Economics / Technology

Cryptosecession and the limits of taxation

We often hear about how federalism or ‘Tiebout’ sorting can limit government over-taxation. Taking this one step further some argue that the threat of secession or ‘internal exit’ has the same effect. And many steps further is the emerging phenomenon of ‘cryptosecession.’

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Cryptosecession is the use of cryptographic and blockchain-based technologies (e.g. Bitcoin, Ethereum, Bitnation) to economically secede from incumbent institutions—namely, the state. Jason is at the 2016 Public Choice Society conference at the moment, where he’ll be presenting a paper in which we show that the threat of cryptosecession exerts an even greater limitation on government over-taxation than fiscal federalism and political secession. Things aren’t altogether rosy, though, because this elicits a sort of ‘arms race’ between secessionists and the state. All depends on the ability to secede to the ‘crypto economy’, which in turn depends on the relative development of crypto technologies of opacity (or resistance) versus state technologies of legibility (or control).

The paper can be viewed here and slides for the talk are here. Below is the abstract, and a couple of slides that sum up the argument:

Abstract: This paper presents a model of partial internal exit that captures the competitive dynamic between incumbent and potential governments in a non-territorial political system. This model particularly applies to the case of ‘cryptosecession’ that appears the most likely avenue for non-territorial decentralisation to ever eventuate. It demonstrates how fiscal exploitation is reduced and eventually eliminated as the capability of citizens to move to non-territorial jurisdictions increases. When interpreted as a model of cryptosecession, it shows how the balance of citizen opacity and government legibility determines the balance of fiscal exploitation versus equivalence.

Keywords: Non-territorial, jurisdiction, secession, internal exit, cryptoanarchy.

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