Great Protocol Politics

In a pair of recent essays, political scientist Ian Bremmer contends that Big Tech companies will reshape the global order, while FP columnist Stephen Walt’s friendly rejoinder is that states will remain predominant. We take a third view: Not only has technology already changed the global order, but it is also changing the nature of both companies and states themselves. The 21st century belongs not to China or the United States—nor to tech companies as traditionally understood. It belongs to the internet.

This is true for many reasons, of which perhaps the most important is the rise of decentralized protocols like Bitcoin and Ethereum that are controlled by neither states nor companies. To Bremmer’s credit, he does mention them, but he still underrates their importance. Many of the global technology firms’ weaknesses both he and Walt discuss—that they’re typically domiciled in the United States or China, that they rely on those jurisdictions for contract enforcement, that they don’t have a state’s political legitimacy, and that their exercise of power has already caused a global backlash—are addressed by the introduction of crypto protocols, which can safeguard property and execute contracts beyond the boundaries of traditional nation states.

But technology’s challenge to traditional geopolitics goes beyond crypto protocols, tech companies, and even digital space itself, as it has begun reshaping the physical world. Here are 10 ways in which we are transitioning from an age of geopolitics to one of technopolitics.

1. Network proximity is now on par with physical geography

Traditional geopolitics of the Mackinder school of thought concerns itself with the eternal location of territorial powers. Russia and Japan might have different ideologies over time, but their geography remains constant—or so the argument goes.

However, the internet is adding a new dimension to this. It is not merely a passive data layer that states enable and contest but a new kind of geography comparable in scope to the physical world. Think of it as a digital Atlantis—a new continent floating in the cloud where old powers compete and new powers arise. Within this cloud continent, the unit of distance between two people is not the travel time between their positions on the globe but rather the degrees of separation in their social networks.

This means anyone can put themselves near anyone else by simply following them on social networks or keep others away by blocking their accounts on those same networks—no plane ticket required. Any floating entity within this cloud continent can likewise attempt to interact with any other by pinging the right IP addresses, for the purpose of anything from transactions to cyber invasions—no preexisting proximity required.

Every citizen of the old world, provided they have internet access, can simply become a citizen of the new by telecommuting via their screens to spend a few hours in the cloud each day, as billions of people routinely do—no physical immigration required. Encryption serves as the digital equivalent of physical fortifications in the cloud, allowing any user to defend their digital property without resorting to traditional munitions—no physical force required.

Bottom line: Network proximity is now on par with physical geography, and basic geopolitical assumptions about citizenship, migration, power projection, and the use of force need to be rethought for the digital world.

2. National currencies will face digital monetary competition

Think about what happened with newspapers: First, they all went online. Then, Google News indexed them all. Last, local papers found that their geographic monopolies had evaporated now that it was no longer necessary to distribute physical newspapers via trucks.

A similar fate will befall national currencies. Already, national currencies compete with cryptocurrencies because individuals and institutions hold digital wallets filled with various assets that can be traded against one another. This will only accelerate once central bank digital currencies (CBDCs) are introduced. Every asset will be traded against every other asset in a gigantic table we call the “defi matrix” (defi is short for decentralized finance), including CBDCs themselves.

We are about to enter an age of global monetary competition, where national currencies must earn their place in someone’s wallet portfolio every hour of every day, even among citizens of their own countries. The digital version of the Japanese yen will be plunged into head-to-head global competition with the Swiss franc, the Brazilian real, and any other asset with an open capital account, including Bitcoin. Everyone becomes a foreign-exchange trader, all the time, and only the best national currencies—or cryptocurrencies—are ever held by anyone.

Rather than the current environment of unchecked inflation and competitive devaluation, the defi matrix imposes a new kind of discipline on national currencies, as billions of people make individual choices regarding which currencies to hold—or not hold.

3. The remote economy has created a talent market for citizens

Walt asserts that because proponents of stateless digital techno-utopias still need to live somewhere, a state ultimately has control over them. But in a competitive marketplace of jurisdictions where somewhere can be anywhere, no single government has as much authority as people think.

Places as varied as Estonia, New Zealand, Singapore, Taiwan, Portugal, the United Arab Emirates, and Chile are all vying for newly mobile talent through “nomad visas” and other similar programs. After all, many aspects of life are already in the cloud (like email, education, and e-commerce) and many others are partially digitized (like finance and foreign incorporation). Government is what economist Mancur Olson famously termed a “stationary bandit,” extracting rents in exchange for providing benefits.

But so long as people can afford to or are allowed to leave, they have more options than ever for a more hospitable host state. Just ask the 9 million American expatriates scattered around the globe, a figure that has doubled over the past decade. The Great Migration is on.

4. Bits are finally reshaping atoms

Over the last decade, entrepreneur Peter Thiel, developer J. Storrs Hall, and economist Tyler Cowen made compelling cases that digital technology had advanced while physical technology remained stagnant. But if we think about drones, robotics, self-driving cars, brain-machine interfaces, vaccine passports, gene-editing tools like CRISPR, and mRNA vaccines—as well as the return of nuclear power, the space race, and supersonic aircraft—we’re finally seeing a reinvigoration of innovation in the physical world. Once something works online, it can be printed out anywhere and scaled faster than ever before.

This is why Walt’s argument that states necessarily control the “physical environment”—a concept known as “territoriality”—may not actually hold: A government that doesn’t understand the digital may not be able to control the physical. Less capable states will attempt to maintain control by making futile, reactionary attempts to regulate emerging physical technologies back into the garage from whence they came while more capable jurisdictions will embrace them.

In other words, it’s short-sighted to think technology will remain indefinitely confined to the digital realm. States will need to reinvent themselves as masters of new technologies, both digital and physical—or fall behind and witness their best citizens leave for jurisdictions that do.

5. Cloud-based regulators are outcompeting state-based regulators

Traditional taxi regulators might do cursory inspections of medallion holders. But they do not regulate their drivers as aggressively as Uber, Lyft, Grab, Gojek, and DiDi do. That is, they do not GPS track every ride, ensure both driver and rider can complete a transaction, record star ratings from both parties, and use the full panoply of tools available to a modern “cloud regulator.”

In a real sense, these tech companies are more modern regulators than the paper-based models of the 20th century. As such, they’ve suffered significant backlash from legacy actors that want to preserve their control over the system, perhaps best exemplified by ongoing attempts to legislatively squash the square peg of the 21st-century sharing economy into the round hole of 20th-century lifetime employment.

This will prove a rearguard action, however.

First, these companies are, in important instances, already achieving state ends faster than the state. For example, GoTo Group, parent company of the ride-sharing service Gojek, now powers more than 2 percent of Indonesia’s over $1 trillion GDP, creating millions of jobs and bringing nearly 2 billion annual transactions into the taxable formal economy. This gives Gojek a…

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