top of page The Nation State in the Digital Age

TL;DR: Caught in the sweeping currents of the digital age, traditional concepts of nationhood and citizenship are being reshaped by the Internet's borderless nature and decentralized powers. With Palau's digital residency program challenging sovereignty norms and the European Union pioneering cross-border digital governance, we are witnessing the strain placed on the nation-state model. As digital norms increasingly shape our world, a profound transformation is required in our understanding of sovereignty, the exploration of novel governance models, and the maintenance of democratic values. Dive into this journey to understand how the digital age redefines national boundaries, and what implications it holds for our future global society.

The Internet.

From its inception, the internet was going to change the world. Even in its early years during the 1990s, there were those who saw the writing on the wall. Anthony Rutkowski, one of the pioneering minds behind "The Internet Society," pronounced in 1996 that the internet would "reshape our understanding of humanity." That same year, Netscape's then-CEO, Jim Barksdale, likened the internet to the "printing press of the technology era." Both predictions have proven remarkably prescient.

Barksdale's correlation rings especially true, drawing a line between the internet and the seismic influence of Johann Gutenberg's 1440 printing press. Just as the printed word sparked revolutions in religion and philosophy, the internet has become a conduit for the rapid diffusion of thoughts — only on a scale that dwarfs that of its ink & paper predecessor. And much like its predecessor, the internet has proven itself a formidable weapon for challenging the ruling order.

Embodying the same spirit that inspired Martin Luther to disseminate his criticisms of the Catholic Church throughout Europe, thus igniting the Protestant Reformation, the internet has consistently provided a digital platform for challenging authority. This spirit is evident in such acts as the release of the Panama Papers, the spread of WikiLeaks footage, and even the invention of playful memes that satirize the political elite.

There have even been instances where the internet has allowed us to sidestep legal constraints entirely. Looking for a film or video game but don’t feel like paying for it? Torrenting, the open data-sharing system, has your answer. Need access to a website or content blocked in your country? Virtual Private Networks (VPNs) can hide your location. Looking to engage in illicit online dealings? Some disreputable crypto platforms stand ready to oblige.

This is the heart of the issue: governments worldwide are struggling to reign in the wild horse that is the internet, but they're slowly awakening to the reality that controlling a decentralized global network is akin to catching smoke with your hands. This month, another chapter in this saga of digital defiance has been penned, this time with the tiny island nation of Palau taking center stage.

What Is Happening on Palau?

In a bold leap toward the future, Palau has made an intriguing offer: a "digital residency" for the modest fee of $248 per year. This residency grants both a physical and digital identity card. The unexpected beneficiaries? Crypto traders worldwide who have been exiled from their platforms of choice due to regulatory issues in their home countries. It appears these traders have unearthed a loophole: employing their new Palau IDs to unlock previously off-limits platforms, thus circumventing KYC restrictions.

Among the initial champions of this digital residency program was none other than Changpeng Zhao, the high-profile founder of the crypto exchange Binance. After its thorough due diligence, Binance chose to withdraw from the program, yet this didn't deter a U.S.-based trader from successfully accessing Binance with a Palau residency card. This is a curious twist in the ongoing tug-of-war between U.S. regulators and the crypto industry, especially considering American citizens are typically prohibited from using Binance within the U.S.

Both the Palau government and RNS—the firm tasked with managing the digital residency platform—have denied any underhanded motives. They maintain that they have no interest in facilitating crypto traders in evading their home countries' laws. Crypto exchanges such as Huobi and Kraken have corroborated that they have stringent controls in place to prevent Palau IDs from being exploited to bypass their verification procedures. Yet, the truth remains that Binance has 2,000 users registered with a Palau ID, and—as of the time of writing—Palau has amassed a notable 7,336 digital residents, generating over $1 million in revenue from the program. Notably, the technology underpinning this program operates on a blockchain network, the establishment of which was managed by Binance.

Why does this matter?

Digital residency—a phenomenon that permits "residency" in a country without ever physically being there—is a concept of growing significance in a world readily embracing the notion of "work from anywhere." A select group of nations, including Estonia, Azerbaijan, Portugal, Lithuania, Ukraine, South Africa, Georgia, Brazil, and indeed Palau, are at the forefront of this trend, extending fully realized digital residency programs. These are essentially residency visas that can be procured online, granting individuals and entrepreneurs worldwide access to these nations' unique business and tax climates, with no physical presence or citizenship necessary.

As the Internet persistently tests and remodels our institutions, initiatives like "digital residency" spur us to consider profound questions: What does sovereignty entail in the era of globalization and the internet? And how does the idea of the "nation state" adapt to this shifting landscape? While these queries might strike some as abstract, they are vital to our comprehension of not just the contemporary world, but the world that will materialize in the near future.

The "nation state"—a political unit with a sovereign government and defined borders—is a relatively novel concept, emerging with the Treaty of Münster in 1648 (named for the city, not the cheese). Before this, sovereignty was conceived in terms of kingdoms and individual city-states. So, while today I might identify as a citizen of the United States residing in New York City, in the medieval or early modern eras, I would have considered myself a “citizen” of New York City itself, a semi-autonomous region within the larger “Kingdom of New York.” We would have been fairly self-reliant and probably in a continual state of conflict with our much-loathed neighbor, the “Princely State of New Jersey;” our boundaries would have been constantly evolving and fluid, not rigid as they are today.

Our prevailing notion of the nation state, where sovereign power is drawn from a strict geographic region, wasn't designed for a world connected by a decentralized Internet, and the Palau-crypto loophole is a stark reminder of just how unready nations are to tackle this reality. In this context, Palau signifies more than just a small island nation. It is indicative of a larger global issue, with disjointed laws being challenged by a trend toward an internet-fueled, hyper-connected society teeming with digital nomads and cross-border commerce.

If we strive to uphold the rule of law, preserve efficient tax systems, and secure peace and prosperity, it's imperative for nations to reassess their conventional concepts of "nationhood." The future may necessitate us to perceive ourselves less as distinct entities and more as interconnected regions within a global community.

The European Union - a model?

To some extent, we have already witnessed an effort to adapt to the evolving world order with supranational collectives such as the European Union. The EU's framework of 27 member states embraces the natural fluidity of borders and cultures, adjusting to this with collaborative political, economic, and legal systems. The Schengen Agreement, for instance, permits passport-free travel across much of Europe, while the single-market enables the free movement of goods, services, capital, and people, notwithstanding significantly different national languages and customs. In the digital sphere, the “Digital Single Market” strategy aspires to unlock digital opportunities for individuals and businesses, and enhance Europe's role as a global digital powerhouse.

Additionally, the EU's General Data Protection Regulation (GDPR) is an audacious cross-border data privacy law that applies not just within the EU, but to any organization that processes the data of EU citizens, thus extending its digital sovereignty beyond its physical boundaries. This illustrates how the EU is striving to adapt to the realities of a digital, globalized world, using its collective strength to influence global norms and standards. Whether this proves successful remains to be seen, but it's undeniable that the EU is at least earnestly making an attempt, in contrast to other nations like China or the US, which appear to be stubbornly reinforcing centralized governmental power and their own established methods.

However, to give credit to other nations, the EU model is not without flaws, and this supranational form of governance has its fair share of critics. Detractors argue that the EU, in its present state, is relatively undemocratic. The European Commission, which proposes legislation and implements decisions, is not directly elected by the citizens of the EU. Furthermore, the EU's decision-making process is often perceived as nebulous and detached from its citizens, contributing to a so-called "democratic deficit". This can be partially attributed to the intricacies of administering vastly diverse nations under a single system, when democratically, these nations might disagree on nearly everything.

Moreover, the EU can be perceived as having an authoritarian streak. This is particularly apparent in its dealings with member states that breach its regulations. For instance, it has threatened sanctions against Hungary and Poland for their alleged violations of the rule of law, casting doubt on the genuine feasibility of creating a truly decentralized supranational system, when exiting nations states can so passionately disagree on matters such as government spending, immigration, and the role of religion in society.

In conclusion, the European Union, in its pursuit of supranational cooperation and integration, presents an alternative model to the conventional nation-state, one that seems more attuned to our progressively interconnected and digital world. Nevertheless, such a model must not forsake democratic values in the quest for more efficient inter-governmental collaboration, and must carefully balance asserting its collective power with respecting the sovereignty of its member states. As we delve deeper into the digital age, the EU's experiment may provide insightful lessons for how we conceptualize and structure our societies.

Where does this leave the nation state in the internet age?

As we navigate the complexities of the Internet age, it's evident that the traditional nation-state model is beginning to face substantial strain. The decentralized nature of the digital world, epitomized by evolving technologies like social media, VPNs, and cryptocurrency, poses significant challenges to the rigid geographic boundaries and centralized governance that have historically defined nation-states. Palau's digital residency program sets a compelling precedent, serving as a stark reminder of the Internet's capacity to challenge and redefine the parameters of sovereignty and nationhood. Governments worldwide are grappling with how to regulate this uncharted digital frontier.

While models such as the European Union offer glimpses of what future international cooperation might resemble, more nations must be open to supranational cooperation before such Schengen-like models can be established on a global scale. This transition implies that nations may need to forfeit certain cultural, social, religious, and even ethical norms in favor of a universal standard of "correct," or at the very least, be willing to allow individuals to freely migrate to areas of the world where the culture and laws align with their preferences. Though this seems like a tall order in 2023, history has shown that the future unfolds regardless of personal sentiments, and the connectivity established by internet-based systems is such a powerful force that it’s doubtful any nation could stand in its way.

In conclusion, as we delve further into the digital age, we're witnessing a transformative era that compels us to reevaluate and redefine the concept of the nation-state. The challenges and changes ushered in by the Internet are far from over, and if anything, are just getting started. The future might require us to adopt a more flexible understanding of sovereignty, citizenship, and nationhood. The traditional nation-state, designed for a world before the advent of the decentralized Internet, must adapt and evolve to maintain relevance. Experiments such as the EU and challenges highlighted by cases like Palau should serve as crucial guideposts in this transformative journey, not as aberrations that need to be suppressed to maintain the status quo.

As an ending note, consider this: In 2017, when the US was contemplating the banning of bump-stock devices, which could essentially convert single-action firearms into machine guns, a group of engineers demonstrated how easy it was to circumvent proposed laws. They showed that one could simply download a 3D printing file of a bump stock and create one at home. The young engineer who led this initiative told the media during an interview that even though the government believes it has control, "everything is different," because "we have the Internet now."

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