Estonian e-Residency, BitNation, and the Jurisdictional Buffet

TL;DR: Some cool ideas are emerging to replace parts of your local country’s authority over your daily life and work. But if you think this means the swift end of nation-states and the way they function, think again.

A few weeks ago I became an official e-Resident of Estonia. The process was more formal than I expected, in the end — a personal appointment at the Estonian Embassy in Tokyo, with its old-fashioned European living room ambience and plush carpets. I was interviewed, fingerprinted, and handed a digital card that represented my new online identity.

The Estonian e-Residency program turned one year old last week. The Estonian government is, reportedly, surprised at how popular it’s been so far.

“A year has passed since the Estonian e-residency programme was officially launched; as of today, more than 7,200 people from 121 countries have joined, over 240 new companies have been founded by e-residents, and more than 530 entrepreneurs use e-residency to administer their businesses.”

It’s a simple yet radical concept: an online digital ID connected directly to your real-life self. It isn’t designed to protect your privacy or anonymity on the internet; it’s for those times when you need to do business with strangers and convince them you are who you say.

Local passports and ID cards are often useless for this purpose — they’re not recognized, and easy to forge in a digital photo. Governments with resources to check them out will accept them, but banks and businesses often won’t.

Estonians themselves have had digital IDs for years. The card’s cryptographic signature is as legally binding as one you write on paper with a pen. They even use them to vote in elections.

So Estonia had an idea — since it works so well, why not offer digital IDs to anyone in the world?

Why bother?

Here’s my personal situation: I’m an Australian who lives in Japan. I’ve also lived in Canada. I pay taxes in Japan, but work for companies located everywhere except Japan. My health insurance for several years came from New Zealand. Occasionally some bureaucrat at the Australian Tax Office sends me a letter to ask what the deal is. I’ve had more than one shouting match over whether my driver’s licence was real (government transit employees in Canada: we’ll meet again in Hell).

For years, I’ve been fascinated with the idea of ‘buffet jurisdiction’ — paying for services and abiding by applicable laws based on jurisdictions of your choice, not birth or residency. Paying into your local country’s national health insurance, education or pension systems doesn’t make sense if you’re never planning to use them.

Manage your business and finances via one country, get unemployment insurance or healthcare from another, and educate your kids in schools operated by a third. All while staying exactly where you are.

If everyone had the ability to choose, then governments around the world could ‘compete’ for your business. Overall, government departments would have to abandon the complacency that comes with their captive markets, and service standards would improve.

It’s already possible to manage businesses and have bank accounts in multiple jurisdictions, but the process is usually clunky and uncertain, involving local agents and virtual offices, and often comes under the scrutiny of national tax departments. If you’re a US citizen, you can forget opening bank accounts elsewhere most of the time thanks to FATCA regulations.

Neal Stephenson takes the buffet jurisdiction concept to extremes in some of his novels, with the results either utopian (The Diamond Age) or nightmarish (Snow Crash), and usually a bit of both.

For current nation-states, the results will be messy and would take years to adjust to. Especially if you’re one of the many countries no sensible person would choose to be ruled by, if such a choice were available.

Imagine if the police you called to report a crime, or the judge that settles a contract dispute, represents a franchise of the jurisdiction you’ve paid to subscribe to. It’s an exciting, but definitely outside-the-box idea. How would a country treat you as a resident, if it had almost no control over your daily affairs?

Multinational corporations employ teams of creative lawyers and accountants to get the best of every jurisdiction they operate in. One day, those opportunities could be available to the average individual.

So, back to Estonia

With an Estonian e-Residency card — at this point — you can sign legally binding documents, start a company, and open an Estonian bank account (that last one still requires a face-to-face appointment Estonia, though the aim is to perform these over Skype).

When I say ‘legally binding’, I mean in Estonia only [EDIT: actually binding in all EU countries]. So e-Residency is still more useful to you if you’re planning to do business in Estonia. If you’re not, you’ll need to be more creative in finding ways to use it. Personally, I’m thinking of taking a vacation there soonish.

It doesn’t grant you any special rights to live, work, or vote in Estonia itself. But real jurisdictional choice shouldn’t require that, because you’re likely using about five or more at once.

Spokespeople for the project admit that it’s still experimental at this point. They’d love to see it expand to include other services and gain recognition outside the country. But that will take time.

No-one could accuse Estonia of being half-hearted on e-Residency. They’re still signing up new applicants amazingly efficiently, and their tech support staff answer queries so quickly it’s hard to believe they’re government employees.

In the meantime, they’re always looking for interesting new ways to use the service. That’s where BitNation comes in.

What is BitNation?

BitNation is a project that aims to provide the documentary benefits and economic security of regular nation-state citizenship with one key difference: there is no physical territory at all.

Also celebrating its first anniversary, BitNation’s goal is to build decentralized, voluntary services to rival those provided by nation-states — including insurance, title registration, dispute resolution and identity — on an open-source platform and based on the bitcoin blockchain.

On the surface this sounds like a great idea. Because it’s similar to what Estonia offers, but without the Estonia… right?

Sort of.

A deal between BitNation and Estonia’s e-Residency program got a lot of play in the bitcoin media last week. Now the bitcoin media is famous for its uncritical trumpeting of anything that vaguely resembles decentralization and cryptographic proof replacing government functions, so it’s best to take a closer look.

Basically, the deal means e-Residents will be able to use BitNation’s ‘public notary’ services to register information permanently on the (bitcoin) blockchain. The press statement isn’t clear on how, but the e-Residency dashboard already has a series of links and buttons for the different services available, so it’d just be a matter of integrating it there.

One couple has reportedly already used the notary service to register their marriage, which they’re not recording anywhere else — or in any other country.

Using the bitcoin blockchain to permanently record information is nothing new. Services like Proof of Existence and Ascribe have been around for a while, for anyone to use. I ‘registered’ my son’s birth somewhere in Block 360277 using BTCC’s ‘Forever’ service. It’s still there, of course, and will always be. Which is… pretty cool.

A few people got excited at the prospect of nation-state recognition of the blockchain, though, so it’s important to clear a few things up. The joint e-Residency/BitNation statement makes it clear that using the blockchain to notarize information does not give it legal standing in Estonia, even if you’re an e-Resident.

That’s an important distinction. An e-Resident’s digital signature is legally binding in Estonia. A blockchain notarization via BitNation is not.

E-Residency’s PR representative said:

“To prevent confusion, I wish to specify that the transactions made in BitNation do not substitute the form established for transactions in Estonia or other countries. The terms “Public Notary” or “notarization” used by BitNation do not conform to the terms’ widely known meaning. The services offered by BitNation, for example registering marriages via blockchain technology, can be valid only in the BitNation community upon an agreement between its members, if they do not conform to the formal requirements of real jurisdictions.”

So yes, as the initial statement said, don’t expect the marriage/birth/contract/property title you registered on the blockchain to mean anything at all, really. Perhaps some day a court decision will recognize a blockchain record, and it will gain more meaning. Till then, it’s a proof of concept showing what the blockchain is capable of, and a fun demo.

Is BitNation any use?

BitNation and e-Residency have one big thing in common — both are tests of ‘virtual jurisdiction’, both building their user bases in advance before anyone really appreciates what value they’ll have in a few years’ time.

Nothing wrong with that at all. The world needs early adopters to experiment and find the best uses for new ideas.

It’s impossible to expect too much from either project at this point, though Estonia has a head start as the initiative of a recognized sovereign state. Like it or not, that still counts for a lot in today’s world.

Estonia still needs state apparatus to enforce its digital truths. It has a police force, courts and military — and physical territory to keep them all. BitNation has neither territory, a functioning administration nor a well-stocked Treasury to pay even freelance enforcers.

Maybe it will, someday. But that sounds like science fiction. Right now it’s all virtual.

Crypto-decentralize all the things

Cryptography is great for proving a piece of data existed at a particular point in time, and determining who owns it. Which is great for assets that are valuable but exist only digitally, like cryptocurrency. And even then, only if use is widespread. In other words, bitcoin.

Crypto’s pretty lousy at enforcing rules in the physical world, though. It can prove that someone with my password signed something, or record that I bought a car, company share or ounce of gold. But without a jurisdiction to back up those records with force if necessary, any of those real assets can be taken from me easily. Or simply ignored.

BitNation’s CEO Susanne Tarkowski Tempelhof was savaged when she discussed the project on Let’s Talk Bitcoin in October 2014.

The project lacked the expertise and resources required to achieve its ambitious goals and was largely fantastical, the interviewers claimed. All the cryptographic certainty in the world couldn’t protect people out there in the real world.

But it’s still around. BitNation, for its part, is still in its earliest phase. It’s not claiming to be able to replace whole countries by next year, just small parts of their functions in increments. Whether it can replace anything at all without an enforcement arm remains to be seen.

On that issue, I’m pessimistic but happy to be proved wrong.

In the meantime there’s Estonia

My biggest hope with Estonian e-Residency is that other countries will copy it and start offering services to non-citizens. Singapore, I’m looking at you…

And Estonia is happy to work with others and take suggestions:

“E-Residency programme is an open and evolving platform — it has been also described as a government startup. Our team’s aim is to contribute to other teams’ actions, in the development and testing of new technologies, to grow and develop with them. The content and description of the services of our partners is mainly up to them.”

Try it

If you’ve never lived as a refugee or expat; if you’ve never sat down to think about the nature of nation-states and their degree of control over people within and outside their own boundaries — then you probably take for granted that you live under a set of rules determined by the place where you live and probably grew up too.

It will take a while, and some practical experience, for people to realize that isn’t the case. It will also take years of experimentation to determine what kind of choices we can have.

Posted 5 December 2015