Balaji doesn't expand enough on the concept of a cloud country. Having a blockchain passport of sorts with a reputation tied in and a connection to others who also hold said blockchain passport and currency makes sense, especially given examples of unstable countries (i.e. Venezuela, South Sudan) which don't have good international standing. That could provide a means for individual citizens to be even more empowered by going beyond what their citizenship offers and becoming truly international. But once the concept of land starts coming into play, that's where the issue begins. With the exception of the creation of artificial reefs, having a truly free place governed only by, say, god-emperor Balaji and his decrees from on high is infeasible. Even in international waters, one global hegemony or another will go and seek influence, by money or force. None of Oceania is completely independent. All in some way have defense agreements with bigger powers, with that comes rules not internally defined. However, to Balaji's credit, he accounts for at what point would be a micro-nation, one which wouldn't last. The other nations he provides as examples of middling sizes with complete sovereignty are all places where the population lives. In that sense, I see why one could squint at the definition of citizenship and just have all the aspects be digital. But frankly, I don't see that as a fully honest definition of citizenship. Balaji is implying a continual internet, or at least stable enough power and network connection to maintain all of that.
The only true nation-building opportunity, which to Balaji's credit he mentions, is Mars. What Mars provides is a true colony. One with all the distance, and no real method for the mother county to enforce laws in any reasonable way. Maybe there could Balaji's idea of digital citizenship truly take root. A local Martian society where every Man, Women, and Child upon entry to the "free nation-state of Musk" will be assigned a token with all the nation needed to define them (within the bounds of how democratic or autocratic things get) for society to work will be on them. Truly one could have smart contracts be law. No income tax to be found nor paid, assuming a benevolent leader. It also appears scifi has already beat Balaji to the punch, maybe inspired. The Expanse documents quite well the concept of an independent Mars. There is an assumption of technological superiority on the behalf of Mars which leads to a plot-driving antagonistic relationship between Mother Terra and her distant, war-loving, brother. All joking aside, within my grandchildren's lifetime The Expanse may prove prescient. If we have a colony of a million scientists and engineers, our brightest minds, take up residence on the red rock to turn it a more greenish hue, who knows what an unshackling of that potential could lead to? Going even beyond that if we bring FTL into the mix, every fringe global group with enough resources could take all those members of enough commitment and have light-years in between any meaningful governing body. I think there lies the best option. 200 billion suns should be enough to sate the taste of those who desire true freedom. Fantasy aside Mars and space stations provide the best possible option for a new flag to be planted into soil. Only then may the international blockchain society roam free.