Blockchain and Bitcoin in Estonia: How the Industry Is Shaping the Country’s Future

At the start of the 21st century, Estonia, a country with 1.3 million population, and with its labor pool having one foot out of the door, has launched a major project for general digitalization. Fifteen years later, the country’s infrastructure was ready to take the world’s first govtech blockchain-based projects out for a spin, and to implement the technology in existing e-projects.

However, the Estonian government treats two incarnations of blockchain, i.e. the general one and the one as basis for bitcoin, quite differently.

Estonian Blockchain Projects

The Estonians started implementing blockchain solutions in Government Technology back in 2015 and attempted to kill two birds with one stone:

a) to embrace advantages of blockchain (transparency of storage and data transmission, cutting expenses for intermediaries and document flow, etc.);
b) and to find an unconventional solution for the country’s demographic problem by relying not on birth of someone for some reason, but on attracting those young and economically active without requirement to physically stay in Estonia.

The e- Residency project, sometimes referred to as e-citizenship by a mistake or for the sake of simplicity, was launched in 2015, before blockchain became mainstream. Later on, e-Residency and BitNation teams launched Public Notary project, which is a remote electronic notary enabling foreigners to notarize papers while being anywhere in the world.

e-Residency

E-Residency allows foreigners to run a business in Estonia, open accounts in local banks, and use digital signature to sign contracts. E-residents get ID-card similar to the ones the Estonians have but without a photo. The government gets revenue from taxation, and there’s also a possibility that e-residents will expand their business, create new jobs, or even move to Estonia.

Now, the creators of e-Residency are up to implement blockchain in the project’s infrastructure under the supervision of Kaspar Korjus, a young manager whose name ranks first in the Forbes’ Technology and Finance Under 30 list. Former Google VP Megan Smith deems him one of twenty global leaders in digital technologies.

Public Notary

Last year, data security startup Guardtime announced a partnership with the Estonian eHealth Foundation that will see it deploy a blockchain-based system to secure over 1 million patient healthcare records. Under the deal, the foundation will integrate Guardtime’s keyless signature infrastructure (KSI) blockchain into the foundation’s Oracle database engine to provide “real-time visibility” into the state of patient records.

In practical sense, it enables doctors to promptly react to emergencies and have full medical records, including the undergone therapies, contraindications, and all other things often lost in papers.

Nasdaq and e-Voting

Recently Nasdaq announced it successfully completed a test using blockchain technology to run proxy voting on its Estonian exchange and is now assessing whether to implement the new system. Created in cooperation with e-Residency, the e-Voting system is intended for shareholders voting, making the entire process faster and cutting expenses. Building on this, Nasdaq decided to explore other possible application of the technology, both for internal processes and customer services.

Blockchain Exchange by Funderbeam

Last November, Funderbeam, which is a kind of a startups search engine founded by former CEO of Nasdaq Kaidi Ruusalepp, announced plans to establish a blockchain-based stock exchange. The idea is to make the exchange an open platform and a ‘financial engine’ for its customers. There are at least three companies and two private investors who took part in the project’s funding, including Skype founder Jaan Tallinn.

LHV Cuber Wallet

Estonia’s LHV Bank first started to study blockchain four years ago and launched Cuber Wallet in 2015. The app enables users to send and receive euros instantly and free of charge. Apart from the Estonian team, participating in the project’s development were residents of four other nations, including Ukraine. The wallet is available for download at App Store and Google Play. Anyone having an LHV account may use it.

Cryptocurrencies

Estonia deems bitcoin a means of payment, which implies that relevant financial operations are subject to taxation. However, as opposed to blockchain, bitcoin failed to garner much support within the government. Prior to the European Court of Justice’s ruling that bitcoin is a currency back in October 2015, Estonia’s Central Bank recommended its nationals to keep away from cryptocurrencies comparing them to Ponzi schemes.

The community still remembers the 2014 controversy when bitcoin-selling website BTC.ee was shut down under the orders from the police. Back then, its owner Otto de Voogd stated the law enforcement was putting pressure on him demanding that he provides ID’s of all customers. De Voogd filed a lawsuit against the country’s Supreme Court, two ministries, and the Central Bank.

Cloud Mining

There is no profit tax for legal entities in Estonia which attracted HashCoins and its cloud mining service HashFlare to the jurisdiction. According to the project’s manager Vitaly Pavlov, cloud mining is still profitable even considering last year’s reward halving and power expenses. HashFlare claims to have nearly half a million of user contracts.

Bitcoins ATM’s

The first BTM was installed in Estonia back in 2015 and was the first one in the Baltic States. Using the machine, one may buy only bitcoins, and only after presenting a valid ID. The BTM was installed by local company DeCrypto. According to its founders, Denis Kudriashov and Alexei Galkin, there is a demand for bitcoin exchanges, yet it doesn’t mean the country has a well-established crypto community. They also admit that there are very few educational projects on bitcoin in Estonia.

However, things may change this year: March 9, the country’s capital of Tallinn will host Estonia’s first major bitcoin and blockchain conference. At the time of writing, the Blockchain & Bitcoin Conference Tallinn list of confirmed attendees includes aforementioned Kaspar Karjus, Kaidi Ruusalepp, and Jon Matonis, the founding director of Bitcoin Foundation. Also, attending the conference will be the lead engineer of IBM Poland Karolina Marzantowicz, developers of Ukraine’s e-Auction 3.0, developers of social platform Golos, representatives for other projects.

Ilya Lopatin

  • Otto de Voogd

    Estonia has severe restrictions on trading any blockchain token, not just Bitcoin. Probably the worst restriction is that trades of blockchain tokens surpassing a mere 1,000 Euros per month must happen in person (face 2 face). This in effect makes any real crypto-business in Estonia hard if not simply impossible.

    In part, my court case attempted to remove those restrictions so as to allow the development of Bitcoin and other blockchain based companies in the country. But as we now know, that failed unfortunately and all the restrictions that hamper blockchain tokens still stand.

    As far as I know Estonia is the only EU country with such severe restrictions on blockchain tokens. This reality doesn’t square with all the hype created by the Estonian government, so I advise people to be very careful.