With Blackjack and Hookers.

Ah, never mind, forget the whole thing.

something like a government. It is (exactly) the same problem as the one which leads to physical states forming: a state of nature with simple rules becomes gradually optimized for deception and violence (or whatever the internet equivalents of those are---manipulation, impersonation, hacking, extortion?---and then when it gets bad enough a 'state' is formed to do something about it.

The social and technological infrastructure for a digital 'state' doesn't exist at the moment but there's no reason it couldn't.

Well, one could argue there is a state at present, just, that it is not a very good one. In which case the necessity is the digital equivalent of a 'revolution' against it.

For some specific examples, it is not hard to imagine a parallel-universe internet which punishes fraudulent behavior by banning actors from all of its territory. Or which imposes transaction costs on things that are presently free (email, etc) to prevent spam. Or which coordinates micropayments in lieu of advertising/manipulation funding. Or which guarantees that the equivalent of domains never change hands, to prevent the problem of domains being taken after they expire and used for nefarious purposes..

Of course this raises all sorts of other concerns (cf how incensed people become by the idea of using real identities, age verification, or any other threats of censorship). But that is the same problem as the question of what makes physical states 'legitimate': how do you build an institution which has enough legitimacy that people buy into it instead of rejecting it? By guaranteeing rights, having good leadership, having good constitutional processes, whatever else... it is 'the' hard problem of civilization, and probably there is no perfect solution, but that doesn't mean you get to get away with not solving it by ignoring it; refusing to face it directly means just defaulting to a particular outcome without getting to even debate the tradeoffs of the choice you have made.