Malaysia immigration probe tests legal footing of Balaji’s crypto ‘network state’
An Israeli-passport inquiry into Balaji Srinivasan’s Network School exposes how crypto’s sovereignty ambitions still rest on host-nation goodwill.
Balaji Srinivasan, the former Coinbase chief technology officer who founded the Network School crypto community in Malaysia, has paused a $122 million expansion of the project and is seeking a formal memorandum of understanding with Kuala Lumpur after immigration officials opened an investigation into its resident base. The episode underscores a structural weakness facing crypto-native “network state” projects: however self-governing their aspirations, they remain legally dependent on the goodwill of conventional nation states.
Malaysia’s Home Affairs Ministry said on Tuesday it was probing the Forest City community, located in Johor state roughly an hour from Singapore, following allegations that it was hosting Israeli citizens travelling on second passports in breach of immigration rules. Initial checks by authorities found that all 266 foreign residents held valid documentation, according to both crypto.news and Cointelegraph, though the ministry’s wider review has not concluded.
A demand for legal certainty
Srinivasan responded by pressing Malaysian Prime Minister Anwar Ibrahim’s government for an explicit agreement guaranteeing Network School’s standing in the country, rather than relying on general assurances that the technology sector is welcome. In a video address to the prime minister, he said he wanted “a document which says not just abstractly that tech is welcome … but rather that we’re personally welcome.”
He paired that request with a pointed warning about capital flight. “If we are not welcome, there are many other countries that would welcome us,” Srinivasan said, framing the roughly $122 million in planned expansion as investment that could relocate to a more accommodating jurisdiction if Malaysia does not provide the legal clarity he is seeking.
Network School’s origins
Srinivasan launched Network School in August 2024 as a physical community for technology builders, creators and founders in Forest City, a purpose-built development in Johor. The project is one of several efforts inspired by the “network state” thesis, which envisions internet-native communities eventually acquiring quasi-sovereign status through economic scale and diplomatic recognition, but which in practice must operate within the immigration, tax and property law of host countries.
That dependency is precisely what the Malaysian probe has exposed. Even a well-capitalised, high-profile venture backed by a prominent figure in crypto circles found itself subject to a routine immigration inquiry capable of freezing investment plans and forcing its founder into direct diplomatic appeals to a sitting head of government.
Why it matters for institutional crypto
For European and UK observers tracking crypto’s institutionalisation, the Network School episode is a reminder that regulatory risk in the sector extends well beyond exchange licensing and stablecoin rules. Physical crypto communities and “network state” experiments touch immigration law, foreign investment screening and diplomatic relations in ways that can move faster than any digital-asset framework.
Southeast Asian jurisdictions such as Malaysia have courted tech investment while simultaneously tightening scrutiny of foreign nationals, a balance that will be closely watched by other crypto ventures weighing similar residency-based projects. Whether Kuala Lumpur agrees to the bespoke assurances Srinivasan is requesting will signal how much latitude governments are prepared to grant crypto-aligned communities that blur the line between private enterprise and self-styled statehood.
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