13 min read

The Network Hanse

The past was decentralized. The 20th century was just an anomaly. We need to look far back in time for models for a decentralized future. The Hanse was a secret superpower in the Middle Ages. It was a leaderless, open network capable of protecting its interests against the state and the church.

The Middle Ages were marked by the struggle for power between the church and the state. We all know what happened. The church lost, the Leviathan shifted, and nation states became the dominant powers. That's the world we live in today.

But there was another power. A secret superpower. It had no leader, no territory, and its individual members were not souvereign, but still under the rule of the church or the state.

And yet, this was a political power of the first order. It was rich, politically successful, and it fought and won wars. It had no religious idelogy and couldn't care less about nationalism. It cared about freedom and getting rich together. Win and help win.

This superpower was the Hanse, also known as the Hanseatic League or Deutsche Hanse. And if the internet had already existed in the Middle Ages, the Hansa might still be winning today.

This article is a brainstorming about the future of governance. It is inspired by John Palmer's article Voluntary Governments and Balaji Srinivasan's Network State series which focus on using blockchain technology to create new and better versions of our current institutions, namely states, cities, unions, political parties, and organizations.

While those institutions are the core pillars of the Industrial Age, the emerging power structure in the Network Age might actually look more like the Middle Ages. We will likely experience many more souvereign powers, fragmented and overlapping jurisdictions, local power vacuums, a rise in smaller conflicts but fewer large-scale conflicts, less predictability, and more complexity and uncertainty.

In this article I therefore want to explore a medieval organsation, the Hanse, and try to draw a few lessons for thinking about governance in the Network Age.

I begin by giving an overview about the Hanse with a focus on the parallels between the Hanse and today's crypto networks. I then describe why we need to unbundle government functions first, before we can truly accelerate their improvement. After that I explore how we can rebundle government functions in a better way and how a Network Hanse can help with that. I close with a list of open questions for further discussion.

What was the Hanse?

The Hanse was a confederation of merchants and market towns in Germany and Central Europe between the 12th and 17th century. Its goal was not ideological or political. The Hanse wanted to advance and protect free trade. And it was really good at it.

The Holsten Gate in Lübeck
The Holsten Gate in Lübeck, the most important Hanseatic City and UNESCO World Heritage Site (Source: Wikipedia)

The Hanse emerged from smaller groups of merchants in Northern German coastal towns who made arrangements for mutual protection against piracy and bandits. Over time, these arrangements gradually evolved into a confederation of cities, the Hanse. Those Hanseatic Cities were the startup cities of their time.

The Hanseatic Cities operated their own armies to protect their trade routes and each other against anyone who tried to interfere with their business. Besides defeating pirates, they also fought and won several wars, e.g. against the Kingdom of Denmark in 1368. This gave them an unusual position of power. Although the Hanse was not a state or kingdom itself, its traders enjoyed duty-free treatment and diplomatic privileges in affiliated communities and their trade routes. The Hanse also developed its own legal system for governing their merchants and goods. Its members operated almost exclusively under the Hanseatic Law.

Many German Hanseatic Cities became so powerful that they could free themselves from local powers and become "reichsunmittelbar", which means directly under the rule of the German Emperor. That was a huge advantage. They became city states. To this day, the official names of the German cities Hamburg and Bremen are Free and Hanseatic City of Hamburg and Free Hanseatic City of Bremen. They are still city states today, each forming one of the 16 states of the Federal Republic of Germany.

At its peak, more than 200 cities allied in the Hanse and controlled virtually all trade in the North and Baltic Seas. The Hanse further traded with countries as far as Portugal, Italy, England, and Russia and had trading posts and factories all over Europe.

So, why is any of this relevant?

Hanse is an old German word for group, or community. The Hanse was a cooperative structure.

Many have already written about the relationship between cooperatives and crypto networks, but what made the Hanse special was its scale and political power. The Hanse was not just a small local group, but an international superpower capable of protecting its interests against the biggest powers of its time. That makes the Hanse an interesting organization to learn from for developing governance structures for the Network Age.

But if the Hanse was so successful, why is nobody talking about it anymore?

One reason is that the Hanse didn't affect most people directly. While the church and the state intruded into people's lives, telling them how to live and what taxes to pay, the Hanse quite literally minded its own business.

The second and more interesting reason is the fact that the Hanse was difficult to grasp as an organization. It was neither a hierarchical structure nor a democracy. It was an open network, not unlike a DAO, a Decentralized Autonomous Organization on the blockchain:

  1. The Hanse emerged.
    There is no official founding date for the Hanse. It gradually emerged over time in the 12th century.

  2. The Hanse was decentralized and had no leader.
    Having no leader made the Hanse difficult to attack. You couldn't just behead some king and be done with it. This is very similar to the decentralized nature of crypto networks. The Hanse actually behaved more like a Hydra and got stronger when it was attacked. An attack strengthened the alliances between the Hanseatic Cities and drew in new cities. A common enemy can be a powerful uniting force.

  3. The Hanse was "rather" permissionless.
    Cities joined the Hanse voluntarily for their own economic benefit, often without many formalities. When joining the Hanse, a city had to pay a fee, not unlike buying a crypto token. That means the decision whether to join or not was largely up to the city itself. And cities were free to leave at any time.

  4. The Hanse operated on consensus.
    The Hanse was neither a hierarchy nor a democracy. Its primary governance mechanism were the Hansetage, which translates to Hanse days. They were basically meetings. If a city wanted something, it had to ask the other cities and convince them. In practice, it invited the cities to a Hansetag and made a proposal, quite similar to a governance proposal for a crypto network.

    There were no majority votes. Proposals were typically negotiated until a consesus was reached. And cities only agreed to proposals that were aligned with their interests. Representatives were actually not allowed to make binding decisions on behalf of their cities, the city counsel at home always had the final say. That further incentivized fair negotiations to reach a mutually beneficial consensus. It was also common that not all cities agreed to a proposal. For many decisions a rough consensus between enough or the revelant cities, similar to the rough consensus exemplified by the Internet Engineering Taskforce (IETF), was sufficient to move forward.

  5. The Hanse was borderless.
    Like crypto networks, the Hanse didn't care about borders. It was international and weaved itself into the fabric of other existing power structures. One example were the Kontore. The Kontore were major outposts of the Hanse in foreign jurisdictions of important trade partners. They served a dual purpose, as a form of embassy to protect the Hanse's interests against that foreign power, and as a trading hub which made sure that all members and traders followed the rules, the Hanseatic Law.
Hanse Konor in Antwerp, Belgium
Hanse Konor in Antwerp, Belgium (Source: Wikipedia)

While the Hanse was united on the outside, aligned through its shared interest in free trade, its members on the inside were in intense commercial competition with each other. After all, the Hanse was not a corporation and its traders were not its employees.

The Hanse had only one goal. To protect the game of its members. Free trade.

As we've seen, there are many parallels between the Hanse in the Middle Ages and the crypto economy today. They both share the same uniting interest in freedom, and they are both faced with similar adversaries, states and other legacy powers.

But before we can look at whether a new Hanse, a Network Hanse, can help to protect and advance the shared interests of the whole crypto economy on the outside, we also need to understand the inside.

The Hanse derived lots of its strength from its diverse, pluralistic, and sometimes contradictory nature. It was not a confederation of a few state-like entities. Therefore I want to argue that we need to look beyond new political parties and Network States and consider the unbundling of governments.

Unbundling Governments

If we truly want to accelerate the improvement of governments, we first need to unbundle the government functions before we can later rebundle them in more effective and dynamic ways.

By unbundling I do not mean privatization. While privatization means handing a task over to the market, unbundling in this case means making government functions available for governance innovation to anyone who wants to innovate.

This is a scenario in which we don't have a single central government or Network State, but can envision each government function as one or several DAOs.

So, why exactly do we need to unbundle?

The basic ingredients for improving anything over time are competition and iteration. One way to add competition and iteration to government innovation is to create new, alternative governments or juristdictions. This can mean to start a new city or even a whole Network State that does no rely on physical land. Network States can provide people with many more options for the jurisdictions they want to live in.

But in addition to launching and improving a whole country with all of its policies at once, we can also improve one government function at a time. This has several benefits:

  1. Lower barriers to entry:
    It is easier for innovators to improve and focus on just one government function instead of a whole nation. Therefore more people can and will innovate.

  2. More competition and iteration:
    Lower barriers to entry and more innovators will lead to more competing options and faster iterations.

  3. More choice and flexibility:
    All of this will give people more choices between different policy options and more flexibility, because they won't have to commit to a whole set of policies, a whole state at once, but can chose the individual policies that are most aligned with their values and goals.

Let's compare this to the music industry. The music industry unbundled albums on CDs into individual songs on iTunes. This lowered the barrier to entry for artists who were now able to release just one song instead of having to produce a whole album. And the listeners didn't have to buy the whole album anymore, if they just wanted to listen to a single song.

There are obviously a few differences between music and governments and we might not be able to unbundle all government functions, yet. But how about many?

This is a brainstorming, remember?

Imagine you could shop around for government policies all over the world. You might pick the health insurance law from Germany and the incorporation law from Singapore. Those two policies are unrelated and would work just fine together.

Everything that involves a geographical location is more tricky. If people want to decide whether or not to build a highway, there is not a lot of room for several options. But we can just start with things that do not involve a geographical location.

Besides physical location, there are three other main challenges that I can think of:

  1. Completeness of governance:
    We don't want anarchy. Nobody wants to live in a Forever Purge. Functional national governments are benefical in so far as they have sufficient laws and policies to avoid anarchy. That is a huge achievement of mankind and we do not want to lose that. While no government is and can be truly complete, a certain baseline of minimum necessary laws and policies is a good thing. Nobody should be able to opt out of governance altogether.

  2. Overwhelm because of too many options:
    We like having many options if we want to chose, but not if we have to. Not every citizen can and wants to make a decision about every single law and policy, only about the ones she cares about.

  3. Pushback from governments:
    Obviously, most governments won't just agree to being unbundled. They have a lot to lose.

One way to address these challenges can be to rebundle laws and policies in a different way.

Rebundling Governance

Let's continue with our music analogy. Almost nobody is buying individual songs on iTunes anymore. Today we stream music from our Spotify playlists. Those playlists can either be curated, personalized, or created by ourselves. Music got rebundled, but in a better way. Playlists are the new album.

We like that. We can either make it easy for ourselves and listen to a curated or personalized playlist, or we can put in some time and effort and customize something that fits our unique taste.

If we want to rebundle governance policies in a similar way, we need something like policy playlists.

This sounds a little less crazy if we look at what is already happening in Decentralized Finance. A major advantage of DeFi is its composability. DeFi's decentralized financial applications are also called Money Legos, because everybody can combine them in any way they like. Composabilty is a fundamental feature of crypto and I can think of no good reason why this cannot be applied to governance as well.

Like our music playlists, our policy playlists can also be curated, personalized or customized. A curated or even personalized policy playlist might be a Network State, which is a specific collection of laws and governance policies that a person opts in to.

But people could also customize their own policy playlist, or states. There need to be a few constraints, but if we do it right, this form of rebundling governance policies can help us solve the three challenges of unbundling I mentioned earlier:

  1. Completeness of governance:
    There can be predefined mandatory policy slots that each citizen needs to fill. You need a tax law and an incorporation law for example, but you can decide which one. There might also be limitations for certain combinations, e.g. German health insurance law cannot be combined with UK tax law.

  2. Overwhelm because of too many options:
    Citizens can start with a pre-existing curated or even personalized policy playlist or network state. That network state can also be used as a template where people only customize the policies that are relevant to them.

  3. Pushback from governments:
    There will be a huge variety of DAOs providing different government functions. If we rebundle these DAOs in an intelligent way, this will give us more collective bargaining power with existing governments.

The Network Hanse

This rebundling of governance can happen in form of a Network Hanse where the Network Hanse attempts to combine three ideas:

  1. Apply the idea of the original Hanse as a superpower that valued freedom and protected it against outside legacy forces to the crypto economy.
  2. Create many different and competing DAOs to create solutions for various government functions.
  3. Rebundle those DAOs in an effective and dynamic way.

We can envision the Network Hanse as a DAO of DAOs, meaning a DAO who's members are other DAOs. Balajis's Network Union can serve as a blueprint here. The Network Hanse would have its own token and would be organized for collective action. The main difference here is that the members of the Network Hanse are not individuals but other DAOs. A confederation of DAOs.

Any DAO that shares the same interest of protecting freedom and advancing the crypto economy can become a member of the Network Hanse. This includes startup cities with their own token and Network States. Even innovative nation states might be able to join under certain circumstances. One candidate would be Estonia, if they turned their E-Residency program into some form of DAO.

The Network Hanse can then negotiate with governments on behalf of its members. A central goal will be to claim the right for DAOs to innovate on and provide government functions. National governments would basically acknowledge that all solutions provided by members of the Network Hanse are valid proxies for that specific government function or policy. More short term goals can be to lobby for crypto regulations that make sense and the legal recognition of DAOs as organizations.

Negotiatons can start with smaller and weaker states that provide only a limited number of government functions. Those states would actually benefit from cooperating with the Network Hanse, because the Network Hanse can address issues that those states don't address at all. Over time, negotations can be extended to other functions and other states. It might even be possible for existing states to learn from the Network Hanse and adapt some of its solutions.

Many people will say that this is unrealistic. That we can't just negotiate with a state like that. To debunk this myth, let's look at the Hanse again.

After winning the war against the Kingdom of Denmark in 1370, the Hanse negotiated the Treaty of Stralsund, which granted the Hanse wide-ranging privileges and cemented its power. The coolest part: All future kings of Denmark needed to be approved by the Hanse from now on.

The Treaty of Stralsund in the Stralsund Museum of Cultural History
The Treaty of Stralsund in the Stralsund Museum of Cultural History, signed by many members of the Hanse, not just one leader. (Source: Wikipedia)

Besides protecting the interests of the crypto economy on the outside, the Network Hanse can also build the framework for how various laws and policies in the form of DAOs can be bundled together. This will not just be helpful for negotiatons with governments, but can also give individual citizens and builders of governance DAOs orientation.

In the long term, the Network Hanse can chose to do even more things. It could actually go into politics in certain nations and form its own political party, although I don't find this particularly interesting. Another idea would be for the Hanse to facilitate infrastructure projects that provide internet access that cannot be censored.

This would be aligned with the values of the Hanse, advancing freedom, and it is very similar to how the original Hanse protected its trade routes.

Open Questions

I want to close with a list of open questions that came up while I was writing this. I might explore those in subsequent articles.

  1. How specifically can the Network Hanse look like and function?
  2. Which specific government functions can already be unbundled? What is the easiest place to start?
  3. How can a DAO-based solution for a specific government function look like?
  4. Can we unbundle geography-related government functions and simulate them in VR as digital twins?
  5. Many government functions rely on solidarity or a large number of citizens paying taxes. How would unbundling this scale affect the solutions?
  6. What specific leverage can a Network Hanse develop over nation states and other legacy powers?
  7. How specifically can various escalating tactics of the Network Hanse look like?

If you have any thoughts about those questions, feedback, or would like to help build the Network Hanse, please reach out.