Eyebrows are being raised by Estonia's announcement that its government intends to launch a token-based crowdfunding effort, or ICO, with the estcoin initiative. It has been said that Estonia's e-Residency program will act as a distribution vehicle for estcoins, so to get a better understanding of this development, ETHNews corresponded with the program's managing director, Kaspar Korjus.
Korjus On European Central Bank Comments:
In the immediate aftermath of Estonia's August 2017 announcement that it would possibly be issuing a state-sanctioned cryptocurrency, the response from EU officials was somewhat critical. During a press conference in September 2017, European Central Bank (ECB) president Mario Draghi cited: "No member state can introduce its own currency; the currency of the euro zone is the euro."
While Estonia is a member of the eurozone, Korjus was dismissive in response to Dragi's statement:
KK: "We don't see the ECB as trying to subvert our efforts. We are committed to the fact [that the] euro is the only currency in the eurozone, and our estcoin proposal was never aiming at replacing it. The broader discussion is about how blockchain technology is going to impact the global economy, bringing new opportunities for both individuals and institutions in a way that could be more inclusive and secure than the current financial system. Various governments and institutions in the world, including the ECB itself, or the Bank of England when they discuss potential central bank digital currencies, address this question."
Korjus related to ETHNews that all three "variants of estcoin are viable and can be introduced even without breaking the European Central Bank's rules."
KK: "Crypto tokens have far more significance than their use as a currency and don't necessarily fall into that category. Having said that, we do believe also that governments 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."
According to Korjus, Estonia doesn't expect to be told by authorities to call off the estcoin financing efforts; he is confident both that the stakeholders will be convinced of the legitimacy of the proposal, and that it will provide a benefit to everyone.
On Token Offerings:
It's been estimated that roughly 3.7 billion dollars were raised in crowdfunding in 2017 alone, but token-based crowdfunding has still been the subject of some controversy. Regardless of the huge sums raised, critics have argued that token offerings create an avenue for pump-and-dump speculation in the marketplace. It's also true that some less-than-scrupulous entities have used ICOs as a front for criminal enterprises, and have been forced to shut down at the behest of regulators.
While acknowledging worries over token offerings, Korjus maintains that the blanket term encompasses many different types of projects. He said, "The term 'ICO' can describe different kinds of projects, from not-for-profit projects aiming to develop decentralized networks using blockchain technology, to commercial ones that rely on this mode of fundraising as an alternative to venture capital."
KK: "We understand [the] concerns, but we are convinced that ICOs are a new fundraising model, which will benefit innovation and foster entrepreneurial initiatives. Yes, risks and complexities are involved, but public authorities can play a key role in supporting these disruptions for the benefit of everyone."
Korjus warns that by failing to embrace cryptocurrencies in the near term, world leaders risk missing economic opportunities, and advises that collaboration will benefit everyone.
KK: "Right now, by not embracing crypto, governments are failing to unlock a powerful driver of economic growth, and [they] risk losing relevance entirely. By not embracing public oversight, legitimate crypto investors are tarnished by fraudulent ones, and crypto investors are far less certain about the value and legitimacy of their tokens. We want to turn it into a win-win situation by building real cooperation between all stakeholders and communities involved."
A Worthwhile Investment In A Digital Nation:
The e-Residency platform was launched in Estonia back in December of 2014 and has grown to encompass nearly 30,000 residents today. Since establishing the program, the e-Residency platform has been a lucrative venture for the Estonian government, providing a tidy return on investment.
KK: "The e-Residency programme is a very useful investment for Estonia. Last month, Deloitte published a report showing that in the first two years of full operation, the e-Residency programme has returned to the Republic of Estonia 14.4 million euros, of which 1.4 million euros have been net proceeds and 13 million indirect socio-economic net proceeds. According to Deloitte, from every euro put into the e-Residency programme, Estonia will get 100 in return."
Looking into the future, Korjus said Estonia hopes that the estcoin program will help rapidly give rise to the development of a digital state that will be more flexible in the times of coming technological advancement ahead.
KK: "We see our estcoin proposal as a natural development of the vision we pursue with the e-Residency programme. Nation-states must transform themselves into something new – more agile, more inclusive, more transparent, and more empowering. The purpose of estcoin is to accelerate this, while also providing additional funds and interest for the development of our digital nation."
So how will the initial platform integrate with society? For now, three versions of estcoin are in development with various models of integration for each.
KK: "We see estcoin as being tied to our community of e-residents, so they are also part of the discussion regarding how funds gathered from the token offering might be used. On our side, in a few words, we believe our 'community estcoin' would improve our entire service by increasing the value of joining our community and rewarding those who help us build it. Our 'identity estcoin' variant would radically improve the reliability, security, and transparency of our digital infrastructure and eliminate some of the technology that is currently required to operate our digital nation; it would work with any device and would never require updates. Our 'Euro estcoin' variant would allow community-based value exchanges to take place for free, without middlemen, independent of the banking network. But of course, there are many other problems in the world that might be solved thanks to blockchain technology, which is why several organizations, including UN agencies, are starting using this technology as well. These uses are very promising and, of course, we are following these projects with attention."
A New Mechanism For Capital Growth:
Korjus knows that a common criticism of estcoin is that it's a "solution looking for a problem." He said, "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. Because they know crypto tokens and blockchain technology can solve many problems currently faced by entrepreneurs worldwide, such as financial exclusion or high costs of transactions."
Some wonder why Estonia would look to such a cutting-edge funding mechanism as a token offering as a means of growing capital, rather than the more traditional efforts undertaken by governments to bankroll initiatives, such as bond measures or through taxation.
KK: "Comparison can be made between an ICO and bonds. However, estcoins could be used to incentivize investors to support the success of a country in a way that is not currently possible through existing means of raising international finance. Creating instruments such as estcoins, where incentives between government and holders of these instruments are aligned, could be a win-win."
"An ICO, within the e-Residency ecosystem, in particular, would also create a strong incentive alignment between e-residents and this fund, and beyond the economic aspect, makes the e-residents feel like more of a community. There are several ways that the initiative could be structured, but it is important that estcoin investors gain only when all of Estonia gains.
"When you look at the private sector, in the last millennium, the most common way for a company to get the capital that it needed was to request a loan from a financial institution."
Korjus said that the world has seen rapid technological and economic changes in recent decades alongside a wave of new options for start-ups to get off the ground. These range from venture capitalists and business angels to crowdfunding with token offerings. He said that technology firms are stepping in to fill a gap left by banks, enabling small businesses who once struggled to obtain lending services. "Having more options is always a good thing, and we can imagine the way countries raise funds might evolve in the future as well."
e-Residency As A Distribution Platform:
Korjus described a community platform which will link together the e-Residency and estcoin programs.
KK: "We see our estcoin project as being tied to the e-Residency programme and the community platform we are going to launch. This gives estcoin a tangible scarce resource and service to be allocated, along with a real network that it would help grow. In our opinion, these are important features which are characteristic of successful tokens. We really want to structure the tokens so that they help build our e-resident community and incentivize our own key objective, which is to increase the number of companies started in Estonia through e-Residency."
Korjus also said that work is being done to make the e-Residency program the forerunner among global options for launching token offerings in a bid to grow the community.
Speculating On Secondary Markets And Value Fluctuation:
It hasn't been determined where estcoin is destined for secondary markets, and, according to Korjus, it's still too early to tell.
Another challenge yet facing the deployment of the estcoin is the issue of volatility. Korjus revealed a few ideas about how to handle that issue.
KK: "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. 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."
Deliberation over specifics of exactly how estcoin will be delivered and what form it will take continues. ETHNews will provide ongoing coverage as more details regarding Estonia's bid to craft a national cryptocurrency emerge.