#606: Balaji S. Srinivasan — The Network State and How to Start a New Country | The Tim Ferriss Show

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​​Intro

  • Balaji S. Srinivasan (@balajis) is an angel investor and an entrepreneur. He has co-founded and led several tech startups down the acquisition path, including Earn.com which was acquired by Coinbase. Other notable previous positions include CTO at Coinbase and General Partner at Andreessen Horowitz.
  • Tim mentions that Balaji holds the first and second place records for longest appearances on the podcast—his third appearance is no different. Want to get up to speed on what Tim and Balaji have previously talked about? Check out the Podcast Notes from the two 2021 conversations.
  • For this conversation, Balaji walks Tim through his book The Network State: How To Start a New Country, explains how America is heading towards anarchy and discusses the inevitable battle between the Bitcoin maximalists and the wokes—and much more!
  • Make sure to read this Podcast Notes coverage chronologically to get a full understanding of Balaji’s perspective on the future of society
  • Host: Tim Ferriss (@tferriss)

The Network State

  • Nation State Definition = Nation (people united by common descent, culture, and language) + State (government)
  • Network State Definition = “A network state is a social network with a moral innovation, a sense of national consciousness, a recognized founder, a capacity for collective action, an in-person level of stability, an integrated cryptocurrency, an archipelago of crowdfunded physical territories, a virtual capital, and an on-chain census that proves a large enough population income and real estate footprint to attain a measure of diplomatic recognition.” – Balaji S. Srinivasan
    • It may sound complicated, but each clause is designed to anticipate the historical failures of nation-states and routing around them
  • More constants are becoming variables – the traditional nation-state can’t completely rework its backend engineering to accommodate for the variability
    • “You have the woke and the tech, who are both sort of in different ways misaligned with each other, but also aligned with each other, in terms of turning all social-political constants into variables and all economic things into variables.” – Balaji S. Srinivasan
    • Gender: a historically constant assumption is now a fluid variable
    • US Dollar: used to be a constant form of currency, but Bitcoin introduces variability. It’s no longer a thing you must reform, it’s a thing you can exit from. “The digital version of everything starts introducing combinatorial complexity.” – Balaji S. Srinivasan
  • When a moral inversion (“moral flippening”) occurs, different nations begin to form
    • Example: The belief that policing is good used to be a universal constant. But groups now have introduced variability with the stance of defund the police. These groups debating good & bad are so different, they might as well be different nations.
    • Under this definition, the United States is not a nation-state at all: “At a minimum, it’s a binational Republic, which has the red and blue nations underneath it.” – Balaji S. Srinivasan
    • Ideology can quickly become biology: “If your political party is so important to you that you’re are not going to marry outside it, then in one generation…it becomes something that’s actually tribal, as opposed to ideological. The ideology changes the biology.” – Balaji S. Srinivasan
  • Network states enable these “moral flippenings” to occur under the premise of alignment rather than disagreement
    • “The nation is the network that forms online that is defined by the moral premises they share” – Balaji S. Srinivasan
    • One commandment society: The moral premise of the network state could simply be: cancel culture is bad or sugar is bad. Similar to a start-up in the fact that they function on an incredibly focused goal.
    • Society as a service: Communities are much stronger when they have a consensus agreement on what is good and bad. They are organically aligned by cause rather than just territory. And when the one moral commandment is successful, it unlocks more commandments that make the successful network state. It’s not a cult because it’s subscription-based, you can leave at any time.
    • “It’s 100 percent democracy, rather than 51 percent democracy. And 51 percent democracy is what it sounds like. 51 percent democracy is 49 percent dictatorship.” – Balaji S. Srinivasan
  • “When all of those things (culture, currency, geography, morals) are in flux, you need something to catch it on the other side (the network state) because otherwise what people will do is they will try to assert that old thing that just doesn’t exist anymore. That’ll be something that does not acknowledge the reality of the situation.– Balaji S. Srinivasan
    • Check out 1729.com for short- and long-form explanations of The Network State

The Potential Future of American Anarchy

  • American anarchy: Some people believe that nothing is going to change, and the paranoia over America’s future is overstated. Other people believe the US is descending into either fascism or communism. But one thing both sides share, is that they are anti-authority.
    • “We are all equal” – The Left
    • “You ain’t the boss of me” – The Right
    • “The consensus is for anarchy because the left and the right can agree that the hierarchy is illegitimate” – Balaji S. Srinivasan
    • How Civil Wars Start: And How to Stop Them by Barbara F. Walter explains how the intention of democracy historically leads to anarchy
  • The US economy has run out of juice
    • Historical data for the United States Fed Funds Rate indicates that interest rates will be brought all the way to the floor before 2024. Serious inflation will ensue because they will need to print more money.
    • But will there be more money to print? Continue reading…
  • ESG regulations (environment, social, government) will only make these self-inflicted economical conditions worse
    • Slow Steaming ESG example: the practice of operating transoceanic cargo ships, especially container ships, at significantly less than their maximum speed to reduce emissions
    • This action appeals to the environmentalist but can cause massive good shortages
  • People have been angry at each other throughout the 2010’s in a booming economy. Wait until they are angry at each other in a faltering economy.
    • “If physical goods are hard to come by and inflation has destroyed your currency and so on, and you have a country where people are heavily armed, and they’re yelling at each other on social media, and you’ve got 50 governors, you’ve got a very potent cocktail for bad things.” – Balaji S. Srinivasan
  • Censorship is going to increase dramatically as inflation rises
    • The government will propagate the idea that talking about inflation causes it – see Argentina example
    • So if you talk about inflation, you are a traitor and are undercutting the stability of your own economy
    • Woke-ifying tech will be a big part of this. Google docs has already enabled a ‘inclusive warning’ feature to censor certain language—although the feature is marketed as “assistive writing.”
  • The opposite of American Anarchy is Chinese Control
    • “I’m seeing things tracking towards that where you have just total disorder over here, which will be justified by saying it’s not the Chinese all-seeing eye and you’ll have the Chinese all-seeing eye justified by the fact that it’s not the total disorder here.” – Balaji S. Srinivasan
    • Referenced sources: China Coup: The Great Leap to Freedom by Roger Garside and Ghosts in the Machine video

Does Bitcoin Fix This?

  • “Bitcoin maximalism is the most important ideology in the world that people don’t know about” – Balaji S. Srinivasan
    • Balaji’s Prediction: America’s rise of anarchy will be between the Bitcoin maximalists who worship political/economical/moral/social/ethical freedom and the wokes who worship the state.
    • Both sides see the value of irrationality. The zeal for having a ‘top identity’ can drive a very powerful movement.
    • “When you think about ideologies, they are ghosts that occupy a huge number of hosts, and then they animate them and their eyes glow a certain color to fight each other.” – Balaji S. Srinivasan
  • Only assets that can’t be frozen or seized are your assets—why Bitcoin is the answer and gold and traditional assets are not:
    • Executive Order 6102: FDR’s order that seized gold from American citizens. Which was then resold on international markets at a mark-up—effectively a giant tax on Americans that was executed under the following proposition: “An Act to provide relief in the existing national emergency in banking and for other purposes”
    • Bitcoin’s core value proposition is seizure resistance – “Executive Order 6102 showed that a sufficiently motivated central government can defeat gold. We have not yet seen that Bitcoin can be so defeated. It is in question.” – Balaji S. Srinivasan
    • Governments have proven that they are not afraid to hit the button again: Canadian truckers asset seizure, Russian asset sanctions
  • “Rapid changes are taking place in the global monetary system that may affect the international role of the dollar. A central bank of digital currency is being examined to help the dollar’s international standing.” Balaji S. Srinivasan quoting Federal Reserve Chair, Jerome Powell
    • This means two things: The dollar’s international standing is being questioned and that crypto is related to the preservation of that standing
  • “They will care if Bitcoin is a million dollars and the dollar is inflated and it’s 2027 or 2028 and you need this to fund the US government” – Balaji S. Srinivasan
    • And when there’s no more money to print, genuine innovation is the only antidote to top-down control
    • It may look like anarchy at first, but that’s because innovation is naturally non-consensus. It will take time for people to figure out which network states to opt into.
    • “And the thing is, you don’t necessarily know which startup societies are going to work. You just have to run the experiment and allow people to set [network states] up. Society is a service and allow people to opt into them. And that’s what a lot of this book (The Network State: How To Start a New Country) is about.” – Balaji S. Srinivasan
  • “None of what I’m saying or I’m thinking in the book, I would not call any of it anti-American any more than I’d say than Washington was anti-British…And we need to think about positive new models for the future that do not involve condemning the past. We don’t condemn Britain all the time. We’re basically grateful towards it or positively inclined towards it, but we’re moving along another axis. So rather than be pro or anti-British, rather than define it as post-British, rather than pro-American, what does post-American look like and prepare for that.” – Balaji S. Srinivasan

Bitcoin Predictions (storyline, not price)

  • Balaji Bitcoin Prediction: Maximalism is as much a political movement as it is technological. You may see seizure orders given to crypto exchanges, but they may have the moral support from their community not to comply. States could call to be a sanctuary state for crypto. Maximalists may even push for Constitutional amendments to prevent the seizure of Bitcoin.
  • Balaji Straw Man Bitcoin Prediction: Quantum decryption could innovate faster than quantum encryption and break the assumptions of cryptography. The resistance point for Bitcoin seizure is still unknown.

Current State of the Crypto Market (July 2022)

  • Disclaimer: Balaji is an angel investor on long-term visionary, not a trader
  • Balaji remains confident in the Bitcoin and Ethereum ecosystems (obviously)
  • “There are very few spaces that I get into where I don’t have an all-weather thesis that works independent of the price” – Balaji S. Srinivasan
    • The fundamental value of crypto is to have root permissions that are independent of the U.S. and Chinese establishments
    • Digital freedom and online property rights define crypto’s value, not the day-to-day price
  • Don’t buy an asset when it’s in the news and don’t sell an asset when it’s in the news
    • Exercise: When something catches your eye, set a calendar reminder for 30/60/90 days out to do research on the topic. This is a way to stunt your cognitive biases and retarget yourself once the hype and FOMO have settled.

Foreseeable Technological Progressions

  • Transhumanism: using technology to enhance longevity and cognition
    • Relevant topics include: life-extension, fitness, brain-machine interface, recovery, etc.
    • Should be rebranded as “optimalism” – states that there is an objective improvement rather than just an unstated change
    • People have pathologized transhumanism in response to Klaus Shwab and World Economic Forum’s interpretation of the word
    • People’s distrust in the FDA should allow for more innovative treatments to get to the masses
  • Augmented Reality Glasses: the real-world environment is enhanced by computer-generated perceptual information
  • More Digital Convergence: products that absorb the use case of another product
    • Example: your phone is also your flashlight and calculator
    • The mobile phone continues to eat more and more gadgets—your wallet and car keys are next
    • Is Alexa (or other in-home smart speakers) actually a good product or just an avenue to collect training data for other products?

Technology’s Curve of Acceptance

  • Once the moral premise is flipped on new technology, the real innovations begin to happen
    • Historical example from the Soviet Union: The original capitalists were either labeled as dissidents or black marketeers. But once the narrative hurdled over the negative edge cases (scams, for example), the innovation had room to grow.
    • We have an initial tendency to pathologize innovation

DALL-E 2

  • DALLE-2 is an AI system that can translate short sets of text into realistic and original images
    • Type in “a polar bear playing bass” and it will generate it for you
  • There are three different technologies converging on the power of short phrases:
    • Artificial intelligence: the power to create
    • Crypto: the power to protect
    • Social Media: the power to network

India

  • The first generation of internet native people from India is about to hit the digital space
    • There are over a billion people that have gained access to the internet in the last five years and we have not accurately priced this in
    • The Internet Country graphs the digital story arc
  • “I kind of think that by 2040 or 2050, maybe sooner, maybe later, that there’s a chance that this century is the Chinese state versus Indian network. So the centralized signic state versus the dharmic decentralized global network.”– Balaji S. Srinivasan
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Notes By Drew Waterstreet

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