Ethereum: A permissionless sovereign jurisdiction

• Authors: Cryptodiario, foobazzler

In Ethereum: the Ultimate Coordination Technology, it was postulated that only as a sovereign digital jurisdiction and global economic power, could Ethereum achieve its full potential as the world’s premiere coordination infrastructure, and that in this reality, ETH (the asset) could become a premium store of value and an international monetary reserve.

In this short essay we propose to delve into the relationship between the concepts of sovereignty, property and DAO, and its relationship with Ethereum as a sovereign digital jurisdiction — that is, as a new type of political-social organization and a sovereign subject of international law.

The word sovereignty is defined as the right of an entity of political nature to exercise its power over a space (territory) and subjects (people), who are ultimately the source of its legitimacy. This power is exercised through a series of mechanisms, of which the laws have the most prominent role. The concept of “sovereignty” and the jurisdictions that have embodied it throughout history have been subjected to a process of constant evolution. In traditional definitions, a sovereign entity acts on a physical space, and is constituted / exercises its agency over natural persons: subjects, citizens.

In the case of Ethereum (and that of other emerging digital nations) the sovereignty space is digital and its constituent subjects are voluntary participants (users, validators, programmers, investors). Unlike what happens in the real world, they do not encounter barriers (immigration laws, transit visas, naturalization processes) that regulate / limit participation in a sovereign jurisdiction. Digital nations (network states) are permissionless: participants can enter and leave these spaces freely; they can be part of them for as long as they desire and in a non-exclusionary way since participation in one does not prevent participation in others.

Everything is a DAO

To analyze the emergence of Ethereum as a sovereign digital nation and autonomous digital jurisdiction, it’s essential to accurately understand the concept of DAO. A concept as elusive as that of sovereignty, that Vitalik Buterin manages to brilliantly break down in: DAOs, DACs, DAs and More: An Incomplete Terminology Guide.

In his article, Vitalik defines a DAO as an “entity that lives on the internet and exists autonomously, […] a DAO contains some kind of internal property that is valuable in some way, and it has the ability to use that property as a mechanism for rewarding certain activities. DAO still requires heavy involvement from humans specifically interacting according to a protocol defined by the DAO in order to operate ”.

If we trascend the strictly economic dimension, and approach the topic from a philosophical, legal or political point of view, we can consider a DAO as a social contract between participants that leads to the definition of a (digital) space in which exchanges of all kinds occur (with a prominent role for economic ones). This contract, instead of being expressed via a set of laws, is encoded using a programming language which defines a protocol.

Hence, DAOs are essentially social coordination mechanisms, and all crypto protocols ultimately will present themselves as DAOs — either explicitly or in a de facto fashion. Obviously, this does not mean that all DAOs will act as sovereign digital nations: only those that present a consensus layer built-in in their protocol (base layers) will do so.

The difference between sovereign and non-sovereign DAOs (with the latter lacking political autonomy, but with the ability to navigate different digital jurisdictions and develop enormous economic power) will be transferred to the terrain of governance systems. It is likely that sovereign DAOs will tend to present non-formalized off-chain governance systems (such as the “rough consensus” approach taken by Bitcoin and Ethereum developers), while non-sovereign DAOs will opt for formalized on-chain governance systems (protocols such as Aave with built-in voting mechanisms). Both models will coexist and be successful.

Sovereign digital jurisdictions

As we have already mentioned, the concept of sovereignty is somewhat elusive and not easy to define. That’s because it is the result of a complex process of historical evolution since the Middle Ages. However, there are some distinguishing features that are usually present in most definitions of sovereignty as a philosophical category. One of them is that of authority.

According to Daniel Philpott in Sovereignty: An Introduction and Brief History, authority is “the right to command and correlatively, the right to be obeyed.” This authority is considered legitimate when it is anchored in divine law, tradition, consent or mandate, and when those subject to it generally endorse it. The concept of legitimate authority within a sovereign jurisdiction is therefore fundamentally different from that of power — an element that has always been a focus of concern for crypto communities since the advent of Bitcoin, hence the emphasis on decentralization and censorship-resistance.

Now, coming back to some of the references with which we opened this article, sovereignty has traditionally been understood as authority within a differentiated space, delimited by borders. Territoriality is accompanied by supremacy, and this supremacy would not exist if there was something or someone capable of challenging it. Therefore, sovereignty is the supreme and legitimate authority within a territory.

In the case of Ethereum and other emerging digital nations, we speak of the supreme and legitimate authority of the protocol within a territory that is digital in nature — an authority that is supreme because it cannot be contested by external elements, and legitimate because it is born of consent of the community. It adopts the role of a kind of legal corpus, containing mechanisms by which norms can be updated. All these attributes are present in political subjects that we traditionally consider sovereign and that enjoy legitimacy.

But there is another concept rooted in the classical liberal or libertarian tradition, that is paramount to understand what sovereignty means in the case of Ethereum, and which is related to one of the properties that according to Vitalik every DAO must present: internal property.

The link between property and sovereignty has a long history. During the Late Middle Ages various territories were effectively treated as personal possessions of monarchs to the extent that entirely new states emerged purely from dynastic unions. John Locke even claimed that there was a natural link between the idea of ​​self-ownership, private property and the scope of a legitimate government authority.

In the 18th century, Jean-Jacques Rousseau took the idea of ​​sovereignty in a different direction. Sovereignty for him stemmed from a community, with each citizen being simultaneously sovereign and a subject at the same time. This Roussonian concept of sovereignty had a positive impact, it would be one of the seeds of the French Revolution and would influence the emergence of modern democracy. But it would also allow multiple abuses since, in the name of the will of the majority, irresponsible attitudes would arise and the rights of minorities would be trampled.

Ethereum combines as a sovereign jurisdiction the best of both traditions, advocating for a strong communitary ethos without sacrificing individual liberties or oppressing minority groups.

Ethereum: a DAO based digital nation and sovereign jurisdiction

In 2014, Vitalik considered Bitcoin some sort of imperfect DAO as a result of it not being smart enough. Ethereum is the definitive DAO, because thanks to its expressiveness and its turing-complete nature, is able to host a complex economy like those of the meatspace — effectively acting as a digital nation and full jurisdiction.

As we have pointed out throughout the article, the concept of nation is inseparable from that of agent / agents depositories of sovereignty — and the case of Ethereum is no exception. Now, if sovereignty was traditionally exercised over a physical space, and in certain cases as a form of property (e.g. the medieval sovereign as the owner of a territory and maximum authority), in a DAO based digital nation like Ethereum sovereignty is exercised over a digital space by all its members (as participants and owners of the network).

This means that digital nations like Ethereum draw as much from the Roussonian tradition (in the absence of a monarch or autocrat, sovereignty belongs to a collectivity), as from the Lockean tradition where there’s a natural link between sovereignty and property. In a digital nation, agents that are the source and target of sovereignty, are neither subjects nor citizens with rights obtained through birth or naturalization, they are users and owners of a network.

Unlike traditional nation-states, in permissionless networks such as Ethereum sovereignty is a much more flexible and inclusive concept. These networks allow communities to avoid the pitfalls of Rousseau’s theoretical framework by giving an oppressed minority the ability to fork (self-determine) or migrate to another sovereign digital space without the violence or friction that such a move would entail in the real world, with the community’s political will ultimately determining whether these splinter communities end up becoming sovereign jurisdictions or not.

Just as the emergence of supranational political entities (e.g the EU) have altered the trajectory of nation-states in the 20th century, sovereign digital jurisdictions such as Ethereum will mold the future of an increasingly hyper globalized and financialized world. How exactly this sovereignty-sharing between political and digital jurisdictions unfolds remains to be seen.