Blockchain vs. Westphalia

April 6, 2018 | “Cryptocurrency Accepted Here,” read a sign I recently noticed at the vendor stand of a shop that sold handmade goods. I’d never seen such a sign before, and had not expected to see such a sign for quite some time to come, if ever. It occurred to me that this new technology could change the landscape of even my local economy sooner than expected.

Cryptocurrencies, such as Bitcoin, have announced their presence in the media over the past year. Bitcoin, just one of many cryptocurrencies on the digital money market these days, is the cryptocurrency the public is most familiar with. It is pioneering the realm of cryptocurrencies and demonstrates exciting new technological advancements. Even more exciting than Bitcoin itself, however, is the technology behind it: blockchain. This new tech development is revolutionary not only because of its capabilities, but also because of its significant potential to drastically affect nearly all of society’s existing structures and institutions. Of the institutions blockchain technology could impact, the concept of the global state is perhaps the most significant.

The blockchain can be thought of as similar to a spreadsheet, ledger, or database. It provides a platform for transactions to take place, such as an exchange of Bitcoin from one person to another, and then keeps a record of those transactions as a public ledger. The ledger is decentralized and publicly accessible, making it both a secure and verifiable way to store data. The system would lower transaction costs in time and money by cutting out third parties like the government or private services. In theory, this could mean that blockchain has the potential to manage any type of decentralized transaction anywhere in the world (Swan, 2015).

There are many potential future applications for blockchain, but at present, its two most popular uses are for cryptocurrencies and so-called smart contracts. Bitcoin, Ether, Litecoin, and Ripple are a few examples of widely exchanged cryptocurrencies. These digital currencies allow for the exchange of money directly between two individuals, known as “peer-to-peer” trading, over the internet. A smart contract, on the other hand, uses code to define, execute, and enforce an agreement through blockchain’s decentralized system without the need for third-party services. One such third party might be a notary, for example. What is attractive about smart contracts is that once launched, they are able to automatically conduct certain types of transactions once certain conditions are met (Swan, 2015). This could be used for a trust fund set up by a grandparent, in which the funds are automatically released to the recipient when the condition that the grandchild has reached adulthood has been met.

The invention of this technology has introduced a new computing paradigm, comparable to those that occurred with the invention of mainframe computers, the internet, and mobile and social networking (Swan, 2015). An important differentiation of this paradigm from the ones that came before it is that the potential mass-adoption of blockchain technology may pose a threat to the Westphalian system of states that was developed in the 18th century and is still in use today. A mass-adoption and application of blockchain could bring about a complete restructuring of many of our most integral systems, such as banks, health care systems, governments, and democracy itself. The result would be a decentralized, algorithm-based society. For that reason, blockchain has been referred to as a “disruptive technology” (Swan, 2015).

Blockchain could allow for the creation of systems that are more fair than the ones we currently employ—one example could be direct democracy—where individuals participate directly by controlling the political process instead of through a system of representation. Another example is the potential to up the freedom of transfer in regions of the world where political controls are highly restrictive. Blockchain could even lead to the disintegration of borders, and allow for Global Basic Income initiatives.

Mass-adoption of blockchain technology has ignited discussion around the idea of blockchain governance. In such a world, existing governments might employ blockchain governance for elections, the registration of legal documents, national income distribution, passports, and dispute resolution. It could support a universal record-keeping system, as well as a system for maintaining a record of all human interactions within government, business, and beyond, without the restrictions of geographic boundaries currently imposed by state borders. In this way, the role of federal or even local governments may change drastically. “The possibility of global currencies like Bitcoin and global government services bring up important questions about the shifting nature of nation-states and what their role should be in the future,” notes Swan.

Another possibility for how the role of the state could change is by “putting a nation on the blockchain,” or becoming a “cryptonation” (Atzori, 2015). This would mean the highly radical introduction of a new social contract based on decentralized platforms, consensus, and distributed trust. The result would be a shift of power from centralized institutions to individuals and the free market, allowing administration to be accomplished through a voluntary system of self-governance (Atzori, 2015). The resulting situation would be akin to a system of governance without government, where private networks would take on much more of the responsibility previously held by states, in the form of Decentralized Autonomous Organizations (DAOs).

Should blockchain technology manage to reach its full potential, we could see significant changes in our state level systems and local economies alike. There are many theoretical benefits and theoretical consequences that should be considered as we further debate how such a radical, new technology could change the world.

Hannah Luzadder is a graduate from Lewis & Clark College's international affairs program and specializes in globalization.

Sources Cited:

1. Melanie Swan, Blockchain: Blueprint for a New Economy, O'Reilly Media, Inc., 2015.
2. Marcella Atzori, "Blockchain Technology and Decentralized Governance: Is the State Still Necessary?," Social Science Research Network (SSRN), 2015.

The views expressed in this piece do not necessarily reflect the views of other Arbitror contributors or of Arbitror as a whole.