Jarrad Hope on the creation of the cyberstate

What if citizenship was as easy as clicking “join”?

Over the past few weeks I’ve been reading Farewell to Westphalia, a book authored by Jarrad Hope and Peter Ludlow which questions the continued longevity of the nation state and exploring the idea of cyber states and network states as alternative solutions. Much of it looks at the viability of using blockchain infrastructure and DAOs as a backbone to these new societies so as you can imagine, it was right in my wheelhouse.

Last week I caught up with Jarrad via an online call to go in more depth around the subjects he presented in the book as I had some lingering questions. I had caught a X Spaces both he and Peter had had with Balaji Srinivasan, the author of The Network State book – one of the fundamental theories driving certain projects in the movement. All three authors agreed on quite a few topics such as the power of blockchain to underpin network state development and that nation states are likely to continue alongside network states for some time to come.

However, there were some fundamental differences which I wanted to explore more. For one, Peter and Jarrad highlighted that they didn’t think there was a necessity for physical territory in the context of network states. In the book, the authors explored the idea of citizens living anywhere while still being represented and protected by a decentralized entity, giving the example of US military bases abroad. This could include the organisation of services such as healthcare and security. While I was open to this approach I was unsure how it could work in practice, as even military bases and embassies have their own physical territory to strengthen their governance power within another nation state.

Another factor the three disagreed on was the idea of nationhood, and the need for a recognised founder within the organisation of network states, which I wanted to go into further. To which Jarrad proposed an idea of national identity evolving into something more pluralistic, encompassing the full range of human growth.

In all, the conversation was a fascinating exploration of how identity, interaction and organisation is evolving with the development of new technologies.

Key takeaways:

1. Digital governance is evolving beyond the nation-state, inspired by early online communities and hacker culture. The next evolution is the cyberstate – communities that are organised online built primarily on web3 rails.

2. Blockchain and DAOs offer new models for consent, transparency, and pluralistic identity, but face technical, social, and political challenges.

3. The future may see overlapping digital and physical authorities, with more fluid societies which are easier to opt in and out of. This will have an expansive effect on identity and the things that make up an individual, moving beyond nationality.

4. Transparency and privacy must be balanced, bringing in the core web3 idea of “Privacy for the weak, transparency for the powerful” especially for public spending and individual rights. This could be implemented with the migration of governance services to blockchain and the implementation of programmable tokens.

5. The crypto industry’s movement into real world adoption could greatly improve the acceptance of cyberstate infrastructure. However, as digital economies and cyberstates become larger, they are likely to face resistance from traditional institutions. Questions on the long term viability of new cyberstates hang on their ability to strengthen themselves against this active resistance.

Food for thought:

• In the conversation Jarrad references a few books that are good foundational pieces to understand the theoretical journey to the idea of the cyberstate. One, Peter Ludlow’s Crypto Anarchy, Cyberstates and Pirate Utopias can be found here and is a great compilation of essays exploring the political structures that had been emerging in the cyberspace up until 2001, which is when the book was published. It’s a fantastic source of references and helps paint a picture of the kind of mindset surrounding the early development of digitally-led governance structures.

• This is the link to the X Spaces Peter and Jarrad did with Balaji a couple of weeks ago, for a bit more context. They discuss their differing opinions in depth as well as where their opinions align, I found it well worth the listen.

• If you're interested in learning more about where we are at right now with DAOs here is a great large-scale study of existing DAOs which highlights how their design has impacted decentralisation and participation within the organisations.

• Jarrad’s book begins, as is to be expected from the title, in an evaluation of the idea of a nation state as created by the Treaty of Westphalia. If you want a little 411 on the history of the Treaty of Westphalia, I’ve found quite a good one here.

Image by Blank Embrace

Isabelle Castro
Maybe we can just start by you explaining how you came to writing the book. What were the kind of ideas you had floating around? And we can go from there.

Jarrad Hope
Yeah, I mean, I guess this has kind of been one of these Nietzschean life organizing ideas that I've had. So I was lucky enough to work on this book with Peter Ludlow. And he edited a book called Crypto Anarchy, Cyberstates and Pirate Utopias. And I read this in my pre teens, 13, maybe 15 or 16 years old. That was a collection of all these essays of various crypto anarchists and libertarian types and cyberpunks that were thinking about this concept.

But there's been several strands in my life that led me to crypto and writing Farewell to Westphalia and having these ideas of sovereignty. There's basically three major ones.

I grew up in the rural parts of Australia and so your closest neighbor is maybe a kilometer away or something like that. You're living out in the bush. So that meant I spent a lot of time as a youth on the Internet. But like back then I caught the tail end of like precursors to the Internet. These were called BBSs or bulletin board systems.

And so you would have a modem and you would dial up into someone's literal computer, right? And it'll be like this text based bulletin board. And then like they would have online, , little chat board chats that other people would be participating in and like text based games and that thing. And , I used to participate on those. And like what was kind of interesting about that is they had like these things called MUDs or moves, right? So that these are multiplayer role playing games I guess is one way to think about it. Or you might be familiar with Second Life, right?

Like this is like the grandpa idea of Second Life, these virtual worlds that you can participate in. But what was super fascinating about them is they would develop like social institutions and like means of government within them. And like there was a famous case around effectively a virtual form of sexual harassment. And so there was one actor who managed to get a hold of a voodoo doll object and started using that voodoo doll to get other people to impersonate certain actions right on their, on the behalf of other users. There was one particular action that was not appreciated by the person that the voodoo doll was used on. And so that this called for dispute resolution.

How can we solve for this? And so at the time you had these psysops or psysadmins who would be running the BBS or the server and they'd be basically like a benevolent dictator if you're lucky. But here they started to develop their own forms of arbitration and having judges and they had started developing out democratic institutions to govern these spaces and resolve these kinds of disputes.

At a similar time frame I also used to go to flea markets or swap meets on the weekends. And there would be the stereotypical neck bearded guy with these floppy disks of pirated games that he'd be selling there. And so that's where I used to get a lot of my PC video games at the time. But then I became very interested in that scene and where to get them from and that, like, I mean, so he basically showed me these BBSs where you could DAOnload these pirated games or shareware games from. And I kind of got involved in the piracy scene.

And one last thing to do with this BBS thing before I kind of continue all three threads is that I was using up the phone bill quite a lot, right? Dialing into these things. And so then like, and even so with like the early forms of the Internet, right? Like, and that made my mother and my father quite upset. And so as an adolescent boy, you try to find creative ways to solve for these issues.

And through these BBSs, I also found out about groups like the International Subversives, which is like a hacker group that Julian Assange was involved in or created. And they had ezines that had like tips on doing this thing called phreaking. And that's the idea that you hack like phone systems and get cheap calls or reroute your calls through corporations and that kind of thing. And it so happened that my father used to work with telecom, which is a national telecommunications outfit. So the reason why I mentioned this, right, is you basically have these three parallel threads that are happening for me at least.

One was this idea around these virtual worlds or virtual economies and they're developing these institutions. One was this notion of piracy, which is more about creating these systems that were undermining copyright law, for example, or, disregarding the jurisdictional laws. And then the hacker or cyberpunk scene, which is much more involved in cryptography, which will later become like notions of sovereignty. So fast forward a little bit. The same pattern happened in a 3D chat program called Active Worlds that I used to participate in the mid-90s. I know this is a little bit long winded, but there's a point to this. And so ActiveWorlds did exactly the same thing, right? This is much more like Second Life. So there were property rights that you could put DAOn things in three dimensional space. You had little towns and villages forming, economies forming.

Virtual tokens are involved. And so real money started to get involved in these things. And again, dispute resolution started emerging and all of these social institutions became quite present. And so it's very bizarre, right? You're seeing these people playing essentially a video game, but treating it very seriously with real money on the line and having to form their own governing institutions. And then around early 2000s, there was a paper that came out studying the economies of virtual worlds, right? And he was talking about Ultima Online and World of Warcraft and he was showing that their economies were as large as GDP of some smaller nation states. And so there was this epiphany moment for me on that side of things.

It's like, oh, wow, this could actually have real world effects, right? You could have an economy that is as large as a nation state, but it's entirely digital. It's in this like, it's operating in like this notion of cyberspace, right? But there's some problems with that idea because they're running on servers, it's operated by a company, it could be taken DAOn and very often they were. And so it collapses in some form.

So switching tracks again to the piracy side of things, you start to see the emergence of these peer to peer file sharing programs you might be familiar with, Limewire, Kazar, all these early precursors. I didn't really pay too much attention to that at the time. I used it quite a lot and I was like interested in that idea. But it wasn't until I came across this book called The Pirate Organization that really changed my understanding of what piracy is. And in this book they argue that piracy kind of expands market economies and capitalism in a sense. So they typically end up being like these very new fringe markets that are emerging. And you get these organizations that are highly adaptive to that kind of area, but they operate in this informal economy. But as the state starts to recognize the legitimacy of those new market economies, then it starts to try and formalize it.

So, if you think about the romantic notion of sea piracy, you have like Tortuga and like these pirate utopias. They're operating as if they were like small states or small governments and they erect these institutions for economies and so on. But then like the state will start hiring like, Corsairs, right? Which are essentially like legitimized pirates, right? Or profiteers privateers. And the analogy there with file sharing programs is we saw the same thing, right? Even though it's happening in the sea of information cyberspace, you had these peer to peer file sharing programs, but then the new Corsairs were like Netflix and Spotify, right? And then they become this formalized, dominant version of like this ease of access to any kind of music you could possibly want.

And so that's quite interesting, but you can view that as almost undermining the sovereignty of these new organizational forms, right? Like, if you imagine like a libertarian cyberspace or like some kind of pirate utopia, it ultimately gets enveloped or captured in some way by the state. And so the cyberpunk or hacking side of this, which is very close to the peer to peer file sharing site side of things. They also had these ideas, right? Like this idea that you could create these territories, if you will, or like geopolitical boundaries in cyberspace. And that's kind of what, if you're familiar with the Tor project, is kind of doing, right? Tor used to be called Free Haven back in the day and within a normalizing communications protocol, they essentially create like a new territory or a new region in cyberspace in which new market economies could potentially arise in and do from time to time. There's an Achilles heels around that particular construction. So, yeah, I mean, I was very influenced by a lot of these ideas and it made me realize that Blockchains are really a synthesis of a lot of these ideas in some ways.

The final missing piece of the puzzle was probably Leslie Lamport with his paper called the Part Time Parliament, where he introduces the Paxos protocol. And what's really key there is his analogy in understanding what a distributed consensus mechanism is doing, right? And he calls it, I mean, it's in the title, right? The Part Time Parliament. And in the paper he describes this fictional island called the Paxos in Greece. And you have like a bunch of merchant traders that are coming there, but they realize they need some kind of governmental system, but all of them also want to be making money, right? So nobody wants to stay there and just be a public servant on the island.

And so they come up with this protocol in order to be able to maintain an order and deploy Legislation onto it, while also being able to come and go from the island as they please. Right. And this parliamentary sovereignty idea is really important when you start to think about how modern nation states function, there's some other ideas around new medievalism and thing that also come into it. But I'll stop there.

Isabelle Castro
Okay, what is it about right now that you think the world is, I guess, primed for such a book? Why, why did you want to write it now?

Jarrad Hope
So I think it's become technically feasible. Right. I think that a lot of the technology has matured to a certain extent especially, and it still is maturing with new cryptographic techniques that are coming out, such as, I mean, zero knowledge proofs are kind of all the rage. But you have multiparty computation and fully homomorphic encryption becoming more and more mature. There's ways that you can strengthen these systems to maintain their order or their autonomy against new pressures against them. But I think that everyone is sensing the political instability that's happening in our lives. Right, whether it is what's happening in the states or what is happening geopolitically, mounting debts, the problems of the fiat system, People are having like real world experience.

I was just in Spain and I was at a park with my dogs and other park goers who were really struggling just to buy groceries, because of inflation. But there's this book called the Anarchical Society by Hedley Bull. And in that, , he kind of talks about world order, right, and different models of world order and how you can do coordination without exactly having a world government. But that is one of the models of having a world government. Potential future models. But Hadley Ball was an advocate of this idea called neo medievalism.

And so he believed that or believes that our notions of Westphalian sovereignty, which is like how you imagine a nation state and the current borders that they have and every government that has autonomy over its internal geopolitical boundaries, has been radically decaying.

And that's kind of going back to almost like a medieval, like stage where you have lots of different overlapping authorities and geopolitical boundaries matter a lot less. Right. And like, that's certainly the case. You have different nation states influencing the cabinets. You have non-state actors on the world stage now that are deploying more capital than state actors, even though they're not included in the United Nations, you have transnational policy networks that are also heavily influencing corporations and the cabinets of governments as well. Never mind religion and any other identity group or ideology that has a worldwide appeal.

We argue in the book that, these institutions from the Treaty of Westphalia are nearly 400 years old. And we upgrade a lot of our technology on much shorter cadences. So like, your phone is probably less than five years old. So why, if we're upgrading those, why not upgrade our governments?

Isabelle Castro
If you had to summarize the future society that you're imagining when you wrote this book, like, let's say in kind of like a few sentences, what would that look like?

Jarrad Hope
I think maybe like a more boring way to put that is maybe more privatization in some sense, and certain governing institutions being put into these kinds of systems rather than being held by the nation states. I don't think the nation states are going away anytime soon, but rather they'll probably be predominantly focused on providing, say, physical security. Right. But, you'd be seeing certainly from different attempts now to limit or restrict the amount of services that are provided by our government simply because the welfare state doesn't really work if you don't have high fertility rates and you have enough people to kind offload the debt to. So younger and younger generations will not be able to support the older generations as well as all the current benefits that the government gives.

And so there might be more efficient ways of providing those services which would typically be held by the government, but instead operating on these new forms of governance.

Isabelle Castro
Yeah, so going back to the health care and security, police forces for example, which is something that you mentioned. Something like I got stuck on was could these services could be given even by these new communities if there isn't any physical territory? I don't think I can even imagine how that would work.

I'm in Italy right now. Even if I've got an online governance system, I still might need to get health care, I still do need to get security from police. How do you see, the online governance system kind of fulfilling those functions?

Jarrad Hope
Sure. I mean like, I don't think that they're really any different. Like in fact, like the government you have today, right. You could almost view it as being like this virtual layer over everything. Right. There's nothing that prevents an on chain entity from owning real property. There's nothing that prevents an on chain entity from setting up markets or having a police force. Like we have already seen arbitration systems in which have recruited like part time off duty judges or retired judges to participate in court systems. Right. There are examples of like neighborhood watch programs, not in crypto, but outside of crypto which employ off duty police officers to help out and resolve disputes through their platform. It's almost like an Uberfiation of the police force. I think you can almost provide any of these services through these institutions. It's just that the order and the transactions that have been done on such a system are auditable, they're open and more importantly, there's a level of express consent that matters here.

Right now when you're born into a nation state, for example you're kind of given a birth certificate and you have very high exit costs. If you want to leave a nation state, you have to uproot your whole life, your work, you have to immigrate and emigrate out. But the basis of legitimacy, at least in western liberal democracies, it's supposed to be consent of the government. Right.

But it's not at all, at least in the sense that even if you wanted to do a civil liability case towards the state, like , many of the nation states today have a notion of Sovereign immunity against civil liabilities, so against you. And so it's a complete optionality in whether they want to even hold themselves accountable to a certain set of rules. And this extends to, like, all public servants. At least in these new systems, you're making express transactions with them, so you're providing consent every single time you're using them. Whether you're going for healthcare or for any other service.

I think that's a really important property to understand, at least in terms of the differences between these systems and the legacy way of doing things and like, how this potentially could manifest. And then to your other points, I think, like territorial boundaries, like, they will still exist, right? Nation state geopolitical boundaries will stay, but then you'll have. The boundaries in the new systems are more fluid. They go between social groups. And we already kind of see this in like, say, many cosmopolitan areas tend to develop like mini cities or mini villages like Little Tokyo or Chinatown. They take over a certain block and then you'll find out that there's an identity group that is there and it's very clear where the boundary is or not. And I think that will probably happen with these kinds of systems.

Isabelle Castro
Okay, interesting. In the book, you kind of criticize traditional centralization and make the differentiation between the creation of smaller centralized entities and actual decentralisation through DAOs and those kinds of systems. I've kind of done a couple of articles on DAOs in these network state situations, and I'm really for DAOs.

But I keep coming back to this conclusion that some level of kind of overarching centralization or leadership needs to be in place in order to follow a kind of bigger picture approach or for quick decision making, particularly like at the beginning of a society, just to see kind of the longer trajectory of the community. What do you say to that? Do you agree? And how does that kind of coincide with these smaller decentralized ways of working?

Jarrad Hope
Yeah, I mean, I think it's a very fair question. There's a few things to unpack there for me personally. So like DAOs today have kind of are not really what they kind of envisioned to be, right. And so what I mean by that is in the earlier days, we imagine DAOs being a lot more about algorithmic control. That's quite scary. Like if you think about something like Amazon's warehouse and having a corporation monitor and just use human resources, almost like they're equivalent to robots, right? Or Uber moving people around according to an algorithm. And so the idea is that you could actually create these kinds of systems of algorithmic control, but make them completely open source and audible and trustless. So you could the information asymmetry that's created by an app corporation doing algorithm control, basically you can reduce that to zero, which makes it much fairer and open access ways of doing things.

DAOs today are more or less like a Discord chat with a multi sig. I'm probably being a little bit too derogatory there, but that's kind of how they are. And there's some great ideas around voting mechanisms which I think is great to explore. And I think you're right. Like, I did a talk on crypto being a revolutionary center of power, and from my perspective is like, I'm quite critical of mass democracy. Not democratic, not democratic principles, I'm fine with that. But mass democracy because it's quite illusionary. There's almost always an organized minority that has to organize the masses.

And if as soon as you have any kind of level of organization, you have certain biases being introduced and you can't really get away from that, then I guess there's a notion of decentralization that we're talking about here versus centralization. And I think some people view decentralization almost to an extreme, or almost we're just kind of, it's a free for all or, , anarchy in some way. And , there's a certain level of appeal to that idea, but I think it's more about the fluidity between these two extremes.

That's kind of what I mentioned about exit cost earlier. Like this idea from Albert Hirschman, which is basically, he was framing it as an ultimatum in consumer choice, right? You basically have three options, exit, voice or loyalty. Each of these have a reward or cost associated with them. So like if you're loyal to a brand and like everything's fine, maybe you have a Customer complaint, that would be your voice. And there's a cost of doing that, or you can exit and you can not participate in that service anymore. And what I mean by that is in a centralized system that has very high exit costs, that's problematic, right? That's basically equivalent of a tyrannical dictatorship or a tyrannical democracy in which you are forced to go along with these things. So really, when I think about decentralization, I'm thinking about lowering that exit costs.

It's like you want to be able to use centralization when it's working well, but if it starts acting in a corrupt way, you want this notion of consumer choice to be able to fluidly move into another provider. And that's the trade off that layer two systems are making in blockchains. It's like, yes, you're getting a centralized entity that's performing this sequencing of transactions, but if you can detect faults from that, you're able to have an escape hatch to get your assets out and move away to a new sequencer with little harm to the users. So there are like more social and cultural ways of dealing with this idea of decentralization as well.

I think what you really care about is the set of like, basically a cultural hegemony in some sense, right? So like, everyone who's part of the identity group has a level of assurance that other people in the identity group are operating under a set of values or virtues. And so this is also where leadership comes into play. But it's not necessarily the leader per se, but the set of cultural symbols that are assigned to the cultural symbol that represents the leader, if that. And that might sound a little bit convoluted, but that's effectively what monarchies are and not tyrannical monarchies, which is what a lot of people kind of think about it initially. But there's a difference between, for example the queen and the crown that she wears, right?

The queen is the flesh, but the crown is this ideological symbol that is representative of a set of norms or values, notions of impartiality. And that becomes a symbol in which everyone kind of tries to adhere to. And we see this happen in our own systems, in like the microcosm of crypto. Like, Satoshi came along, set a whole bunch of values on how bitcoin should be, has left and people to this day continue to reference Satoshi to solve these kinds of disputes. Strong lifestyle brands or strong brands also do a similar thing. Religions do a similar thing.

So there's certainly value in having a central cultural symbol that defines the normative values and often it is personified but doesn't have to be.

Isabelle Castro
Okay. And that's what you mean about when you say that you kind of differ an opinion with Balaji for example, on the fact that you need founder.

Jarrad Hope
Yeah. So I think like Peter and myself have slightly different opinions on that. So Peter is probably much more on the extreme side of things. You could, it's totally possible to have a blockchain community and which doesn't have a leader per se. Right now. It may be a set of leaders or , you could have something far more diverse of people are just operating out of pure technical interest or pure self interest. Right. And they just happen to be able to collaborate on that. I'm somewhat in between say Balaji and Peter’s view where I think it's the set of cultural symbols and you probably do need an organized minority to some extent. But I wouldn't go so far to say that you need a specific leader.

Having that said, there is some value in what Balaji says. like I think Carl Schmidt in is a political theology. I can't remember exactly. But , he makes this quote which I'm paraphrasing here is like “sovereign is he who decides on the exception”. Right. And what he means by that is like once all of the legalistic forms of formalizations of governing institutions fail, who is then the key decision maker. And that's probably going to be like your president, for example. So it's definitely, it's. It really depends on what the blockchain based community is trying to do. And. But if we're talking about, maybe a state formation that is certainly an option.

Isabelle Castro
Okay, going back to what you were saying about early DAOs and how it was algorithmic. What do you think are some of the things that make for a successful DAOs in the context of network states?

Jarrad Hope
I think it needs to be a very clear mission or goal any like a DAO needs to be having, , depending on what the DAO is. Right. But we're speaking very broadly here. There needs to be a very clear sense of purpose that can deliver meaning to participants. Right? Because you need to attract people to whatever the cause of the DAO is. And if it's not potent enough or not memetic enough, then it's going to be quite difficult to seed that community and get them going. And so I would also argue that you need a lot of, I guess like this kind of falls back on like group identity formation more than it does on DAOs per se.

Because like the DAO side, like, and all of this is just technology, but at the end of the day we're humans and so I think we tend to discount the human side of things or the sociological side of things. And so there's two very important things you can do for group identity formation. And that's setting contrasts, right? So cultural symbols on the medics in which you identify the in group and the out group. And that's very important for people who are enjoying this sense of meaning or purpose that the DAO is providing this from this mission and then allows them to, essentially allows the individual to self categorize, right? And go, okay, well I'm not part of that group or I'm part of this group because of these reasons. So that's really important.

The other one is face to face communications and bonding over activities in the real world. I think that's also really important because you need to establish like that's the way that humans establish like formal relationships. It's much more tenuous and more prone to churn and collapse if it only is digital. So those are the two things on there then like I guess from a technical side of things, if the DAO is dealing with value, it will probably, and it wants to be sustainable, you'll need to do some kind of treasury management and be able to effectively allocate the capital while also mitigating, grifters and parasitical agents that might be trying to attack the system as well.

Isabelle Castro
Okay, so when you say, in the book and conversations you've had around it, that nationhood isn't necessary, it's because we're moving away from the static identity grouping and into a more pluralistic and opt in, opt out thing.

Jarrad Hope
Yeah, I think that's kind of it. So I mean, if you think about your own identity and how you built that over your life, right, You've probably gone through different phases. You probably picked and chose from different social groups or social circles that you participated in. And it's likely that as these groups, these network states or crypto states or blockchain community based communities cater towards different aspects of your identity, you end up belonging to multiple different ones. Kind of like being a netizen or a citizen to different blockchain based communities.

But I think the notion of what a nation is not static in of itself either. Like, I'm Australian and that's a civic nation or at least that's what it was claimed to be. And what it is to be Australian today is very different than what it was 30 years ago. So if I subscribe to being an Australian 30 years ago, it kind of creates a social dilemma for me. How do I continue to call myself Australian? Do I reinforce the old values? Do I adopt the new ones? It's quite challenging for me personally and I think it's just an example of this.

But I mean, going back to this notion of identity more generally speaking, you find familiarity in people who are giving off signals that are similar to you. Right. So you're using heuristics to form what's called extended kinship ties. So maybe people dress a certain way or they talk a certain way and those are like signifiers that maybe like you share similar sets of values or you're sharing the same kind of quote unquote wetwear, so to speak.

Isabelle Castro
Okay, interesting. I'm actually, yeah. Do you think on a mass scale people are ready for this kind of shift in mentality and shift of kind of approach to identity, especially if it isn't tied to a physical territory?

Jarrad Hope
I mean I think that those will still continue to exist. Right. So , there are. The more material the basis is for your extended kinship ties, you can go down to ethnicity or race, like genetics. Those are very persistent because they are like part of the people, part of the hardware. So you can't really escape those in any sense of form. The vast majority of people don't move away from where they were born. Not far. Right. So mass migratory patterns, while they do happen like they are pretty infrequent for the vast majority of people. So I don't think that those are going away anytime soon. I think that they will in many ways reassert themselves in a similar way that nation states have asserted their sovereign claims in cyberspace, like the Great Firewall of China, right. As an example of this. And many nation states have similar sovereign claims over Sundays. So I think it's more about how you do governance or how you establish the order. And this technology can be adopted by those pre existing identity groups. Doesn't need to completely change now. That might, that may evolve over hundreds of years, times, who knows. But in the next 10 to 50 to 100 years, I think it'll be pretty stable for the most part.

However, I think what you will see is certain identity groups starting to formalize a lot more or have their own forms of governance, certain ideologies or new forms of identity groups and they are kind of like, or any kind of like minority group will end up having its own form of like know, quasi government, so to speak.

Isabelle Castro
We're starting to see kind of centralized entities and governments approaching blockchain, considering bringing Bitcoin into their kind of like treasury systems and all this kind of stuff. How do you feel that this is going to influence the rise of the cyber state and these alternative ways of organization in these smaller factions?

Jarrad Hope
I think there's, there's kind of two ways I can approach this. Like I would argue that the United States [the video cut out a bit here] companies to make their data centers available and all of their data available to the United States irrespective of where those data centers laid on the planet. So the consequence of this is that the United States undermined the national sovereignty of every nation state in which American companies had data centers in them and were able to affect all of that change. Right. And so there was this notion of extra jurisdictionality that happened as a result of that and the jurisdiction of the US basically enveloped the globe, which is kind of crazy.

Then another way to view this is what I would love to see is these blockchains that are like hardened and able to be a disinterested, disintimated space for agreements, which is kind of what they're trying to being used at the level of like say the United nations in which nation states are coming together who may form treaties or agreements but break them when it becomes opportune, they could collateralize against such a system to actually show that they are committed to tackling global problems or, whatever the treaties may be and there is recourse for smaller countries or nation states in which if they try to pull out or change, there's consequences and at the moment there isn't.

Isabelle Castro
Yeah, I can see that happening. So actually it’s at the largest scale that you see these new systems being quite impactful in a positive way.

Jarrad Hope
I think so. I mean, I guess like going back to that point on centralization versus decentralization. What these systems are allowed to do is solve for things. Like, at least become more corruption resistant. Like right now if you think about AML laws which are impacting almost everybody in the formal economies, the problem with those is how they're done. It's been shown that the people who benefit the most from illicit financial flows tends to be high ranking politicians or the financial elites. And yet they are the ones that are implementing these laws. So they can kind of circumvent them to their own degree.

Moreover, if a financial action task force sets certain dates for a country to implement certain compliance changes within a certain period, but the government can't keep up or do that in time they rush laws through their parliaments and then weaponize them to suppress other political opponents or even journalists. And so at least with these new kinds of systems, we can actually have more transparency in what the actual system is. And at least if they're acting within that system, don't necessarily need to rely and follow the money methods, but we can actually have an audible trace and have more guarantees that the system is being played fairly.

Isabelle Castro
Yeah. I mean, I'm a great advocate for transparency, especially at those high levels. One of the things that I am trying to grapple with is how we kind of create systems that are both transparent but also upholding kind of digital privacy for the individual. I don't know whether this is something that's come into your kind of outlook of these how systems can balance both, because I feel like this is still an open question within the crypto ecosystem at the moment.

Jarrad Hope
Yeah, I mean, that's literally all I really care about. The cyberpunk mantra is privacy for the weak and transparency for the powerful. And so the question is how can you achieve that? I don't have a very concise way to articulate this. And I haven't really articulated it properly before, so you can exploit some properties of say, government spending. Right. So value flows from the government tend to go into certain industry sectors. And you kind of think that like, if money is being spent by the government, that it would probably eventually over time that money would diffuse across the entire economy. But what actually seems to be the case is that spending tends to go within, in certain industries, the value flows tend to circulate around and stay very close to different to certain adjacent sectors. Right. And so that's quite interesting because then you could have like say a colored coin, let's say like, , a public coin and a private coin. Right. You could, make all new coins private. But then if you want to pay in tax or whatever, they get burnt and turned into public coins, then the public coins are then taken through politicians. So you can see where that money is flowing.

Who's allocating that money, who it goes to, then it goes to the private contractors through a tendering process and then they pay for their catering and so on, and you'll actually be able to see where the value flows are going for that kind of money. So you'll have a whole industry that is basically for public spending. There's some other nuances to that and there's a lot more gates that you need to put in place to make that system more effective. But you can exploit these value flows is what I'm trying to make the point on.

Another aspect of this is that the vast majority of people, like, due to things like wealth inequality have substantially less amounts of value they're pushing around than very large amounts of money. So you could have triggers for extremely large transactions while keeping all the small transactions entirely private. So there's problems with that, of course. Like, I mean, you would think that a motivated wealthy actor could split their transactions into smaller amounts. So I’m not a huge advocate of that one. I think that it's much more interesting to localize the problem around public spending and develop that while keeping everything else private.

Isabelle Castro
Okay, interesting. Well, we're getting to the end of our time, so given everything we've discussed, and we've discussed a lot and I've really enjoyed your book. What's the biggest challenge that we'll have to overcome to get to the cyberstate future that you outline?

Jarrad Hope
I think for crypto in general, one of the biggest challenges is having to kind of get out of this magic Internet money realm and having more real world impact and real world deployment of capital. Like it's still quite rare to be able to spend your crypto coins in your daily life. So I think that's a significant challenge.

I think the other one is more about power. As these systems get larger and larger economies, as they start taking over governing institutions, they start acting more competitive. And as you rise up in power and you start having to shake hands with other entities at that same level of power in which they'll continue to contest the autonomy or legitimacy of such a system.

We saw this with the kinetic cash incidents and new attacks on these systems. So we'll probably start to see more and more attacks on these systems. And it's a question on whether these systems are able to maintain their autonomy under those kinds of pressures and what we can do to strengthen them.