I've never been to the Baltic nation of Estonia, and I'm sure many of its 21,000 "e-residents" haven't, either. But the small country of just 1.3 million people has made a name for itself in tech by letting anybody on the internet become a resident and open a business there, even if they live on another continent.
On Tuesday, the government of Estonia's e-Residency program announced a plan to cash in on its forward-thinking reputation with an Initial Coin Offering. In an ICO, a company issues digital tokens to investors in exchange for cryptocurrency in order to raise funds. On the cryptocurrency platform ethereum, ICOs have raised millions of dollars in minutes. Yet they're also risky ventures prone to hacking, and have been widely criticized as being a way for companies to raise a bunch of money without having to do much work.
Read More: There Are Now 10,000 E-Residents of Estonia
Estonia's proposed ICO, which e-Residency managing director Kaspar Korjus laid out in a Medium post, is still in the feedback-gathering stage, Korjus told me over the phone. If there's enough demand, then the government will launch its token, tentatively called "Estcoin." This token would allow Estonia's many e-Residents who don't actually live in the country to invest in the country's future.
If tokens rise in value after an ICO (generally a function of supply-and-demand), then investors make money. Estonia's economy was hit hard by the 2008 financial crisis, when wages and employment fell sharply, and has been on the recovery path ever since.
"To be honest, there's no way we [the government] can accept money," Korjus said over the phone. "We don't have bonds, and even if we did, they're a low investment return. You can invest in our startups, and buy property, but you can't invest in the government. And if we have huge fans that believe Estonia will succeed as a digital, borderless nation, they can now be financially connected to our economy."
The tokens could be used to pay for government services or even taxes. However, Estcoin is meant to be an investment first, Korjus said, and "we can't see what the future applications will be," he added. This is likely to rile up critics who believe that ICOs functioning purely as a way to raise funds, and the tokens themselves as little more than penny stocks, is antithetical to their promise as a new way to organize decentralized organizations.
Launching an ICO would mean restructuring and clarifying Estonia's laws around cryptocurrencies, Korjus said, which the US has only just begun to do in the form of Securities and Exchange Commission rulings. Doing so would presumably allow companies to launch ICOs in Estonia with no legal gray areas.
As for what Estonia plans to do with the money raised during its potential ICO, Korjus simply said that he couldn't comment.
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