Citizenship for sale – a blockchain business model?

by Leo Rivas-Micoud for Stocksnap - sovereign identity
by Leo Rivas-Micoud for Stocksnap

According to an article I stumbled on in Fortune, approximately $2bn a year is spent on buying citizenship. The exchange is usually dressed up as real estate or business investment and a certain minimum is generally established, but the purpose is clear, and an increasing number of nations are making good money on this.

For example, an IMF report from 2015 puts the income from selling passports for St. Kitts and Nevis at about 25% of GDP. While the economy is small, that is still a staggering statistic.

A recent report in the Financial Times highlighted this growing global phenomenon from a tax perspective:

“The search for second passports and offshore havens is beginning to take on a last-helicopter-out-of-Saigon urgency as capital controls, tax reporting and visa procedures tighten up around the world.”

Other reasons cited are political instability and fear of persecution. According to the IMF, there has recently been a surge of wealthy Chinese and Russians buyers, with an increasing number coming from the Middle East, where tax avoidance is obviously not the issue.

This raises the question: why shouldn’t citizenship be a commodity?

What does citizenship actually mean?

According to Merriam Webster, a citizen is “a native or naturalized person who owes allegiance to a government and is entitled to protection from it”. So, it’s an exchange of allegiance in exchange for protection.

Why, then, is it not transferable? If your state is not protecting you, why can’t you transfer your allegiance to one that will?

Because citizens are considered resources by the countries they are born into. They work, which contributes to economic development. And they pay taxes, which contributes to public finance. This “what’s mine is mine” mentality also explains the concept of capital controls imposed by some countries to stop citizens from sending their wealth abroad.

In the increasingly free market world in which we live – in which we can choose who gives us our electricity, phone service, groceries – it is extraordinary that a similar philosophy isn’t being applied to citizenship. If governments actually had to convince (rather than force) their people to stay, it’s very likely that there would greater efficiency and less corruption in government spending.

If market incentives came into play, the role of government could evolve to focus more on protection and service. Tax rates would be more directly associated with the amenities offered, and citizenship would become a matter of proud choice rather than limiting obligation.

A totally free market concept, though, would perhaps leave the geopolitical balance vulnerable to instability. If a country cannot, for whatever reason, compete with another then the unstoppable flow of people would leave one poor and bankrupt, which would open up the temptation of annexation or even invasion.

And it’s not hard to envision circumstances beyond a government’s control. Natural disasters, a lack of natural resources or poor geography could condemn a nation to poverty and chaos, no matter how pure the government’s intentions. The resulting flood of people to neighbouring regions would put a strain on the receiving country’s resources in the short term, until the entrants find their feet and start contributing.

Along with aid from international organizations, nations depleted by exodus could be helped by the offering appealing amenities at relatively low prices. Attractive investment opportunities, for example, or education facilities, or simply relative stability. As with businesses, the affected governments would need to develop a differentiating offering to attract citizens.

As the article in Fortune pointed out, the possibility of buying citizenship exists, but the choices are limited and available only to the very rich.

Now, bring into the picture the concept of blockchain-based sovereign identity, in which a person’s official name does not depend on a state-issued document, but can be held securely and electronically by each individual. No government would have the right to take that name away, or to pretend that the person does not exist – a blockchain-based solution could ensure that. This name could be assigned the nationality it chooses. It would also reveal any financial or even criminal history, if applicable, which – on a blockchain-based solution – could not be retroactively altered.

Add the financial commitment of a purchase, and you can begin to imagine a whole new business model. Individuals that cannot afford the initial purchase price could enter into a financing agreement with one of a range of approved institutions, and pay the lender back through future earnings, possibly with the help of subsidies from the receiving government.

This could lead to selection bias – only those with reasonable prospects would be welcomed by their chosen domicile. After all, criminal records would be harder to hide. This could lead to some unfair calls, but since the bulk of anti-immigration sentiment usually stems from fear of increased crime, some sort of filter could end up making immigrants more readily accepted by their new neighbours. Those that through no fault of their own end up being blocked could perhaps be eligible for additional aid and/or the opportunity to seek a sponsor.

Education would also be easier to prove, as verified certification could be added to the identity’s history. Governments could even end up “bidding” for the best-educated immigrants.

The paperwork involved would be eased by the validation inherent in a blockchain platform. And the immigrants would have a much easier time integrating, as access to financial services, accomodation and utilities would be helped by reduced documentation and history requirements.

Cost vs benefit? It would be up to individual governments to decide what they offer, and at what price. This quasi-free market approach would have effects beyond that of economic value. It would make governments more conscious of their role, and see it less as a privilege and more as an opportunity. (Imagine if public salaries were tied to the results of satisfaction polls…). Also, citizens around the world would be more conscious of what their government does for them.

Obviously the idea is a lot more complicated than the brief suppositions laid out here. But passport shopping is already an economic fact. Should it be only available to the very rich?

Blockchain technology could offer the breakthrough that will enable the activation of sovereign identities tied to convenient nationalities – while at the same time incentivizing governments around the world to better understand what their purpose is.

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