I get this question from time to time and I want to give a really detailed answer. First of all, what can a crypto state do this or next year? Protect its citizens in the real physical world? No. Crypto states have no power resources. Can crypto states protect their borders? Again, no. A crypto state can issue laws but it has no power to force people to abide by these laws. The only punishment crypto states can impose on those users who violate the laws is to ban them from the system. If the system is quite popular, this kind of punishment may be effective.
I’ll give an example: I know entrepreneurs who run their business on Facebook. So, if Facebook bans them, it’ll result in a serious damage to their business. As a result, these guys pay close attention to the content they publish on Facebook, YouTube and other social media. At the same time, it’s quite the opposite in the crypto community – most of its members like to violate rules. Any crypto network, including Bitcointalk, is actually weak and small. Its rules are easy to ignore and violate. So, what will actually happen if we try to build a crypto state based on such foundations? It will end up being simply a pastime for a small group of people who like to write laws.
What do we need to build a real functioning crypto state? How can we build a crypto state where ban is a serious punishment? The answer is: we have to create a large marketplace. Why a marketplace? Because the only thing a crypto state is able to control at the moment are transactions between private individuals and/or companies. For this purpose, a crypto state should issue laws to regulate how the transactions are made. However, there is no point in doing all this if the number of transactions is small – it is no big deal if you get banned on a website that does not bring you money. No biggie.
Consequently, we have to create a large and busy marketplace before creating a crypto state. But this marketplace will be valued and respected only if there are dozens or even hundreds of millions of customers. Unfortunately, we do not have so many crypto holders just yet.
I’m really fascinated by the idea of a crypto state myself and it is my dream for it to appear. But let’s be honest – it is too early for it now.