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The State as a Service Provider: Bitcoin, Passports, and Digital Nomadism

The State as a Service Provider: Bitcoin, Passports, and Digital Nomadism

Explainers Essentials

26 Sep 2021

Following centuries of social change, states have eventually displaced early stateless societies as the primary form of political organization.

By centralizing the power of the local population, resources, and territory, states are meant to establish order and security as well as serve the interest of citizens and achieve their common goals more efficiently.

The idea of a state is so widely accepted and commonly utilized now that it is hard to imagine how society would function without one.

However, while states have a meaningful purpose and should make our lives more efficient in theory, they feature numerous downsides that can lead to grave consequences from corruption, poverty, and economic crises to authoritarianism, war, and the domination of extremist ideologies.

These potential negative consequences predominantly come from the caveats of the centralized nature of states, requiring too much trust from citizens that can be exploited by the ruling class in many ways.

That said, with the rise of technology, air travel, and societal advancements, it has become much easier to move between states than ever before. And, as the majority of the world's population are internet users and the growth of remote work is increasingly empowering individuals with a location-independent way to earn money, digital nomadism has become a significant trend.

On top of all this, with the launch of Bitcoin and a thriving cryptocurrency market, society has access to truly decentralized and borderless money that helps individuals achieve financial sovereignty and freedom from the existing economic system dominated by banks and multi-billion dollar corporations.

As a result of all this, in some regions, the state is on the road of transitioning from a powerful entity that controls everything and everyone within its jurisdiction to something as simple as a service provider competing with others to attract citizens as their customers.

In this article, we will take a look at the idea of the state as service provider, and how Bitcoin, decentralization, and digital technology have enabled society to change its perspective in this area.

A Current Look at the State

Before we take a deep dive into our topic, it's important to take a closer look at the state itself.

Interestingly, despite its extensive history throughout humanity, the state is a polity that still lacks an undisputed definition. For that reason, we have collected what some well-known sociologists, philosophers, and economists have to say on this topic below:

  • Max Weber: The state is a compulsory political organization with a centralized government that maintains a monopoly of the legitimate use of force within a certain territory.
  • Adam Smith: According to Adam Smith, the state should serve three crucial functions: protect national borders, enforce civil law, and provide public goods (e.g., education, national defense, healthcare).
  • John Locke: Locke argues that the state's goal is to preserve property, which includes personal possessions as well as an individual's life and liberty. For that reason, the state is the entity that provides the basis for social cohesion and productivity as well as incentivizes wealth creation by offering citizens guarantees to protect their lives, liberty, and personal property.

Based on all the above, we can conclude that the state's main purpose is to:

  1. Provide public goods to society
  2. Maintain order and ensure the security, public and social, economic, political welfare, and liberty of citizens
  3. Incentivize wealth creation
  4. Protect personal property
  5. Establish justice

As you can see, the state has numerous responsibilities that it has to fulfill. But how does its government find the necessary resources to achieve its goals?

The answer is simple: through taxation. Under the modern nation state's governance, citizens pay a wide variety of taxes, such as:

  • Consumption tax (e.g., sales tax or VAT)
  • Capital gains tax
  • Property tax
  • Individual income tax
  • Inheritance tax

By paying all the above, citizens finance their state's operation so they can live their lives without worrying about fulfilling its functions themselves (e.g., being responsible for maintaining order in the city they reside in or educating their children on their own).

However, this not always works as intended. As mentioned earlier, states have some fundamental issues that can be easily exploited by the ruling governments, which can lead to corruption, wars, extremism, and social inequalities.

And, as the state has a monopoly over the legal use of violence, it is challenging for citizens to take a stand against inefficient or oppressive regimes to fix these issues.

In fact, the majority of the world's population lives under authoritarianism with limited human rights. Even in democratic nations where the system of checks and balances to separate powers works efficiently, citizens often face issues like high inflation rates, unfair taxation, or overly strict laws and regulations.

In such cases, even if the majority of the population seeks to change how things work, they struggle to do so as the state leverages its increased control over the people to stop initiatives like this. Unless a new party gets elected that fulfills all its promises around critical areas, individuals have the only chance to move to another state that better fits their needs.

However, the state can't be changed so easily. Unlike a smartphone maker – where you can simply buy a device from another manufacturer (or choose another model) in case you don't like your current one –, it's much more complicated to become a citizen of another nation.

Unlike global brands, payment networks, or even blockchain solutions, states are limited to serving only the people that live under their jurisdictions. If you want to change your citizenship, it's similar to starting a new life. In addition to physically relocating from your old country to a new one, you have to go through a rather long and tedious process until you become a citizen of the latter.

And this only applies if your new state allows you to do so.

Nations like the United States, Australia, the UK, and Canada have strict measures around immigration, mainly allowing skilled workers with university degrees and good language skills to get permanent resident status. And the naturalization process (in which one becomes a citizen) only comes after a few years of being a permanent resident.

For that reason, it's safe to conclude that we are living in a world of passports, where states control who can become their citizens, in addition to many influential factors (such as the state of the economy, human rights, and taxation) that indirectly shape their quality of lives.

However, one thing is disrupting the current status quo by changing individuals' perspectives of states.

Enter Bitcoin: the Money Eliminating Borders

In 2009, Satoshi Nakamoto created Bitcoin, which since then changed not just how we relate to money and financial services but also to states.

Unlike fiat currency and solutions in the traditional finance industry, Bitcoin and crypto doesn't require a centralized entity to control and manage its network, as it is done in a decentralized way by its users (full nodes and miners).

At the same time, BTC transactions are peer-to-peer (P2P), taking place directly between users without any intermediaries.

Most importantly, Bitcoin doesn't have any geographical, political, or legal restrictions on who can enter and use its network. Instead, anyone with a working internet connection can access its ecosystem to store, send, receive, and spend BTC.

For these reasons, Bitcoin is truly borderless and stateless money that doesn't require users to hold a passport in a specific country to use it.

And many are realizing Bitcoin's benefits now. With an $800 billion market cap and a nearly $40 billion trading volume in the last 24 hours (as of September 25), both retail and institutional investors increasingly see BTC as an excellent store of value and a potential safe-haven asset. As a result, institutionals are currently holding $63 billion of Bitcoin, which is over 7% of the coin's supply.

At the same time, there is a rising trend among individuals, companies, and even governments (El Salvador is a perfect example) to use BTC as a decentralized currency for everyday payments. While Bitcoin's mainnet is not designed for intensive usage (it has a TPS of around 7-8), layer-two scalability solutions like the Lightning Network can be utilized to send and receive instantaneous and super cheap micropayments without any intermediaries.

This way, individuals and businesses all over the world can transfer value without the hefty markups of traditional payment services or the cross-border fees of banks.

In addition, citizens can combine Bitcoin's benefits as a store of value and a medium of exchange to save money, tackle inflation, and hedge against the (local and global) economy's risks – all while using BTC to settle their everyday payments.

Facilitating financial sovereignty, Bitcoin has changed our perspective of states. Instead of seeing it as the "almighty" entity that takes care of our lives and provides the necessary conditions to live, many are realizing that the state is no more than a "simple" service provider.

Change of Perspective: Seeing the State as a Service Provider

The world in which the state becomes a service provider was envisioned by James Dale Davidson and William Rees-Mogg in their popular The Sovereign Individual book. As a side note, we have included this masterpiece as a must-read for everyone in crypto, along with four other books.

According to Mogg and Davidson, a dominant institution has always been present throughout the history of humanity that has been leveraging a combination of violence and capital as well as information and myths to survive.

Throughout the Middle Ages, the Church served as this dominant institution in Europe by taking advantage of its monopoly over information (monasteries were responsible for most of the continent's bookmaking, which was a rather expensive process). Later on, due to the printing press, the Gunpowder Revolution, and the Industrial Revolution, the Church lost its power to the nation-state.

Since then, the nation-state has managed to maintain its dominance. However, according to the authors, an Information Revolution will take place in the near future, introducing encryption technology that would hide citizens' personal information, financial details, and many other activities of their lives from the government's prying eyes.

As a result, the nation-state will be unable to maintain increased control and utilize violence effectively over its citizens.

Interestingly, while the book was written in 1997, it envisioned the appearance of "cybermoney" that resides in the digital world and is protected by encryption technology. Here's a collection of quotes from the authors of The Sovereign Individual:

"Now, the advent of the Information Age implies another revolution in the character of money. As cybercommerce begins, it will lead inevitably to cybermoney. This new form of money will reset the odds, reducing the capacity of the world's nationstates to determine who becomes a Sovereign Individual. It will consist of encrypted sequences of multihundred-digit prime numbers. Unique, anonymous, and verifiable, this money will accommodate the largest transactions. It will also be divisible into the tiniest fraction of value. It will be tradable at a keystroke in a multitrillion-dollar wholesale market without borders."

Based on the above, it's safe to assume that The Sovereign Individual's authors envisioned Bitcoin that perfectly fulfills the purpose of the cybermoney described in their books. While a global network of validators maintaining its network, all BTC transactions are secured by public-key cryptography.

Although, we should note that Bitcoin transfers in their original forms are not fully anonymous. However, this pseudo-anonymity can be enhanced via various services – such as coin mixers, layer-two payment networks, or utilizing a privacy-focused cryptocurrency (e.g., Monero, Zcash, or Dash) instead. For that reason, it's safe to say that crypto offers much better privacy than fiat currencies, where transactions are regularly monitored by financial institutions and payment firms to report suspicious activity to governments.

At the same time, Bitcoin is entirely borderless. Its transactions can be easily verified on the blockchain, with the ability to divide one BTC into smaller units of value (satoshis).

With encrypted communications and cybermoney based on that, the nation-state will gradually lose its power to the sovereign individual.

For this reason, states will compete with each other to attract citizens who they would treat as their customers instead of employees. Unlike now, when they provide less value to the people under their jurisdiction, states will race to offer more benefits than their competitors for the sovereign individual.

Digital Nomadism and Passports in Tax Havens: How the Sovereign Individual Works in Practice

The last 10-15 years have brought quite some changes to individuals' lives that have paved the way for increased agency and autonomy. In previous sections, we have discussed Bitcoin, decentralized technology, encryption, and the upcoming (or ongoing) Information Revolution, along with their potential impacts on our lives.

In addition to the above, it's important to explore remote working and the rise of digital nomadism. 30-40 years ago, it was nearly impossible to do your job remotely. However, as almost 60% of the global population are active internet users and a massive infrastructure has been established on the web, freelancers, white-collar workers, and office employees now have access to the right tools to efficiently communicate and collaborate without having to be present in the office.

As a result, remote working has become a rising trend that has been further accelerated by the pandemic, which has forced many to manage their daily tasks from their homes. According to a Statista survey in 2020, 30% of the respondents stated that they worked at fully remote companies. At the same time, Upwork's study projected that 36.2 million Americans will be telecommuting by 2025, representing an 87% increase compared to pre-pandemic levels.

Indeed, we can safely say that a significant part of the world's population will soon become location-independent. For that reason, it doesn't matter whether you are located in Sydney, London, Hong Kong, or New York if you can submit your work to your clients or employer with the same quality.

And many in the world have capitalized on this fact to become digital nomads. These location-independent persons leverage technology to earn a living while living a nomadic lifestyle as they travel from one country to another.

For that reason, digital nomads do not only have the flexibility to decide how, when, and where they work but also when it comes to paying their taxes. While taxation is designed in a way that states can retain their control over their citizens even if they travel a lot, there are a few legal tricks digital nomads utilize to optimize their taxes. This is nothing new, but it does keep evolving.

While they can set up a business basically anywhere in the world, digital nomads can obtain a second passport in a nation that is a well-known tax haven. In addition to tax-related benefits, "stacking flags" allows digital nomads – and basically, anyone who is a citizen in more than one country – to prepare for unfavorable and unexpected scenarios, such as war, an economic collapse, a political crisis, or a natural disaster.

For that reason, people who live under dire circumstances and have the financial ability to purchase a second citizenship can take advantage of this service to move to a more peaceful and safe state with their families.

At the same time, holding a second passport allows individuals to legally bypass specific government measures and rules. For example, while some governments have prohibited residents from leaving the country during the pandemic, dual citizens were able to leverage their special statuses to travel to another nation in many cases. At the same time, a second passport could allow its holder to travel to more countries without a visa.

And, while individuals holding more than one passport could decide to move to a tax haven, they don't necessarily have to do this physically. Instead, they can change their locations virtually by staying in one country while enjoying the (mostly tax-related) benefits of the second.

Of course, this isn't a free service anyone can take advantage of. Tax havens offer fully-fledged citizenships and golden visas for individuals and their families in exchange for a hefty donation (ranging around $100,000 to $200,000) or a significant investment in real estate, government bonds, or other instruments the state seeks to raise funds for.

For that reason, this opportunity is only available for middle-class and high-net-worth individuals at the moment. However, as this model grows into a trend and increases in popularity, more nations are likely to join in the race to attract individuals by offering them a wide variety of benefits (e.g., lower tax, access to various financial and investment solutions, or even public goods) through a second passport.

And, this is the point where this service will become more accessible, as states will need to decrease their fees to outbid their competitors. Eventually, passport solutions could become available for many more people if this trend proves sustainable and maintains stable growth in the long run.

If that happens, that will be the signal of a successful Information Revolution where the sovereign individual becomes the dominant institution who sees the state as a service provider - one might still love one's country and culture, but as a world citizen such patriotism might expand to a broader definition of what constitutes the human family.

Bitcoin Paves the Road to Becoming Sovereign

If you check the headlines of media outlets, most news about Bitcoin is about its price action and how the cryptocurrency enables investors to earn money.

Indeed so, BTC is an instrument with a high growth rate as well as good store of value and safe-haven asset qualities, which makes it an attractive choice for investors and traders. However, if we take a deeper look under the surface of the cryptocurrency, we can see that it offers tremendous benefits other than wealth generation and potential profits.

In addition to enhancing human rights, Bitcoin, as well as the decentralization and the lack of a centralized authority that comes with it, have initiated a change in perspectives on a wide array of topics, including one's personal relationship with the world and its many jurisdictions.

Combined with technological advancements as well as the rise of remote working and digital nomadism, Bitcoin is the "cybermoney" envisioned by Davidson and Rees-Mogg that can potentially pave the way for the rise of the sovereign individual.

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