Digital Countries and Fourth Culture Kids
Discover how token-based digital networks, framed as Digital Countries, are shaping a new generation of "Fourth Culture" kids.
Whenever I travel, I often find myself observing and reflecting on the similarities between each destination’s economic system and token-based digital networks (e.g., Bitcoin, Ethereum, etc).
The conclusion I find myself often coming to is that token-based digital networks are essentially Digital Countries. Using this as a guiding analogy has been a useful framework for structuring my thinking, intuition, and guesses around how the digital asset sector may develop at a macro level.
Countries with Traditional Borders
From a macroeconomic perspective, a simplistic definition of a traditional “country” is a collection of transactions where:
Transactions are defined as exchanges of goods, services, financial assets.
Exchange is denominated in a particular unit of account/medium of exchange (fiat).
Boundaries are drawn to “group” the transactions based on geographic/national borders.
Participants within a defined boundary are required and/or incentivized to operate under a common set of rules (e.g., laws).
Following this characterization, token-based digital networks are not conceptually different from traditional countries.
Countries with Digital Borders
Rather than grouping transactions (and the common rules governing them) based on traditional borders (e.g., geography), token-based digital networks are bound by digital borders (e.g., geopolitics, belief systems, etc), thus giving rise to Digital Countries, where:
A network’s native payment token functions like a domestic currency in traditional countries, which are at minimum required to:
Settle the country’s native liabilities/taxes [transaction fees].
Purchase the country’s natural resources [compute/block space].
A network’s native governance token functions like a passport in traditional countries, allowing for active participation in the country’s political process [DAO voting].
Like traditional countries, native payment tokens are subject to:
Monetary policy [initial token generation/subsequent minting and burning].
Fiscal policy [grants of various network tokens].
Reserve management [treasury management of network tokens].
When traveling into the country, “spending locally” often requires the foreign exchange of currency for the local currency [payment tokens].
Some digital countries may use a bridge currency like the USD [stablecoins] to settle day-to-day transactions if their local currency is not as liquid or widely used.
Bilateral Opening
Taking the Digital Country analogy further, we could interpret digital asset sector developments of 2024 as a series of initial current/capital account openings (from a macroeconomic balance of payments perspective) between both Traditional and Digital Countries. Similar to gaining entry into the WTO for previously closed economies, various initiatives to open up Digital Countries—such as the conceptual equivalent of trade agreements, FDI agreements, and investment corridors—have emerged globally to varying degrees:
Tokenization via RWAs/Stablecoins onto public chains => Opening of a traditional country’s capital account to digital countries.
De-tokenization via ETFs into existing financial systems => Opening of digital countries’ capital account to traditional countries.
Continued regulation and licensing of token on/off ramps and custody => Building fit-for-purpose financial market infrastructure to move capital between the two types of countries.
Framework for Analysis
If the analogy of Digital Countries is directionally correct, it would make sense for society to treat these new networks in a similar way to how traditional countries are viewed. This means using familiar language, framing analyses, and conducting interactions with these networks based on more classical macroeconomic frameworks and concepts (appropriately adapted). For example:
What does the balance of payments for a particular Digital Country look like (vis-à-vis token flows paired against other tokens/fiat)?
Who are the largest trading partners of a Digital Country (vis-à-vis on/off chain and cross-chain interactions), and what type of trade relationship do different countries want to have with each other?
Which Digital Countries see the largest immigration, and how many are acquiring citizenship/passports (vis-à-vis governance token dynamics)?
How dollarized is the Digital Country (vis-à-vis stablecoin dynamics in the network)?
Based on the above considerations, what should the FX Reserves Portfolio of both the Digital Country (i.e., Token Treasury) and Traditional Country (i.e., National Digital Asset Stockpile) be composed of to effectively grow the economy?
Introduction to the “Fourth Culture” Kids Substack
The motivation for starting this Substack stems from a desire to explore new token-based digital networks by framing them as Digital Countries. Their rapid emergence is a groundbreaking phenomenon, presenting both significant opportunities for those who can adeptly navigate, and inherent risks for those who cannot.
As more and more people engage with Digital Countries, which are not confined by traditional borders, a new type of global citizen emerges: the "fourth culture" kid.
This concept builds on the idea of third culture kids, who grew up in a blend of cultures due to globalization. Fourth culture kids are further shaped by their active involvement in digital communities spanning across various token-based digital networks.
This shift signifies the next evolution in our global society, offering fresh perspectives on identity, community, and economic participation in the digital age.