As news surrounding digital currencies such as bitcoin dominates tech headlines, one country is on the verge of developing its own national cryptocurrency. Late last summer, Estonia, a small northern European country with a population of approximately 1.3 million, revealed that it was considering creating of the world’s first national digital currency: the estcoin. The estcoin would have three potential use cases focused on community, identity and currency.
The Baltic nation is not the only country contemplating its own digital currency. In fact, China has already developed a prototype system that could one day go into circulation, and Dubai has its own citywide cryptocurrency. A national digital currency is a different story, however, and Estonia appears to have a leg up in the space because of its advanced digital infrastructure. With its well-established e-Residency program, the country can leverage the technology and legal frameworks to implement tradable crypto assets and manage them securely on a global scale.
Despite the inherent advantage of its infrastructure, bringing estcoin to fruition requires a significant transformation, and the security implications of such a monumental undertaking are critical.
Estcoin’s Origin Story
While the estcoin proposal is not yet national policy, the government believes it is teeming with potential.
Estonia’s e-Residency program, which allows nonresidents to obtain ID cards, interact with the country’s services and make secure transactions, was established in December 2014. Estcoin is the next step in the program: A national cryptocurrency would enable these foreign entrepreneurs to conduct business online, remotely and hassle-free.
The motivation behind the estcoin is buoyed by a growing community of e-residents, where there is a keen interest in blockchain-based solutions such as the initial coin offering (ICO). The ICO enables companies to crowdfund their financing and incentivize a wide range of people to help grow their business.
I recently had the chance to interview Arnaud Castaignet, the head of public relations for the e-Residency program, who explained that, although some of the news surrounding cryptocurrency may not be positive, there are promising opportunities for generations to come. “We believe governments must ensure that, despite the concerns, disruption doesn’t leave anyone out,” Castaignet said. “This is why it is important to understand it and find a way to take advantage of it for the benefits of the majority. This is how we see e-Residency’s role as a governmental startup.”
Estonia considers the estcoin a key component of its e-Residency vision, an example of a nation that must embrace transformation to remain relevant. “They must become more agile, more inclusive and more empowering in order to better serve their population and more,” Castaignet said.
The government also understands that while providing services to other world citizens may be a radical idea, in the long run, the program represents a fruitful investment for Estonia because it also benefits the local population. The purpose of estcoin is to accelerate this vision while also providing additional funds and interest for the development of Estonia’s digital nation.
The Estcoin Blueprint
Should it become a reality, the estcoin would serve three primary uses, as described by Kaspar Korjus, the managing director of the e-Residency program, in an interview with ETHNews:
- Grow the e-Resident community.
- Improve the reliability and security of digital infrastructure.
- Conduct transactions without fees or additional hassles.
The first variant, the community estcoin, would improve Estonia’s e-Residency program by incentivizing people to join. Rewarding new members with this version of the estcoin could help grow and build the community.
The identity estcoin variant, meanwhile, aims to improve the reliability and security of Estonia’s digital infrastructure. “Right now, the technology that underpins our digital identities requires continuous development in order to remain cutting-edge,” said. “But blockchain-based tokens could be used for activities within our digital society, such as digitally signing documents, logging into services or enforcing smart contracts. They would work with any device and would never require updates.”
Finally, the Euro estcoin variant would enable community-based trade to take place without fees or intermediaries.
Embracing Blockchain for the Greater Good
Because the country already has an established and well-tuned blockchain system, which has been tested and used there since 2008 for the e-Residency program, Estonia believes it is in a stable position to fit the estcoin into the picture.
The country views blockchain as a potential catalyst for improving the overall transparency of its systems. As the buzz behind blockchain intensifies, it’s evident that the cryptographic system is developing powerful new solutions that are poised to disrupt the world. Estonia hopes to play a key role in supporting blockchain for the benefit of everyone.
“We began the enormous task of understanding how Estonia could better embrace blockchain and the use of crypto tokens in a way that supports legitimate entrepreneurs and helps grow our digital nation while protecting our public interest and minimizing risks to our state and business environment,” Castaignet explained.
He also noted that blockchain entrepreneurs from around the world are already enabling their customers to access products and services through e-Residency, while some even set up their companies through the program. For blockchain companies that need to verify online identities, the country’s infrastructure represents a solid framework to trade crypto assets as well.
In addition, the country is partnering with several key players to further its e-Residency program. Nasdaq recently announced that Estonia’s platform would be facilitating a blockchain-based e-voting service to allow shareholders of companies listed on Nasdaq’s Tallinn Stock Exchange to vote in shareholder meetings. In addition, Bitnation announced a partnership with e-Residency to introduce a public notary service for e-residents. Other partnerships include Wallet.Services, Oracalize, WageCan and Funderbeam.
“Our secure digital identities provide a significant advantage to blockchain companies that need to verify online identities,” Castaignet said. “This use of secure digital identities is a great advantage for Estonia to provide the best framework to trade crypto assets.”
Two Sides of the Estcoin: Security and Speculation
Security must always remain at the top of Estonia’s priority list concerning its cryptocurrency. Castaignet explained that security is a key focus, and the government won’t propose a solution without first obtaining and ensuring the highest security possible.
Another obstacle the country must address is one of speculation. The Estonian government’s vision of cryptocurrency and blockchain technology is in sharp contrast to the get-rich-quick market speculation that is prominent today. As such, the estcoin would be created to facilitate intermediary-free transactions in a way that could be more inclusive compared to the current system.
“In our community estcoin variant, we propose a lock-up period to reduce the chance of short-term speculators looking to flip the coins for early profit,” Castaignet said. “In the Euro estcoin option, we propose to peg it to the euro, but in both cases, the overall idea is the same: Speculation is a concern, and we are looking for a solution to mitigate the risks.”
The Road Ahead for the First National Cryptocurrency
The task of launching a national cryptocurrency is enormous for any country, and Estonia is aware of the fact that the hype surrounding bitcoin is influencing discussions and causing confusion regarding estcoin. But the country’s size, combined with its head start in digital infrastructure, may help Estonia establish a clear path to launch.
The government believes all three of its estcoin variants are viable and can be introduced without breaking the European Central Bank’s rules. Because the proposed estcoin’s variants are crypto tokens, according to Castaignet, they have far more significance than their use as a currency and don’t necessarily fall into that category. “Crypto tokens are a virtual representation of a particular asset or utility,” he said. “They can represent any assets that are fungible and tradable. They can be used for various cases, but only in the smart contracts ecosystem which accepts that token.”
That said, Estonia’s government believes that all countries should consider the disruptive impact of crypto tokens being used as currency. “If cryptocurrencies are here to stay, then governments will eventually have to figure out how to embrace this digital disruption,” he said. “The world is changing very fast, and countries can easily fall behind if they refuse to address new issues or bury their heads in the sand.”
The government is bullish on the estcoin’s prospects and has its sights set on this summer for the introduction of the coin’s community variant. But before the estcoin becomes a reality, the country insists it must make its e-Residency program the best global option for launching a trusted ICO.
“We hope estcoin will become a reality, but it will require time,” Castaignet said.