Estonia could offer ‘estcoins’ to e-residents
Kaspar Korjus
9.7K69

EstCoin Thoughts

I recently read this article from the BBC about a digital currency being used in Liverpool. Reading through it, you realise that this is potentially one model to use in carving out a niche for EstCoins.

The idea is to use fiat currency to buy EstCoins, the advantage being that any transactions using EstCoins are not subject to any commissions or fees. Commissions only apply when exchanging normal fiat currency for EstCoins. The BBC article explores several advantages and some disadvantages of this model. In the context of EstCoin, you could imagine similar benefits and drawbacks


Advantages

  • As some other commentators pointed out, EstCoins probably shouldnt be used as a main currency — certainly not to replace the Euro. This model would abide by that requirement. Consumers and businesses are free to use the Euro (with all it’s associated charges and commissions) alongside the new EstCoin
  • If the Estonian Government makes a concentrated effort to encourage both local Estonian and e-Resident businesses & institutions to accept EstCoin and charges 0% commission, then as the BBC pointed out — businesses win by avoiding banking and transfer fees, while consumers win through a similar cost reduction as well as by knowing they are supporting Estonian interests
  • Both businesses and consumers are encouraged to keep it “local” so as to avoid these transaction fees. Remember — no commissions as long as transactions remain in EstCoin. The major difference here is that while “Local” in the BBC article is constrained to a geographical location (Liverpool), in Estonia’s case, “local” would include the entire e-Resident community — which is already a global movement. In other words, using EstCoin would mean encouraging money to stay within Estonia and the eResident community
  • Since EstCoin is decoupled from fiat currencies, you in effect now have a “foreign currency” exchange. This would offer an alternative option to the one presented in the BBC article — where users pay a fixed 1.5% commision when converting from digital to fiat currency but get a 1:1 exchange with the Euro. What if instead, the commission is still charged, but the value of Euro you get back is variable and depends on a foreign exchange. This is what currently happens when you trade BitCoin or Ethereum of course — the value of fiat currency that you get when selling your tokens depends on the exchange rate of the day. For EstCoins, this foreign exchange rate provides a way for investors to track EstCoins’ health, and encourage (or discourage) them to invest with the hopes that EstCoin’s value will increase. Then once they own EstCoins, they face 0% fees as long as they trade in EstCoins — providing even more fuel to the virtual economy.

Disadvantages

With the good comes the bad… The main disadvantages stem from trying to limit the amount of control any one individual or company has over the system. So for example:

  • Probably no single bank or company should be the portal to exchange fiat currency and EstCoin, otherwise you risk throttling your points of entry/exit. But if you have multiple banks or organisations doing this, you then need to regulate the competition and make sure there is a legal framework similar to the ones that govern services like PayPal and so on
  • If Estonia goes down the foreign exchange path when trading EstCoin to Euros, then especially in the initial stages, the Estonian government needs to make sure that a single entity cannot buy enough EstCoin to have a siginificant effect on the exchange rates. We’ve seen this happening with BitCoin, particularly with the trader nicknamed “Spoofy”

It’s really important that something like this wouldn’t happen to EstCoin due to the political situations and tensions — but how?

  • Similar to any other currency, Estonia would need to divert significant resources to making sure that EstCoin remains a “clean” ecosystem. You would need a new breed of financial crime officers to make sure there are no ponzi schemes, fraud, etc, etc, etc…

The next few points are neither a disadvantage nor an advantage, but require some thought:

  • Security. What if I lose my phone? How difficult is it for an impersonator to use my EstCoins (with or without a stolen phone or ID card)
  • Transaction Safety. Being instantaneous is a double edged sword. Everyone wants transactions to happen instantaneously, unless your account is being used by an attacker. How do EstCoin users make a “stop order”? VISA transactions for example take about 2 days to clear, so if a user is quick enough and their card is stolen they can immediately phone a bank to stop any transactions. Who would EstCoin users go to in case of problems?
  • Interaction with the physical world. Face it — not everyone loves being digital. Or maybe I forgot my phone at home — or left it behind me on the taxi ride here and now I’m stranded with no money. Should EstCoins support printed QR codes, similar to what current day BitCoin ATMs produce? So, should there be EstCoin ATMs? Should we allow people to make EstCoin transactions by scanning a printed QR code rather than rely on just an app?

(This turned out to be way longer than I thought — but I really hope it’s of use!!! I’m moving to Estonia soon, and projects like this is one reason why I’m doing so…)

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