Despite crashing the price of bitcoin, Donald Trump is making good on his pledge to become the first ever “crypto president.” While many analysts warn of creeping authoritarianism or even fascist dictatorship under Trump, the greater threat to American democracy may be something more subtle: the collapse of traditional state capacity and the rise of network states in the resulting vacuum. Much as he might admire strongmen, the Trump administration is not building a strong, centralised, top-down state like Xi’s China or Putin’s Russia. Instead, through a mix of deliberate policy and chaotic incompetence, Trump appears to be steering the US toward a model closer to Milei’s Argentina or Bukele’s El Salvador – where sovereignty and state capacity are siphoned from democratic institutions into crypto markets and private digital platforms.
The rise of digital shareholder rule
Instead of Viktor Orbán’s “illiberal democracy”, a more accurate label for this emerging hybrid public-private governance model might be “crypto-democracy”: a networked form of governance reminiscent of decentralised collectives known as DAOs (Decentralised Autonomous Organisations) favoured by digital utopians and radical cyberlibertarians. DAOs are blockchain-based entities governed by smart contracts – self-executing protocols that handle transactions, decisions, and finances without centralised oversight.
But their decentralised nature does not make them egalitarian. On the contrary, DAOs operate via token-based governance, where voting power correlates directly with ownership. More money equals greater control over decision-making. Crypto-democracy, then, is a form of deregulated, digital shareholder rule – one that undermines the principle of "one person, one vote" by moving state power into the market, offering alternative and overlapping private micro-states within the hollowed-out democratic public state.
The ideological roots of crypto-democracy are grounded in radical libertarianism and go back decades, but the legal and institutional infrastructure is only now taking shape. On 6 March 2025, Trump signed an executive order establishing a Strategic Bitcoin Reserve and a broader US Digital Asset Stockpile, officially recognising Bitcoin as “digital gold” and a strategic national asset. In parallel, the administration has issued an executive order banning the development of any Fed-controlled central bank digital currency (CBDC) that might “crowd out” private crypto, and is instead promoting dollar-backed stablecoins as part of a market-oriented digital asset ecosystem. What was once the domain of fringe techno-utopians has now become official US economic strategy.
Key figures in the MAGA world are shareholders in the new crypto-democracy. Commerce Secretary Howard Lutnick, who has spearheaded the administration’s hyper-aggressive tariff strategy, has admitted to holding “hundreds of millions” (and “soon to be billions”) in Bitcoin. His firm, Cantor Fitzgerald, manages billions in US Treasuries for Tether, the controversial issuer of a dollar-pegged stablecoin. Meanwhile, Trump’s sons, Eric and Donald Jr., co-founded a crypto venture called World Liberty Financial, where the Trump family reportedly retains a 60% stake, and have also invested in a large-scale Bitcoin mining operation. President Trump himself launched a memecoin, $TRUMP, shortly before his inauguration, which has seen investors lose billions of dollars in what critics have labelled a “rug-pull” scam.
The potential for state-like functions to be mirrored on blockchain infrastructure has existed for several years. Since 2018, the private company Titan Seal has been working with local US authorities to issue official birth, death and marriage certificates on the Ethereum blockchain. In December 2024, the Nevada Secretary of State announced it was enhancing “election innovation and security” through the integration of Titan Seal’s blockchain technology into the state’s election certification process. Similarly, China’s tax authorities in Shenzhen have been working with the company Tencent since 2018 to issue millions of digital invoices on a blockchain to automate VAT collection. These developments show how traditional state functions – record-keeping, authentication, taxation – can be outsourced into private or hybrid digital infrastructures.
Simultaneously, traditional federal state capacity is being actively dismantled. Elon Musk’s Department of Government Efficiency (DOGE) has slashed budgets, furloughed staff, and thrown multiple agencies into disarray. Initially billed as an effort to streamline the state, these cuts risk crippling its ability to function – hollowing out regulatory institutions precisely as new forms of public-private governance rise to fill any vacuum. Musk's own vision of digitally-mediated direct democracy has been tested during his tenure as CEO of X, where he has reduced moderation, amplified extremist voices, and weakened the digital public sphere in the name of "free speech absolutism."
Private network states are already here
Real-world examples of crypto-democracy already exist at a limited scale. On a disputed strip of land between Croatia and Serbia, a group of wealthy crypto-libertarians has declared the micronation of Liberland: the first blockchain-based libertarian state. Liberland aims to integrate cryptocurrency into every facet of governance: from voting to taxation to judicial procedures. In this model, citizens are awarded “merits” (voting tokens) in exchange for paying taxes – effectively giving greater political power to those with greater financial contributions. According to Liberland president Vit Jedlicka, “If you paid $30 million in taxes, you still have one vote,” calling this “one of the things that’s broken about the systems we are living in.”
Similarly, in Honduras, the 2009 post-coup government opened the door to the network state Próspera, a privately-run crypto-libertarian enclave on Roatán Island. Marketed as a cutting-edge “charter city” governed by blockchain-based smart contracts, Próspera promised efficiency and innovation. Instead, it triggered legal chaos, intense local resistance, and a constitutional crisis – culminating in the Honduran Supreme Court ruling the entire project illegal. What made such an experiment possible was not a strong authoritarian state but institutional weakness: a hollowed-out state, overwhelmed by private interests. This is precisely the direction the US now risks taking. As public institutions are dismantled, and crypto-markets gain official legitimacy, America is not becoming China or Russia – it is becoming Liberland or Próspera: fertile ground for digital oligarchs to build private network states atop the ruins of the democratic state.
The absence of oversight, transparency or regulation is a feature, not a bug of this governance model. Crypto-democracy therefore creates new opportunities for international terrorism, organised crime, public corruption and hostile state actors. Cryptocurrencies like Monero, which offer near-total financial anonymity, have been increasingly exploited by extremist networks and criminal organisations to evade regulation and surveillance. These actors thrive in governance vacuums where enforcement is decentralised or absent – precisely the conditions crypto-democracy accelerates.
European democracy is not immune
These developments present new dangers for European democracy, security, and self-determination. Eurozone finance ministers have expressed deep concerns that America's pro-crypto policy shifts, including the Strategic Bitcoin Reserve, may impact European autonomy and currency resilience. Pierre Gramegna, Managing Director of the European Stability Mechanism (ESM), has explicitly identified US crypto-friendly policies as challenges to European sovereignty.
At the same time, far-right groups in Europe are drawing inspiration from Elon Musk's DOGE to push for radical governmental reforms that represent a clear break from traditional political structures. Copycat DOGE-style bureaucracy purges are being promoted by the UK Reform Party’s leader Nigel Farage, French National Rally president Jordan Bardella, and by elements within Germany’s Alternative for Germany (AfD), among others. Europe must remain vigilant against crypto-democracy being smuggled into the political mainstream like a Trojan Horse, disguising itself as a “government efficiency” movement.
The European Union is correctly pursuing proactive regulatory strategies towards digital assets. The EU's Markets in Crypto-Assets (MiCA) regulation, effective from December 2024, establishes stringent oversight measures. However, significant regulatory gaps persist regarding DAOs and network states, which the EU should address urgently.
To strengthen democratic accountability and mitigate the erosion of state capacity, the EU should consider the following policy recommendations:
1. Continue to develop a reliable, regulated digital euro as an alternative to deregulated bitcoin and other cryptocurrencies. Without a Central Bank Digital Currency (CBDC) supervised by the European Central Bank, Bitcoin and privately issued stablecoins might monopolise the digital payments space and weaken the euro’s role in global markets.
2. Develop clear legal definitions for DAOs and network states, ensuring these entities fall under comprehensive corporate governance and democratic oversight regulations. Require DAOs seeking recognition (for example, tax benefits or incorporation) to register with relevant EU authorities, detailing governance structures, decision-making processes, and methods for dispute resolution. Establish a uniform code of conduct for “network states” operating within EU jurisdictions, clarifying their legal obligations regarding taxation, labour laws and data protection.
3. Expand the scope of MiCA explicitly to include DAOs and network states, mandating their registration under established financial laws and requiring compliance with stringent know-your-customer (KYC) and anti-money laundering (AML) measures.
4. Enhance international cooperation by fostering transatlantic and global partnerships – including with central banks worldwide – to create cohesive regulatory frameworks, preventing regulatory arbitrage and ensuring consistent oversight.
5. Harmonise taxation and financial oversight across EU member states, developing standardised tax reporting systems for crypto transactions to ensure transparency and accountability.
The rise of crypto-democracy is not just an economic or technological novelty; it blurs the boundary between state and market further than before, potentially representing a fundamental shift in how political power is acquired and wielded in democracies. By hyping crypto-assets and hollowing out public institutions, the US is drifting toward a public-private governance model in which digital tokens are more important than democratic votes. Europe’s careful steps toward regulating digital assets – through measures like MiCA and the proposed digital euro – can prevent a similar slide in the EU, but they cannot fully insulate democratic systems from the deeper digital utopian ideological shift taking hold globally. What emerges next is neither inevitable nor purely technological; it is deeply political. Either Europeans insist that democratic legitimacy depends on transparency, accountability, equal representation and the public interest – or we abandon those foundations for a system of crypto-democracy in which private digital capital replaces the public state.
Joe Litobarski is a PhD Candidate at Maastricht University.
Chris Kremidas-Courtney is a Senior Visiting Fellow at the EPC
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