Set Sail for the Blockchain Republic

Founding a digital nation using smart contracts

In my previous article I wrote about how smart contract technologies can help us build societies which are fair, transparent and just for everyone involved. One of my colleagues who read the article was worried though that something like that will take a long time for governments and nations to adopt. It’s possible that certain people who stand to lose will even attempt to stifle progress towards adopting blockchain technologies on a larger scale.

“What if we could found a new country ourselves?” my friend asked. “We could start a digital country that exists on the blockchain and whose governance is overseen solely by smart contracts.”

I didn’t know what to respond at first to this idea. We started discussing how a group of people could hypothetically start their own country whose laws are codified into multiple smart contracts. Before I describe this blockchain country, keep in mind that, even though the idea is far fetched and difficult to implement in practice, it’s still important to understand and explore. Just like Plato’s Republic, it should serve as the ideal to push for and encourage within our own countries.

The Blockchain Country Foundation

ICOs (initial coin offerings) have certainly caught on in the blockchain world. In an ICO, an organisation raises funds using a smart contract. Investors make a deposit of ether (or other currency) into the smart contract and in return they get a token. Traditionally, this process is comparable to an IPO where investors gain a company share. Eventually, the aforementioned token holders will be able to make good on their investment by collecting dividends or selling their token… provided the company does well.

Naturally, a new country will require funds to start off and holding an ICO is a great way to do this. We will have three main smart contracts initially

  1. Founder Tokens: Founder tokens are issued to anyone who makes a deposit into the ICO contract depending on the value of their investment. Anyone who owns a founder token forms part of the country’s Foundation. These founder tokens are akin to government bonds where a country raises funds and promises to repay the bonds back some time in the future. The founder tokens can be sold and transfered like any other bond and interestingly, the bonds are not necessarily held by the citizens of the country that issued them.
  2. Citizenship: Anyone who holds more than a certain threshold of founder tokens at the end of the ICO will become a citizen of the new country. A smart contract is deployed that defines what it means to hold citizenship and what rights having such citizenship confers. Citizenship, unlike founder tokens, is non-transferable. Perhaps, the most important right conferred to citizens is to submit and vote on proposals. Proposals, in this case, are Ethereum transactions such as deploying a new smart contract, executing an operation on an existing smart contract or transferring ether.
  3. Treasury: All the collected funds will be deposited into the Treasury smart contract at the end of the ICO. The Treasury is completely controlled by the citizens through the Citizenship contract mentioned above. Payments from the Treasury can, at first, only be executed by majority approval from all citizens (through proposals).
Founding the Blockchain Republic

Through the use of smart contracts we immediately gain the benefits of accountability and transparency. Since the smart contracts have been written to allow outward payments only by majority approval of the citizens, no one, and absolutely no one, can take the funds unilaterally nor can anyone maliciously prevent citizens from voting.

Governance Structures and Proposals

The citizens of this fledgling country will soon realize that having thousands of people attempt to vote on every single proposal is difficult and time consuming. It’s also possible that people who are not interested in certain proposals choose to ignore said proposals and abstain. In traditional countries, a smaller subset of citizens, typically forming a Parliament, will be chosen to manage the country’s governance.

Two new smart contracts could be written up as follows:

  1. Parliament: Defines what it means to be a member of parliament. Allows parliament to submit and vote on proposals on behalf of all citizens. To encourage parliament to do their job well the citizens could chose to award a decent salary from the Treasury to the elected members (see the Employment Agreement smart contract in my previous article). No parliament lasts for ever and the smart contract will even ensure that no member keeps their voting privileges beyond the agreed term.
  2. Elections: Defines how often elections are held, the voting system that is used, the process used for citizens to become election candidates, which citizens are allowed to participate in elections and so on. In particular, the Elections smart contract is NOT under the control of the Parliament smart contract so that parliament cannot simply change when or how elections are run.

Notice that the original Citizenship smart contract is untouched and all citizens can still submit and vote on proposals. What’s impressive in this system is that the Parliament smart contract derives its power (to perform transactions) from the original Citizenship contract. Just as the citizens have decided together to create Parliament they can just as easily decide to remove it if things were to get out of hand. The citizens can also tweak Parliament to give it control over certain smart contracts but not over others (in our case, Parliament does not control Elections).

The Ethereum platform will enforce all the behaviour that is programmed into the smart contracts defined above. No one will ever be able to wrestle power from the citizens themselves. In the future, blockchain systems will be the technology that will make our democracies truly impenetrable.

Some initial contracts deployed by the Blockchain Republic

Land Ahoy!

Now that the Blockchain Republic has a parliamentary democracy to call its own, perhaps the first thing the members of parliament could do is look for a nice little island in the real world to call home. Unfortunately, it appears that there are no unclaimed islands in the world so Parliament will need to negotiate with an existing country and purchase jurisdiction over an island.

Once the payment is ready to be made, Parliament votes to release the necessary funds from the Treasury and the money is transferred directly to the seller country (without using middlemen to transfer the funds). This is a great example of how blockchain technologies can interact with the real world. The process is made even easier if the money involved is a cryptocurrency like Bitcoin or Ether.

From this point forward, it is up to the citizens to forge their own destiny but perhaps some things they might want to do to get started are:

  1. Property register: Split the land up into plots and auction off plots to the citizens. The plots are held as blockchain assets similar to other Ethereum tokens so that people can simply transfer their property using a blockchain transaction. The auction process is also performed using a smart contract so that it is immune to tampering and is fair for everyone involved.
  2. Tax schemes: The initial funds will eventually run out. The Blockchain Republic could collect tax using a smart contract which ensures that the tax calculations are fair and that the tax collected goes into the country’s Treasury without using middlemen. This should eliminate problems related to misappropriation of funds.
  3. Company registers: Regulate how people perform business in the country, how companies are opened and liquidated, etc. The Blockchain Republic would provide a number of services to companies registered under its jurisdiction as long as these companies pay taxes using the tax contracts mentioned above.
  4. Courts of law: There will always be things that cannot be regulated using smart contracts. In particular, breaking the law in the physical world (for example, damaging someone else’s property) cannot be punished using a smart contract. Instead, a court of law can be defined using a smart contract. Judiciary powers are then assigned to competent people who will be able to make decisions in cases like these. Notice that just like the Parliament, the contract mentioned here derives all its power from the initial Citizenship contract.
  5. Financial services and exchanges: The country could set up a decentralized stock exchange and also define what it means for a company to be a credit facility, financial institution or bank. In particular, notice how the country could force a bank to use blockchain technology to conduct its business ensuring that everything done is above board and transparent. Loans could be regulated through blockchain smart contracts where a borrower must pay their loan back or lose their security deposit (which could be a property on the Property Register mentioned above).

I could keep going but the list is never-ending. Instead, how about you pop down to the comments section below this article and write your own ideas? What kind of smart contracts could the Blockchain Republic deploy?

Identity and Democracy

Even if what we discussed is difficult to achieve in practice, it does expose some problems in the general Blockchain Ecosystem that will hopefully be solved in the near future. Firstly, users on a blockchain system are identified using simple cryptographic keys. The problem is that it’s difficult to associate a key with a real world, physical person. Unless this problem is solved, it’s possible that a single person obtains multiple citizenships by creating multiple cryptographic keys.

The second problem, and perhaps the more crucial, is the high barrier to entry: explaining smart contract technology to people is very difficult. Smart contract users need to understand how to create and execute transactions. I expect the technology to become easier to use as time goes by but I do believe that, as software developers, we need to focus on explaining these concepts to people who have less experience with blockchain technologies.

It is time to upgrade our governance structures around the world to make them more accountable to the people they serve and transparent in their function. I hope this article has helped you gain some insight into how blockchain technologies are indeed this era’s tools of democracy.

Kyle is a software developer, based in the sunny island of Malta, with experience in financial and betting systems. More recently, he has delved into the world of blockchain, specifically the Ethereum platform and smart contracts. You can see Kyle’s work, including some smart contracts written in Solidity on GitHub.