Taiwan has found itself in recent decades on the losing end of geopolitics. Since getting ejected from the UN in 1971, it has found itself subsequently shut out of global organizations, such as the WHO and the International Civil Aviation Organization, and retains diplomatic recognition from just a handful of small nations.
The reason for this is simple: There is a very large and influential third party intervening against Taiwan’s participation in such centralized organizations, where voting and veto power are closely held by a small number of actors. Although Taiwan has flourished economically during this time through trade links with Western markets and with China, its global status has diminished tremendously during the past five decades.
Taiwan should turn this slow-burning crisis into an opportunity by advancing a vision of sovereign relations that moves beyond the one that has held sway since the Treaty of Westphalia in 1648. Forced at gunpoint by European (and later Japanese) nation states who earlier made the transition from traditional monarchy to modern administrative states, China shook off the torpor of agrarian feudalism and replaced empire with republic, falteringly in 1911, and more durably in 1949.
With the zeal of the newly converted, China is now the staunchest defender of the Westphalian order, just as Britain and the US have begun to deconstruct the world order that they have built over the past two centuries. Taiwan should not play this tired old game.
The networking of billions of individuals, organizations and machines through the Internet, and more recently, through blockchain technology, presents an opportunity for Taiwan to advocate for, and effect, a new world order. Logically, there are no intermediaries nor central points of control on the Internet, just one IP address communicating peer to peer with another.
Blockchain adds another layer of capability on the Internet by allowing the enforcement of state and contracts, once again without intermediaries or a central point of control. China, which prizes control within its borders, has walled itself off in both the Internet and blockchain worlds. With no single point of failure, the Internet and blockchain technology have thrived worldwide even without China.
The enforcement of policy, and even more remarkably, of state, across the decentralized Internet is accomplished by blockchain technology through the clever utilization of cryptography, a branch of applied mathematics. Although encryption (and decryption) is the canonical function of cryptography, most blockchain protocols typically do not employ encryption, instead relying on cryptographic hash functions and public key certificates to accomplish their mission.
On the Ethereum blockchain, 30,000 entities (called nodes) agree on a common monetary policy, how much wealth each party has and what contractual relationships have been entered into by each party — all accomplished through cryptography and without a central arbiter. This is arguably more than the UN has accomplished in 70 years.
Cryptographic functions like hashing and encryption have a salient feature called one wayness that is advantageous for the weak. Anyone can encrypt a message with a public key, but even state-level actors find it difficult to decrypt without the private key.
It is likewise straightforward to compute the hash of a message, but computationally infeasible to reverse engineer the input of a hash function given its output. Such cryptographic primitives, along with economic incentives, are what allow blockchain protocols to achieve consensus among participants, even when there is no central coordinating body.
With consensus, any entity, no matter how large or small, abides by the same rules, thus automatically favoring weaker parties.
Today, Taiwan is one of those weaker parties and should embrace this opportunity to use cryptography to level the global playing field for itself, as well as other disadvantaged entities.
While being relatively small, Taiwan nonetheless possesses the technical capability to harness cryptography, as well as the financial and institutional infrastructure to map it to the real world.
In Asia, it can fill the void left by China after its government acted to suppress large sectors of the blockchain industry. It can do this by addressing the practical needs of start-ups and established corporations harnessing blockchain technology, but also by espousing a vision for the world that consists of direct, bilateral interactions between interested parties, with no intermediary to interpose itself and potentially censor such interactions.
This would be a powerful expression of both economic policy as well as political philosophy. It would also transition Taiwan from being a manufacturing-driven economy to a software and ideas-driven one.
The immediate benefits to Taiwan’s economy of the blockchain industry are already becoming apparent. Taiwan Semiconductor Manufacturing Co’s latest quarterly earnings were boosted to the tune of US$300 million to US$400 million by specialized chips used for blockchain transaction verification (“mining”). More than US$1 billion of bank deposits in Taiwanese financial institutions are the result of cryptocurrency exchanges making use of the dependable banking system here. Tens of millions of US dollars have been raised from global investors by Taiwanese start-ups through a mechanism known as an initial coin offering.
This is just the tip of the iceberg when considering all the nonfinancial use cases for blockchain — from public record keeping to food safety to information security. It is safe to say that no modern economy can truly be without a vibrant blockchain industry, China notwithstanding.
Transnational issues such as infectious diseases, climate change and questions of war and peace have been straining the ability of post-World War II global institutions to cope for some time. Now, due to the Internet and blockchain technology, the pace of information and capital flows is outstripping the ability of any single sovereign entity to stem or steer.
Instead of pining for the days when Taiwan was still a part of the establishment edifice, we should instead mold a world that will increasingly be determined by non-state actors, whether they be multinational corporations, rebel organizations or autonomous machines.
Cryptography will play an important role in this new world by helping to achieve consensus where none was possible using traditional centralized means. Taiwan can reassert its influence in the world by revitalizing itself as the Republic of Cryptography, and by being the most stateful non-state actor on the planet.
Alex Liu is chief operating officer of MaiCoin, a Taipei-based online cryptocurrency platform.
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