Neighboured by Finland, Latvia and Russia, the Republic of Estonia is a highly developed high income economy ranked among the fastest growing in the European Union. Having shed the shackles of communist Russia in the 80s, the country in the Baltic region has clawed its way out of economic mismanagement and become one of the richer European states in the North.
As a member of the European Union, Estonia is considered a high-income economy with a 2017 GDP of $40.275 billion and per capita income of $30,764. Estonia also has the lowest ratio of government debt to GDP among EU countries at 6.7% at the end of 2010.
Since its independence from Soviet rule, Estonia has become one of the world’s most digitally advanced societies – in 2005, they held the world’s first elections over the internet and 3 years ago, they became the first nation to provide E-residency. On 24 August 2017, the Managing Director of Estonia’s e-Residency program Kaspar Korjus announced a proposal to make Estonia the first country in the world with its own cryptocurrency – their very own version of a bitcoin dubbed Estcoins through an Initial Coin Offering (ICO).
Rise of the Digital Economy: Estonia E-Residency
When you consider the bureaucratic red tape surrounding the incorporation of a business enterprise anywhere in the world, Estonia’s E-Residency program offers a stark example of a pioneering model where artificial barriers like national boundaries no longer matter. Estonia is the first country to offer e-Residency, a government-issued digital ID available to anyone in the world. That’s right, you don’t even need to be a citizen of Estonia nor have an Estonia shareholder in your corporate business structure, Estonian E-Residency offers anyone the freedom to easily start and run a global business in a trusted EU environment – it must be said, if not already implied, that this is fundamentally game-changing program.
“Estonia’s e-Residency is a game-changer. Anyone in the world can now apply for a rock-solid digital ID, giving them what Estonians have taken for granted for years: the ability to identify themselves online, to make binding agreements and to communicate securely. This turns the internet from a confusing Wild West into an environment where trustful interaction is frictionless and ubiquitous.” – Edward Lucas, Senior Editor of The Economist and 1st e-resident
According to Korjus, Estonia’s e-Residency program was founded on the belief that no one should be held back from their entrepreneurial potential just because of where they live or where they choose to travel. As a result, Estonia e-Residency pioneers the age of the digital nation with a digital economy backed by a population e-Citizens ready to share the vision of a borderless digital world. As such, a sovereign backed crypto-token or cryptocurrency like Estcoin, is an enticing glimpse into the new market to come – a digital economy.
“Even though there are only a little over a million of us, thanks to Estonia’s capabilities, we can make ten million payments, perform ten million requests and sign ten million contracts in just ten minutes. Even ten times larger states cannot beat us. But the good news is that it is possible to join our exclusive club of digitally empowered citizens.” – Kersti Kaljulaid, President of Estonia
How has cryptocurrency and the digital economy been developing?
Writing for Seeking Alpha, Michael Atassi, an equity and tech specialist states that Bitcoin has grown 600% to date, valued at $4150 while Ethereum has grown 4700% to date albeit holding lower values to Bitcoin, the prevailing opinion is that cryptocurrencies should now be part of any balanced investment portfolio especially with the current political uncertainty affecting the markets.
Ethereum versus Bitcoin, the “uncorrelated hedge”
Where cryptocurrencies like Ethereum and Bitcoin both use a platform of Blockchain technologies, Ethereum differs from Bitcoin as a decentralised smart-contract solution as opposed to Bitcoin and other cryptocurrencies or alt-coins like it. Essentially cryptocurrencies as an investment vehicle stand apart from traditional assets in that they’re not typically affected by world issues and geopolitics – therefore, they are an “uncorrelated hedge” where a typical market crash affects everything else. Thus, a cryptocurrency like Estcoin, Bitcoin, Jetcoin etc, can be argued to have better robustness than even gold in hard times where even mild currency manipulations are irrelevant. That said, a fundamental weakness in digital currencies are their volatility and over-dependence/reliance on technologies like the Internet.
Cryptocurrency Goes Mainstream: Estonia proposes World’s First Government Bitcoin, the Estcoin
In a blog post on medium, Korjus lays out the fundamental rational for the Estcoin, the Estonia bitcoin: ‘Estcoins’ managed by the Republic of Estonia, but accessed by anyone in the world through its e-Residency programme and launched through an Initial Coin Offering (ICO) would revolutionise a small nation-state with just 1.3 million residents by offering them a digital economy and access to at least 10 million digital residents.
Estonia e-Residency offered huge value to entrepreneurs seeking trust, location-independence (it’s an online world, your business is, by its very digital nature, a global one as a result), minimal bureaucracy, low business costs and access to a wider range of fintech services.
Furthermore, partnered with the United Nations, Estonia’s e-Residency program provides eTrade For All, a digital fintech platform helping tackle the problem of financial exclusion in developing countries. When one considers the immense potential of untapped, underdeveloped economies and markets in the world, the financial upside outweighs the risks
Advised by cryptocurrency heavyweights like Ethereum founder Vitalik Buterin, Estcoin has the potential to snowball into a digital investment fund which not only benefits Estonia but also provides incentives to investors in the success of Estonia and its growing digital economy. Additionally, the Estcoins could be built on a blockchain platform giving it the flexibility of a bitcoin, making it easy and convenient to convert and use in smart contracts and a myriad of other applications.
As the digital investment fund grows through the initial coin offering (ICO), Estcoin can then be invested in public and private ventures mimicking other successful Nordic investment funds like the Norwegian oil fund. With Estonia e-Residency, the infrastructure, by way of government issued digital identities, is largely available for such a venture already.
Where bitcoin operates in a veil of anonymity, Estcoin, a national cryptocurrency uses the country’s platform already developed with secure digital identities and a safe, trusted and transparent digital economy, side-stepping the bitcoin downsides of potential for illegal activities.
“Bonds may create financial instability if a country faces a difficult economic situation. Then, its ability to pay back debt would go down and its need for more debt would go up, leading to a vicious circle. Creating instruments where incentives between government and holders of these instruments are aligned seems to me to be a win-win.” – Korjus speaking to The Next Web
According to The Next Web, their article postulates that “a state run ICO is merely the 2017-version of government bonds” however, Korjus’s response is that while there are similarities, the Estcoin is imminently more flexible and tradeable than a typical Bond issue.
But the issue is now one of execution – so far, Korjus as reached out to captains of the startup industry in Estonia to submit ideas and proposals. The government is also looking out for hashtags #estcoin and #eResidency on social media to listen in on comments, opinions and ideas from netizens everywhere.