How Innovations with Blockchain Governance Could Usher in a New Era of “Digital States”

People who are new to the world of Bitcoin often ask the question, “What gives Bitcoin value?” A popular answer is that it has certain properties that make it the best store of value — comparing it to gold:

As seen above, one of the most important features that crypto have and both fiat and gold lack, is the aspect of decentralization. This property ensures censorship-resistance of all kinds. With Bitcoin, subject A can send money to subject B without having to use a third party like a bank.

As we see billions of dollars pouring into cryptocurrencies it is important to think about the impact this growth will have on banking, the structure of governments, and on the nature of work. Intelligent economists predicted it:

Milton Friedman Predicts Bitcoin in 1999

Economists like Friedman foretold the emergence of a global currency. Currencies as we know them today are national, which means that they are inextricably connected to nations via tax-collecting and central banking. What will happen to this type of money if and when cryptocurrencies become the way people hold and exchange value?

When a currency is no longer tied to a nation state, two things happen:

1) The currency is globalized

2) The currency competes with other currencies in the global market

This competition drives value up in the world of cryptocurrency, as we see many projects have been created recently to experiment with the blockchain. Some have created decentralized storage systems, others have sought to create a worldwide super-computer, and still others use the blockchain for a variety of services like legal processes, healthcare records, and real estate documentation. How much of this will achieve widespread adoption still remains to be seen.

Digital Central Banking, Digital States and Digital Corporations?

Just recently, Joseph Lubin, founder of ConsenSys — a major player in the blockchain world — visited the island of Mauritius with the hopes of creating “Ethereum Island.” His dream was to create a place where everything is decentralized and run by the people, for the people. These libertarian “paradise islands” aren’t as futuristic as you may imagine.

However Lubin’s dream is perhaps somehow too hasty, for before anything like that could be realized, one would first need to create something like a digital state, a digitized state. Another project called Decred, with roots in a 2013 proposal by Litecoin creator, Charlie Lee, has already moved from theory to practice and has created a completely decentralized community.

In June 2017, anyone holding a Decred token was able to vote about the future of the company and community. One of the things they voted on was Lightning Network integration, a feature that will make transactions instant.

A major hurdle to the widespread adoption of Bitcoin is its transaction speed, as confirmation times can take approximately twenty minutes. This currently makes it impractical as a payment system because imagine having to pay for a cup of coffee and then having to wait twenty minutes for a confirmation!

Enter Lightning Network, a technology that allows instant transactions via the blockchain. This is where on-chain governance shows its effectiveness. The stakeholders of Decred (people holding “DCR” coins) voted on Lightning Network integration using their coins —: this is possible via Decred’s Proof-of-Activity system. Without going into too much detail, the process of integrating new tech is done quickly via on-chain voting. This is a very interesting experiment and is something that’s never before been seen in this space.

Another similarity between Decred and real world State is that Decred is self-funded. Decred’s developers are directly funded from Decred’s dev subsidy, which is analogous to a state tax (a portion of new mined coins goes into it), a fund that will be controlled by the community.

In the upcoming update, a Proposal System will be added, so that people will be able to submit proposals which will be voted on by the community and then funded by the subsidy. Taxes, subsidies, on-chain voting, contractor work — does it sound familiar? Are we approaching the era of digital states?

This kind of decentralized digital organization is something that has never existed before in history: an organization with its own currency, its own “central banking” governed by its stakeholders who are able crowdfund projects thus expanding and evolving with time.

While this is still at an early stage, I ask myself whether we are not witnessing the emergence of global, decentralized digital states. Did the blockchain revolution unleash something that goes way beyond just being “gold 2.0”?