Sun, sea and sandboxes: What are crypto innovators testing in the Pacific?

An aerial view of islands in Palau in this undated photo. REUTERS/Jackson Henry

An aerial view of islands in Palau in this undated photo. REUTERS/Jackson Henry

What’s the context?

The Pacific nation of Palau is kicking off a digital residency scheme for anyone wishing to become a crypto-citizen

By Dr Peter Howson, Northumbria University, UK and Dr Olivier Jutel, Otago University, Aotearoa, New Zealand  

In normal times, the Pacific nation of Palau was a magnet for tourists. Palau’s population of 18,000 welcomed around 100,000 Yachties each year in search of remote un-spoilt beaches and pristine reefs. To protect the oceans for scuba diving tourists, most of Palau’s waters were designated off-limits for commercial fishing. Pre-covid, all of Palau’s eggs were in the tourism basket. Today, facing prolonged covid restrictions, that basket is empty, and Palau’s cash is drying up.

Diversifying the economy without mass-tourism is a pressing priority for Palauan President, Surangel Whipps Jr. Like many Pacific governments, Palau is trying desperately to avoid defaulting on sizable loans. Whipps has even started selling Non-Fungible Tokens (NFTs). But these are not CryptoKitties, or pics of the First Lady’s hat. These are digital Palauan ID cards.

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In 2019, following the growth of Palau Coin, a crypto scam-token with loose links to a local politician, the country implemented a strict moratorium on cryptocurrencies. So, many were surprised with the recent reopening of Palau’s digital doors to anyone wishing to become official crypto-citizens. Partnering with the cryptocurrency outfit, Ripple, and blockchain developers, Cryptic Labs, Palau is kicking off a digital residency scheme, known as the Root Name System (RNS), from February.

It works like this, for $248 (US) anyone anywhere can apply for a limited edition NFT ID card enabling them to use a Palauan business address, apply for a certificate of legal name change, and open online accounts to trade cryptocurrencies. These could prove handy for Chinese and other investors whose governments don’t allow crypto trading. But applicants will not automatically be able to reside in Palau. They won’t be able to open a business there or become a citizen. It’s a bit like claiming on Tinder that you’re 6ft and 29 years old. But you’re not. It’s not lying, because you paid $248 for an NFT. Makes sense?

As with similar announcements of blockchain ‘game-changers’, Palau’s crypto partnership is light on details and heavy on the future tense. The problem the project purports to solve is overcoming geographical boundaries that stand in the way of a “new generation of global digital existence”.

Our research shows that behind this rhetoric of techno-utopianism lies the traditional geographies of North-South exploitation. The Pacific has become the go-to testing site for crypto-colonial shenanigans with developers seeking out populations suffering debt crises and other disasters. It’s a form ‘disaster capitalism’ that connects with crypto's apocalyptic fantasies of impending societal collapse.

Recent FinTech fantasies include Satoshi Island, a bitcoin-themed Jerusalem for Vanuatu. While In Fiji, crypto-evangelists tried and failed to annex territory for their fantasy resort of ‘Cryptoland’. Others are looking to make Tonga the El Salvador of the Pacific, envisioning bitcoin mining rigs in every Tongan village. Oxfam’s blockchain-based aid projects in Vanuatu offer a humanitarian façade to all this. False promises of ‘banking the unbanked’, digital inclusion and economic empowerment have been naively accepted. Important regional players with financial innovation agendas, such as the Asian Development Bank and the US State Department are keen to advance the Silicon Valley solutionism, with blockchain a panacea for Pacific island problems.

Countries in financial pickles are appealing directly to cyber-libertarian frontier settlers, few of whom are keen on supporting local services or paying any tax. As Whipps declared recently “This is all about economic freedom. Digital nomads roaming around the world. Why not come and be a resident of paradise?”

Our research shows how blockchain developers seduce Pacific governments and further the geopolitical interests of US platforms. In 2018 Papua New Guinea signed an agreement with Ledger Atlas, a company backed by Silicon Valley venture capitalist and bitcoin maximalist Tim Draper. The agreement sought to establish a tax-free blockchain economic zone and sandbox administered by Ledger Atlas, obliging the government to promote crypto. Despite Draper’s claims that the platform would prove “a model for all future governments”, Ledger Atlas never got going.

Alongside Whipps, Draper is being inaugurated as a ‘Founding Digital Resident’ of Palau. Draper’s pulled the same PR move before. He was the first recipient of Estonia’s e-residency program, which has since become mired by crypto scams, leaving Estonia’s government to clean the egg off its face. Palau’s RNS will likely attract a similar clientele.

Pacific islands left behind by the mainstream global economy provide fertile ground for the global 1% in search of tax-free paradise. Accepting a few hundred dollars for quite useless NFTs may seem a no-brainer for remote, tourist-dependent states.

But Pacific islands should be mindful, crypto developers are rarely drawn to struggling communities because they want to fix things. Our research shows that these crypto entrepreneurs need to find new punters, perform real-world tests, and buy a slice of paradise. Only with make-believe money.

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