The article was originally published at venturebeat.com on August 19, 2018.
With blockchain-based technologies promising to disrupt nearly all areas of the global economy, I wonder what impact they will have on the global political scene and how we interact with our governments.
The main functions of government include taxation to fund public services, protection of citizens, and social welfare. All of these functions will be transformed by blockchain technology because the distributed independent ledger and smart contracts provided by the technology will enable governments to dramatically improve how these functions are organized and performed.
Indeed, blockchain opens the door to an ideal democracy. Voting will be transparent; government decisions will be based on facts; smart contracts will replace armies of clerks; information that needs to be open will be automatically disclosed, governments will be able to collect taxes in a more reliable way, and taxpayers will know where their money goes; the cost of government services for citizens will drop; and it will be possible to enforce the correct distribution and delivery of services and funds, prevent fraud, and so on.
For example, social welfare has historically been one of the most inefficient areas of government management, with overhead often eating more public funds than is spent on the social programs themselves. One key reason is that governments often fail to keep robust and transparent registers of the people in need and the benefits being distributed. Blockchain solves that problem.
Automation in general and distributed trusted networks (blockchains) in particular will increasingly be incorporated into various government functions, eventually reaching a level that can be called “homeland-as-a-service.”
The homeland-as-a-service model
Fundamentally the homeland-as-a-service model implies it is ok to ask what your country can do for you — countries will have to begin to compete for the most qualified citizens by delivering better services and such advantages as a strong economy, a fair legal system, and robust social welfare programs. If the services are not competitive, people can shop around for alternatives. Blockchain is critical for this model to come to life, because distributed trust replaces the centralized authoritarian controls systems used by governments.
The ideal homeland will be the one that provides the most competitive economic advantages and public services for its citizens, regardless of their country of residence. Therefore, the homeland-as-a-service model will enable everyone to enjoy the benefits now offered exclusively to rich people, such as picking their digital citizenship based on their goals and the services provided by the various governments.
For instance, free workers looking to save on taxes will be able to pick a country that offers low taxes. They can be residents of one country, work in another, accumulate savings in a third, and spend their money anywhere at all — just as billionaires already do today.
The change is already here
Though all this is possible, it will take 20–50 years for the underlying technologies to go mainstream. How will blockchain change governments in the more immediate future?
The idea of a distributed homeland-as-a-service model is scary for many large governments like the U.S., the EU and China. For them, it raises the specter of organizational chaos, loss of tax income, currency volatility, money laundering, and threats to the status quo. Just as traditional taxi services fear and despise Uber and Lyft because of the convenience and quality of the services provided by their private workforces, many government officials consider blockchain an evil force of chaos.
The disruption of governments globally will be driven by small countries looking for a competitive advantage to attract taxpayers. The era of blockchain represents a great opportunity for them: In a world where countries compete for citizens, they are much better positioned because of lower bureaucratic overhead. They have nothing to lose but a lot to gain from embracing the homeland-as-a-service model: new sources of income (new investors, cash flows, and services), stronger local currencies, and a cheaper infrastructure for government institutions.
In fact, some governments are already testing the waters. Belarus is doing a big pilot project to attract blockchain startups by offering them tax-free ICOs, and Estonia is building a “digital society,” using blockchain to enable a new kind of citizenship and to provide a host of social services to its population.
Whether or not these first cases work out, they establish valuable precedents, and other small countries will soon make moves to disrupt the current citizenship model. Once there is a critical mass of countries with viable citizenship offers, larger jurisdictions will have to accept the new reality to stay competitive. My wild guess, based on the adoption cycle for new technologies and the change of generations, is that by 2030, at least 20 countries will have launched their own versions of digital governments and tax benefits for free workers. Once their offers are available to every free worker in the world, millions of government bureaucrats will have to pack up their stuff and retrain as yoga teachers.
The global economy and geo-political landscape will be changed completely.
Pavel Cherkashin is a cofounder and a managing partner at Mindrock Capital and a managing partner at GVA Capital. A former angel investor and entrepreneur, he now invests in cryptocurrency, artificial intelligence, blockchain and self-driving tech.