Are You Ready for Grassroots “Crypto Nations” ?

You might have seen that the Bulgarian government is having an adventure with Bitcoins seized from criminals.

The overall story is pretty sensational. But there are also a couple of interesting sideshows.

• One is that customs databases — like the ones the criminals hacked in the first place — would be far more challenging to hack (or hack at all) if they were on a blockchain. The hack involved tweaking the status of some imports to show that they had been inspected when they actually hadn’t. A classic case of manipulated information flows that blockchains have the potential to entirely eliminate.
• The second is how the media loved suggesting that the government could pay off a sizable chunk of its national debt after the value of Bitcoins skyrocketed. That has some interesting implications for how the relationship between governments and crypto might evolve over the next few years. Here’s why:

Currently, most governments’ relationships with crypto and distributed ledgers revolve around how much they should regulate it.

Can you blame them? Regulation is what governments do.

In this context, the most forward-looking governments appear to be trying to position their countries as “crypto nations.”

The cryptosphere is obviously a new phenomenon — but we don’t think this overall approach is anything new. Labeling your country as crypto-friendly (or anything-friendly) follows a pretty well-established “jurisdiction shopping” playbook.

In this playbook, governments compete with each other on the degree to which they legitimize a complex, somewhat risqué concept. Usually the goal is to benefit the overall economy somehow, which ultimately leads to revenue for the state.

Take international taxation. Having favorable tax rules might attract a business to register a company in one country as opposed to another one. That usually means the government and a local business or two get a few hundred or thousand dollars that they wouldn’t have had otherwise.

Consider a small Caribbean island nation as a stereotypical tax haven that many businesses wouldn’t think twice about unless they could save taxes by incorporating there. When someone does incorporate / manage a business there, the business pays a little locally and saves a lot internationally. That’s the theory anyway.

Cannabis is another interesting example especially in the USA. Certain states have legalized marijuana and others haven’t. If you want to get into this sector, it is obvious where you will go. Also consider that the US federal government has not formally legalized marijuana. How’s that for competition? :)

Similar story for crypto. Some nations have created crypto-friendly laws to attract crypto businesses. Even Belarus, which some observers have called the last dictatorship in Europe!

TLDR: Governments aren’t creating “crypto nations” because they like crypto. They’re doing it to help their local economies!

The next ____-friendly flavor might be something else in a few years.

We think that’s all well and good! When governments compete to attract more local business — not protect existing local business, though — everyone tends to benefit :)

But we think the real “crypto nations” will actually evolve that way from the ground up!

“Grassroots crypto nations” will have citizens and governments using blockchains for more practical reasons — whether or not legislation exists around it or not.

We’ve written before about how pain is a great crypto adoption driver.

So it should be no surprise that cryptocurrencies are growing in popularity in Argentina and Venezuela, for example, whether the local fiat currencies are notoriously weak.

These citizens don’t need permission to make their countries a crypto nation. They essentially just start using crypto as a currency.

In other words, it could be that we will think of “crypto nations” as countries where crypto is the default currency because:

• nobody trusts the local fiat,
• foreign fiat e.g. the US dollar is too easy to outlaw,
• or some combination thereof.

You will also see citizens using distributed ledger tech in other areas of their everyday lives because it just works better.

Think about a time when you agreed to something in a phone conversation and then said, “OK, send me an email just so we have this on the record.”

In a few years you may be saying something like “OK, send me a blockmail,” i.e. a blockchain-timestamped digital note. We’re not really sure how it will look yet :) But the point is that blockchain data is more tamper-proof (and will hold up in court better) than traditional email.

Similar story with governments themselves.

There might be “grassroots” demand for blockchain solutions from within governments themselves — simply because they get the job done.

Also in our article linked above, we mentioned that you can use Bitcoins to pay for Buenos Aires public transportation.

We don’t know exactly what went on behind the scenes for this arrangement, but we doubt that someone needed to write a law officially recognizing BTC as legal tender for public transport.

We’re guessing that in public transport — perhaps in contrast to other governmental services — there is a fairly clear relationship between revenue and services provided. Stable revenue was necessary to run regular services, and the BTC was far more stable than the peso. Voila! It is OK to pay in BTC.

We also predict that blockchain timestamping is coming to a government near you soon — because it will work better than ribbons and rubber stamps!

On that note, here’s another couple of ways crypto might enter the public sector from the ground up, when government workers just need something to work better:

• Tax documents and public benefits. Surprise! Governments care about raising tax revenue and making sure they don’t pay out more of it than they have to, especially to criminals. For example, tax refund fraudsters (like this guy, who ultimately figured out how the government spied on him illegally to catch him, but that’s another story) can make hundreds of thousands of dollars in the US. Putting these processes on a blockchain can almost completely eliminate this kind of crime.
• Sovereign wealth funds. These are one of the key ways governments invest to make money like private investors do. Private equity, public companies, venture capital, etc. It was basically a lucky accident that Bulgaria could pay off a third of its national debt by holding Bitcoins. Just imagine what they could do if they invested in cryptocurrencies on purpose!

We think it is almost certain that governments will start to consider cryptocurrencies as an asset class similar to real estate, private equity, or venture capital — all of which sovereign funds are already investing in.

Watch for smaller, fast-moving, and forward-thinking countries to do it first. Singapore appears to be getting close to doing so, for example, by investing in Coinbase.

Clearly, the BST should be on their radar :)

About BlockStamp:

BlockStamp is a multipurpose Bitcoin blockchain fork developed to promote liberty, transparency, and sovereignty in areas of the digital economy where these fundamental values are most at risk. BlockStamp hosts a radically fair gambling platform, a digital tool for transparently sealing data, a censorship-proof internet Domain Naming System, and the BST crypto coin.