E-resident Peter Kentie donated this great estcoin illustration
The startup world is being rapidly transformed by Initial Coin Offerings (ICOs).
Instead of giving up shares, many startups are now raising finance by issuing their own blockchain-based crypto coins to investors around the world.
The US, Singapore and Switzerland are currently the leading jurisdictions for entrepreneurs considering where to launch their ICOs, although all governments are still figuring out how to regulate ICOs. Unfortunately for both entrepreneurs and investors, that means ICOs continue to operate in what could be described as legal grey areas at best, while the lack of clarity and trust is holding back the benefits of this innovation in finance.
Despite this, the amount of money being raised globally by startups through ICOs is now far in excess of the amount being raised through venture capital. Raising finance is only half the story of ICOs though. People who invest in crypto tokens issued by a startup are then strongly incentivised to support the development of that startup in other ways too and they tend to form an online community.
Estonia’s e-Residency programme is also a fast growing startup — albeit a government startup — because we are constantly improving it based on the feedback of real e-residents, often with best practises that we’ve taken straight from the private sector. We also have our own fast growing community, which is increasingly looking for ways to connect and gain more value from the programme.
So in August we published an article on our e-Residency blog asking what would happen if a country, such as Estonia, decided to launch its own crypto tokens with an Initial Coin Offering (ICO). We nicknamed these proposed tokens ‘estcoins’ and explained how e-Residency would provide the platform for distributing and trading them globally because it’s a secure digital identity that anyone in the world can apply for.
The article went viral almost instantly, generating a large amount of media coverage globally, including in most major publications. Our best estimate is that around 200 million people around the world read about the idea.
Many people were enthusiastic and wrote about various options for how estcoins could be structured. Many people were also critical, including some who wondered if the whole thing was nothing more than a marketing stunt for the e-Residency programme.
We could have developed the idea behind closed doors first, but openness has always been the best policy for developing the e-Residency programme. Starting an open discussion at the earliest possible stage has been useful to gather both the feedback needed to refine the idea and the support needed to proceed with it. Both the supporters and the critics have been invaluable.
My initial assumption was that the crypto community would be the most critical of any government involvement in their sector, but the opposite was true. Entrepreneurs and investors within the crypto world expressed enormous interest and largely seemed to welcome the idea, while traditional institutions were the most critical. Even European Central Bank President Mario Draghi voiced his concern.
Much of the criticism of estcoin was based on the fact that Estonia simply can’t start its own cryptocurrency even if it wanted to. Estonia’s only currency is the euro and this is an essential feature of our EU membership, which we are proud to have. No one here is interested in changing that.
That’s why we have always referred to estcoin as a proposed ‘crypto token’.
Governments do need to consider the disruptive impact of how crypto tokens can be used as currency because they provide a more efficient means for exchanging value globally. However, crypto tokens have far more significance than their use as a currency and don’t necessarily fall into that category.
From Estonia’s perspective, estcoins were proposed as a way to raise money and support for the development of our digital nation from more people around the world. We would also want to structure the tokens so that they help build our e-resident community and incentivise our own key objective, which is to increase the number of companies started in Estonia through e-Residency.
This activity already has a major positive impact on Estonia as e-residents bring a significant amount of business to the Estonian economy. An independent report released this month by Deloitte revealed that e-residents have already brought €14.4 million back to Estonia in the first three years and this is predicted to rise to €1.8 billion by 2025, which is a return of €100 for every €1 invested in the programme. We will only achieve this though if we continue to provide real value to our e-residents around the world.
The purpose of estcoin is to accelerate this, while also providing additional funds and interest for the development of our digital nation.
The question remains though — What problem does estcoin solve for people who hold estcoins? This is another key and commonly repeated criticism of the proposal that estcoin is ‘a solution looking for a problem’. Since the proposal was published, I’ve been repeatedly asking audiences if they would be interested in purchasing estcoins and the response is a resounding yes, even if they are not always sure why yet.
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You might be surprised to hear this, but we completely agree with the criticism that estcoin is a solution looking for a problem. However, that is not necessarily a bad thing.
E-Residency was also a solution looking for a problem when the programme was launched. The solution was to enable anyone in the world to apply for an Estonian ID digital ID card and then gain access to our e-services, but even many of the first e-residents were not sure what problems this would solve for them.
Three years (and almost 30,000 applications) later, we now have a very good understanding of the problems that e-Residency solves by helping democratise access to entrepreneurship globally and enabling the rise of location-independence. You can read more about who are Estonia’s e-residents here or learn about some of their problems solved by the programme in this advert we made:
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Source: Medium