Bitcoin and State do not go together at all. Neither logically, nor economically.
Logically, if you think that the state is a useful and viable institution and Bitcoin is a useful and viable technology, you are lying to yourself. State is a hierarchical construction of “trusted third parties” (TTPs). In theory, some social interactions may involve a conflict that may be resolved by a trusted third party (arbiter). In a nation state it is ultimately some government agency (e.g. a cop). In case there’s a conflict between a citizen and a government agency, there is another government agency to watch over it. Thus, a cop is watched by his chief, a chief is watched by a court, court is watched by a parliament or a president, and those are being overthrown by an angry mob from time to time. The theory goes that every single conflict can be justly resolved by the state if parties cannot resolve it by themselves.
Bitcoin is an attempt to remove some trusted third parties from equation. That is all sorts of financial institutions including government regulators. From the Bitcoin perspective, it is a moral hazard to enable control over money supply and monetary flows to a hierarchy of trusted third parties. History is full of examples when private banks and government agencies could manipulate and destroy entire economies by being able to produce money without limits or censor its use. Bitcoin is strange and a bit complicated way to protect all users of money. Users can transact without need for any third party to record and acknowledge their transactions, and what’s more, no one can even become a third party by hijacking the system and imposing controls and rules on its usage. The former is not possible without the latter.
So if you support the idea of Bitcoin, you acknowledge the hazard of entrusting the entire economy to trusted third parties. You acknowledge that the ultimate power must be spread thin among every single participant and never be entrusted in hands of a few, even if it’s a democratically elected government. (Trusted third parties on top of decentralized foundation are fine as long as every person has equal access to that foundation and can jump off anytime.) But if you acknowledge the hazard of TTPs, then what arguments are left for any other government activity? Government is the ultimate trusted third party to resolve disputes in the entire economy. If there’s a conflict in a monetary system and we need Bitcoin to resolve it so no banker, judge or president could have personal interest in it, then the same applies to any other conflict. Every conflict could have someone’s personal interest in it to screw things up. The fact that we rely on the government to resolve it only shows that we couldn’t find a safer way yet. By supporting Bitcoin you give up all arguments for validity of the State.
If you, however, prefer the State, then supporting Bitcoin is illogical: why do you need such a complex and hard to understand (for non-hackers) system if every problem can be solved with trusted third parties? Look, Visa processes bazillion of transaction per day by just flipping the bits in their database. Bitcoin cannot do that, it is a consensus network that needs everyone to be aware of all transactions. Making instant payments requires extra complexity on top of that existing complexity. Also, there’s constant hazard of computer viruses and backdoors that steal your coins. If you believe that problems can be efficiently solved simply by electing trusted people, than Bitcoin is a huge overhead. So you should pick one: Bitcoin or State.
But most importantly, Bitcoin and State will never survive together for economical reasons.
State exists because it can. It can pay for its expenses, pay for those who enforce the laws, write the laws, brainwash children in schools and adults in evening news.
How does the state pay for its expenses? First, the government controls money supply. If needed, money is just being “borrowed” from the government’s puppet bank under promise to repay the debt (with interest!) from the extracted taxes (or by borrowing even more from the same place). When the state wants to go to war, enormous amount of money can’t be just extracted and is being printed. Extra money flows into markets, prices go up, business plans get messed up, people’s savings get destroyed and they lose their jobs at the same time. But we are at war, so folks are better to work harder “for the children” and maybe even join the army (you lost your job, after all).
Second, the state is paid by all those good businesses that must use banking system to operate. And the banking system is all heavily licensed and cooperative with the state. A lot of monetary flows are monitored by the tax collectors. Natural greed makes people avoid taxation just like all other costs, but taxes are avoided only in black market and by small businesses working with cash. Everyone who accepts cash hides some percentage from the taxman. If not for personal greed, but at least under competitive pressure by tax evaders (e.g. your café cannot survive if you don’t increase your profit margin by not paying 10% of the taxes like all your competitors do). If you business has to work with partners over the wire, you had to use banks and pay 100% of your taxes. With Bitcoin banks are not necessary. Bitcoin allows you to trade with anyone on the entire planet with near-zero costs. More businesses would bypass Banks and as a side effect, more businesses would be able to withhold their taxes from the state. Competition would force other businesses to drive their costs down the same way. Bitcoin will become a black hole that grows and attracts more and more people in it.
From the point of view of tax collectors, however, it’s the other way around. In Bitcoin world government cannot pay cops IOUs it makes up. It must pay real bitcoins that it must extract first from the businesses. But as more and more businesses avoid paying more and more taxes, there is less money being left for the government. That means that extraction will become increasingly less effective and therefore allowing even more people to avoid taxation on even larger scale. This cycle would repeat until all government employees will run away to seek real jobs because their bosses wouldn’t be able to pay them a single penny.
So if Bitcoin continues to grow, the nation state would peacefully dissolve. If state is to be preserved, Bitcoin must be stopped and never allowed again. However, the more people invest in Bitcoin, the more interest, wealth and power is on its side to protect it against any aggression. They didn’t invest in Bitcoin to try it out. They invested to make it ubiquitous and global phenomenon and they all will fight hard to make it happen. At some point we will witness a critical mass of supporters that no one will be able to stop. And then there will be no state anymore.