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Estonia planning to launch crypto-tokens to drive growth of the country’s e-resident community

Estonia is planning to launch its own crypto-token, called estcoin, to help build Estonia’s e-resident community and increase the number of companies started in Estonia through e-Residency. The idea was floated initially in August 2017.

In a blog post on Medium,  Kaspar Korjus, Managing Director, Estonia’s e-Residency programme, laid out the thought process leading up to the idea of Estcoin, talked about the feedback received, and explored three possible ways in which Estcoin might work.

Background and current status of the e-Residency programme

Estonia became the first country in the world to launch an e-Residency programme back in 2014. Anyone from around the world can apply. If granted e-Residency, person receives a government-issued digital ID card that allows them access to e-services. Most e-services available for e-residents currently are business related, so entrepreneurs will benefit most from e-Residency.

E-Residents can digitally sign documents and contracts, verify the authenticity of signed documents, encrypt and transmit documents securely, establish an Estonian company online and administer the company from anywhere in the world, conduct e-banking and remote money transfers, access online payment service providers and declare Estonian taxes online.

The programme began with a goal of attracting 10 million e-residents to add to Estonia’s physical population of 1.3 million by 2025.

By November 2017, nearly 30,000 people from 139 countries had signed up. At the moment, the biggest motivation for signing up is to establish a company. Companies established through e-Residency are ‘trusted location-independent EU companies, which can be run remotely from anywhere on Earth with low costs, minimal hassle and access to all the tools needed to grow globally, such as international payment providers’, as another blog post on the types of e-residents explains.

In the first three years e-residents are estimated to have brought €14.4 million back to Estonia. This is predicted to rise to €1.8 billion by 2025, effectively a return of €100 for every €1 invested in the programme.

Against this background context, Mr. Korjus proposes three potential use cases of the estcoin.

Three use cases

The first proposed use case is a community estcoin would be structured to support the objective of growing the e-residency programme by incentivising more people around the world to apply for and make greater use of e-Residency.

This includes encouraging investors and entrepreneurs to use e-Residency as their platform for trusted ICO activity (Initial Coin Offering [1]).

(The blog post says that many companies are in the process of launching or planning to launch ICOs through e-Residency. They are exploring ways to integrate the e-Residency card into their KYC procedure. There have been valid concerns raised over transparency and fraud in ICOs and many central banks around the world have warned investors about the risks. In this scenario, Estonia can provide clearer guidance on how to legally and responsibly launch an ICO within the country’s regulatory environment, focusing on trusted, responsible ICOs. If successfully done, this could help create a decentralised and trusted peer-to-peer securities trading globally through e-Residency.)

The community estcoin would incentivise greater interaction within the e-resident community. E-residents who raise awareness of the programme by sharing their experiences, drive traffic to the website and signs-ups, offer advice to other e-residents, or post a tender that provides work to another e-resident or Estonian company, would be able to earn estcoins.

Any funds raised could be used to further develop the platform, and provide investment into companies that operate within Estonia’s business environment.

Businesses offering services such as accountancy, banking or virtual offices to the e-resident community could be encouraged to integrate estcoin.  

Mr. Korjus notes that a national ICO to launch community estcoins would most probably require the creation of a Public-Private Partnership because no single organisation should have control of both the tokens and the allocation of any funds raised. He goes on to say that community estcoins should be openly tradable on both traditional and crypto exchanges and that most likely a lock-in period will be featured to discourage speculators.

The second proposed use case is an identity estcoin. Here, estcoins would be the blockchain-based tokens used for activities, such as digitally signing documents, logging into services or enforcing smart contracts.

Estonians and e-residents would receive a certain amount of tokens that are attached to their personal digital identity and can then acquire more when required. Identity estcoins will not be exchanged or sold. Their value would decrease as the e-Residency programme grows and more people join the network and the cost of transactions would also go down steadily over time, due to economies of scale.

Estonian Police and Border Guard Board could have the ability to revoke tokens if e-residents break any laws.

Identity estcoins would work with any device and never require updates. This would improve the reliability, security and transparency of the country’s digital infrastructure.

The third use case is the Euro estcoin, which would be pegged to the value of the Euro. Banks would be required to move money in and out of euro estcoins, but transactions could then take place independently of them through the blockchain. Basically, this would mean that the global Estonian e-resident community could get rid of cross-border transaction costs.

This could be looked at as an alternative to the Euro. Mr. Korjus clarifies in the post, “We would never provide an alternative currency to the euro, but it’s possible that we could combine some of the decentralised advantages of crypto with the stability and trust of fiat currency and then limit its use within the e-resident community.”

[1] ICOs involve the opportunity for individual investors to exchange fiat currency or cryptocurrencies with liquid value in return for a digital asset labeled as a coin or token. Startups use this to avoid the rigorous and regulated pathways of going via banks or venture capital firms or doing a regular IPO (Initial Public Offering or the initial offer of shares of previously private company to the public).

Featured image: maigi/ CC BY-SA 3.0

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