In Status as a Service, Eugene Wei offers two initial premises as the basis of his exploration.

• humans are “status seeking monkeys”
• humans will look for the path of least resistance to acquire status

His article (and it’s 51 pages long) centers primarily around the dual axes of utility on the one hand and social capital on the other.

Utility and Social Capital

The ideal is to be both a high utility item and offering high social capital, of course. Neither is death and if you start off with high social capital, you had best make sure that you offer utility for when the social capital (an asset that can be monetized) of your product is reduced.

Facebook is a good example. Initially, back in 2004, it offered utility (the ability to look up other Harvard undergrads) and social capital (you had to have a Harvard, then an ivy league, then a .edu account in order to sign up).

As it expanded, the people who got on first increased their social capital because they were able to get more friends (as people would often recruit their friends), who then would see more of their posts, providing more feedback loops (likes and shares), which would further increase their social capital.

However, as Facebook grew, the algorithm started to favor those with high social capital already, which, in effect, made the rich richer. The problem then becomes for those for whom the social capital bump isn’t as high. While Facebook has some utility (e.g. you can look people up and maybe you prefer messenger), there’s not enough to make it a daily requirement for many people and thus, for the first time ever, last quarter, daily usage went down.

So, where did those people go?

Well, according to Wei’s article, they are migrating to other platforms (like Tik Tok) which offer more of an opportunity to gain social capital more effectively.

But, it occurred to me, it’s not just social networks that compete.

Crypto networks and nation states are now in a similar competition as well.

Crypto Networks, Community, and Brand

If you’ve been in the crypto space for a while, one of the terms you hear the most is “community.”

That’s because pretty much EVERYTHING else is either a commodity or open source. The hardware that supports the network, the software, the tokenomics. What’s different for each network is the sense of identity at the so-called “Layer 0.”

So, the critical question for crypto networks is how to create a sense of tribal belonging for the community, maintain enough utility, AND provide enough avenues for people to obtain increasing, but meaningful and not cheap, amount of social capital for their contributions to the community.

The tech is table stakes. It just had to work. The community is the brand.

And with “open borders” between any and all crypto networks, brand becomes even more important.

Nation States Competing

And, in an ironic twist, the open borders that the Web3 (and parts of Web2) enabled have enabled people to be more and more location-independent, something that was accelerated by Covid.

Now, some nation states realize that they are in a global war for talent and seeking to create differentiated offerings to woo the best and brightest to their domains.

Estonia has offered e-residency, Portugal has a “golden visa,” Bermuda is making a crypto play, as is El Salvador, something which Puerto Rico has already done.

These moves are each designed to bring the most desirable citizens into their community, their tribe, to the point where nation-states, which the WSJ says need to be “long-lived”, are no longer going to be ethnically or religiously oriented, but values oriented.

Essentially, just like in crypto, nations will offer up a series of “values” that define their rules/law within their territorial boundaries (leaving aside the totalitarian/authoritarian ones) and people will have the incentive to go to the country that most aligns with their values.

This leads to an environment where people feel aligned with the country and with others there who share those values, which, just like in crypto, is going to result in economic benefits accruing to everyone and, hence, greater status, the way that people used to look at Americans, sometimes look at Germans, and still look at the Swiss.

Competitive Social Capital Games

In a world of open tech, permissionless networks, and money that is independent of the nation-state, we’ll see a new type of nation-state and a new type of citizen emerge.

I don’t know what it will be, but I do suspect it will be quite different from what we have today.