home to diverse culture.
The genetic makeup of a country is eerily similar to the binary makeup of a blockchain. Then you insert the trivial adage of “humans will be humans,” and you’re on pace for a similar experience. We are 15 years into this crypto experiment and have seen thousands of blockchains deploy to the mainnet of the internet. Over time, we’ve come to find out that only a select few general-purpose blockchains will garner a large civilization, while the rest are forced to specialize. “Third world countries” do exist in the form of blockchains, albeit maybe more as ghost towns or complete scams.
Blockchains experience both domestic and international trade. Native industries are born and eventually reach the scale of industrial exportation.
• Bitcoin exports assets (Boomers)
• Ethereum imports finance (Millenials)
• Solana incubates culture (Zoomers)
• Layer 2s exist on top of blockchains (L1); states exist within countries.
• Layer 2s inherit the security of the L1; states inherit the security of the country.
• Layer 2s create protocol-level rules; states create state-level laws.
• Layer 2s must abide by the L1 legal system; states must abide by federal law.
L2s can also be confused or are oftentimes interchangeable with sidechains, which is more likely a feature than a bug. Have you seen the different nation setups across the world?
• US, Canada, and Germany use a federal system (country, states, and cities).
• France, Japan, and the UK use a unitary system (states or regions, power to the government).
• Switzerland uses a confederation (states or regions, power to states).
• Singapore and Vatican City use a city-state model (independent states that act as countries).
Different countries adopt various systems of governance to manage their administrative divisions. These systems reflect the historical, cultural, and political contexts of each country, leading to unique setups in terms of how power and responsibilities are distributed between national, regional, and local governments. States can also secede from their countries, while L2s can migrate to a new blockchain or become a country of their own.
• Dapps exist on a L1 or L2; cities exist in a country or state.
• Dapps create local laws; cities create local laws.
• Dapps specialize within an industry; cities specialize within an industry.
• Dapps utilize the L1 native currency; cities utilize the federal currency.
• Dapps are the value layer; cities are the value layer.
Regardless if you call it a Dapp (decentralized application), L3, or appchain, they are one and the same. They are specialized applications that are built for a single use case, which over time will expand to broader options as they achieve scale. This operates very similarly to how cities achieve metropolis status. Begin niche and grow over time. California began with the Gold Rush, England with textiles, and South Korea with agriculture. Uniswap began with token exchange, Tether with issuance on Bitcoin, and Chainlink as an oracle. All of these nations and applications have expanded and become multi-billion dollar giants.
Value inevitably flows to the application layer of society.
• Cryptocurrencies are a medium of exchange; money is a medium of exchange.
• Cryptocurrencies are a store of value; money is a store of value.
• Cryptocurrencies are a unit of account; money is a unit of account.
• Cryptocurrencies are fungible; money is fungible.
• Cryptocurrencies are divisible; money is divisible.
Bitcoin is the native currency of its UTXO digital nation. Ethereum is the native currency of its modular smart contract digital nation. Solana is the native currency of its monolithic smart contract digital nation. The US Dollar is the native currency of its federal republic. The British Pound is the native currency of its unitary nation. The Swiss Franc is the native currency of its confederation. Bitcoin is the reserve currency of the digital economy, and the US Dollar is the reserve currency of the global economy.
Fungibility can also be issued without federal authority. Whether you exist within a city, appchain, or video game, there will always be a medium of exchange that is utilized. Seashells began as money, even though every seashell is non-fungible. Bitcoin began as money, but turns out every satoshi may not be so fungible by the end of it.
• NFTs are unique; items are unique.
• NFTs carry provenance; items carry provenance.
• NFTs are owned; items are owned.
• NFTs are transferable; items are transferable.
• NFTs are abundant; items are abundant.
• NFTs are assets; items are assets.
Non-fungibility was a foreign concept to me until NFTs came into the picture. Even if you type in “Non-fungibility” on Google, you will mostly see NFT content. Once you understand that most things in the physical world are non-fungible, it begins to make sense. There’s even an argument that US Dollars could be considered non-fungible due to the serialization of each bill. Humans, living creatures, art, real estate, contracts, IDs, license plates, toys, food — the entire world is non-fungible!
Now take this concept and apply it to the digital realm. First, everything from the physical realm can be tokenized in the form of an RWA (Real World Asset) and minted to the blockchain in the form of a receipt that is an NFT. Then we attempt to contextualize what types of native items of the internet will become NFTs. Metaverse anything (land, clothes, vehicles, etc.), digital art, LP tokens, memberships, timestamps, and cryptographic puzzles. No matter if you’re existing in the physical or digital oasis, items and assets are everywhere.
• Legal Systems enforce rules; Smart Contracts enforce rules.
• Legal Systems determine governance; Smart Contracts determine governance.
• Legal Systems are a trust mechanism; Smart Contracts are a trust mechanism.
• Legal Systems execute terms; Smart Contracts execute terms.
• Legal Systems resolve disputes; Smart Contracts resolve disputes.
Smart contracts and traditional legal systems share the fundamental objective of enforcing agreements and ensuring that the terms of a contract are honored by the involved parties. In traditional legal systems, this enforcement is achieved through judicial processes and legal institutions, whereas smart contracts achieve it through automated code execution on a blockchain. Both approaches aim to build trust and facilitate transactions by providing a reliable framework within which parties can confidently interact.
Prior to the introduction of smart contracts on a blockchain, legal systems in the digital world were governed off-chain through geofencing. Your physical location determined the jurisdiction of the legal system that had oversight of your online actions. Granted, websites and applications could curate their own policies and terms of service, but the government had the final word. Smart contracts are beginning to blend the realities of the physical and digital worlds.
What was once a meme is now beginning to challenge which legal system has true jurisdiction. Code is law.
• Bridges move tokens across blockchains; bridges move vehicles across land.
• Wrapping enhances token accessibility; planes enhance location accessibility.
• Vaults store and send NFTs across blockchains; packages store and send items across properties.
• Swaps exchange items for value; marketplaces exchange items for value.
• Interoperability enhances mobility; transportation enhances mobility.
Interoperability is in the earliest stages of all analogies made in this thought experiment, so the relations may not be quite clear. Look back at the CatVM image shared in the middle segment; this is a great illustration of what interoperability is. At the very foundation, it comes down to moving cryptocurrencies and NFTs from one protocol to another. This can be an NFT from Bitcoin to a Layer 2 on Ethereum or importing SOL from Solana to Ethereum mainnet. There are currently four primary models for moving digital assets across chains: bridging, wrapping, swapping, and vaulting. These tokenized efforts mimic the international and domestic shipping and transportation industries.
Just as in the real world, bridges move people and vehicles from one location to another, just as you would place some items in a package and send it across the world to a friend, or just as somebody would purchase an item on a marketplace in exchange for money. The world becomes increasingly mobile as key native infrastructure systems improve.
Interoperability and transportability are one and the same; the former just gets a programmable layer on top of it.
Since joining the Emblem Vault team in November 2022, this conceptualization has become more clear as the research has become more dense, the networking opportunities have been more relevant, and the conversations more conceptual. The crypto industry is mimicking the real world in a very large capacity. Therein lies an opportunity for each of us to leverage our strengths and figure out where we place in this strange tokenized layer on the digital world. We’ll see many more industries and foundational elements of society proliferate over the coming years. Until next time.
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