The government of Estonia is seemingly the latest to catch the cryptocurrency bug, with suggestions it will soon launch its own bitcoin alternative. The path could be fraught with great danger.
Kaspar Korjus, managing director of Estonia’s e-Residency program, announced in a blog post December 19 the country will launch a virtual currency nicknamed “estcoin.”
The idea for estcoin was first mooted in August, as a crypto token that would use decentralized blockchain technology, also used for bitcoin — the proposal was sharply condemned by European Central Bank chief Mario Draghi, who said in no uncertain terms “no member state can introduce its own currency.”
Nonetheless, Korjus wrote the country was proceeding with estcoin not despite the criticism, but “thanks to” it — the words of Draghi and others, he said, had enabled the government to better understand how to proceed. The small Baltic nation is now considering three different models for the digital currency, all of which are said to be “viable” and can be introduced “without alarming the European Central Bank.”
Estcoin is not intended to provide “an alternative to the euro” — in fact, one of the triumvirate of possible options would see the digital currency pegged to the euro.
The other two options for estcoin were the “community estcoin” and “identity estcoin” — the former would be a way to reward the volunteers that improve Estonia’s e-residency programme, while the second tie estcoins to an individual’s digital identity.
Estonia set up its e-Residency programme in 2014. To date, it has received around 30,000 applications — and during its six-month EU presidency, which ends December 31, the number of actual residents has risen from 20,258 at the start of its EU presidency to in excess of 27,600. German Chancellor Angela Merkel is among them.
In his blog post, Krojus claimed e-Residency helped “democratize access to entrepreneurship globally,” and enables the rise of “location-independence.” There is said to have been a sharp rise in applications from the UK since the country voted to leave the European Union, as a means of individuals and businesses effectively staying in the bloc.
The program’s director nonetheless recognized e-Residency was a “solution looking for a problem” when launched — and conceded estcoin may suffer from the same issue.
“However, that is not necessarily a bad thing. The solution was to enable anyone in the world to apply for an Estonian ID digital ID card and then gain access to our e-services, but even many first e-Residents were not sure what problems this would solve for them,” Korjus acknowledged.
Nonetheless, if the numerous warnings of the risks of bitcoin are accurate, such digital currencies may be a major problem without a solution of any kind.
For instance, on December 17 Lars Rohde, governor of Denmark’s central bank, described bitcoin as “deadly,” and a “bubble out of control.”
In an interview with state media outlet DR, Rohde told Danes to “stay away” from Bitcoin, comparing buzz around the cryptocurrency to the 17th century mania that surrounded tulips, and suggested they were only an effective alternative to casinos.
His intervention followed Bitcoin Suisse announcing a three-year sponsorship of major league hockey team Rungsted Seier Capital — as part of the deal, the team’s top player will receive his wages in Bitcoin, while the team’s home stadium will be renamed “Bitcoin Arena.”
Stephen Poloz, governor of the Bank of Canada, said the “noise” surrounding cryptocurrencies “kept him awake at night,” and was quick to stress investors had no control of the value of their holdings.
Similarly, Andrew Bailey, head of UK financial market regulator the Financial Conduct Authority, warned BBC Newsnight bitcoin was not a real currency and investors could lose all their money.
Bitcoin has soared in value this year, rising over 1,000 percent against the dollar as of December 19 — its valuation stands at all time high of $17,325 — but Bailey said little was known about what drives the price of bitcoin.
He also cautioned the use of the term “currency” to describe bitcoin was misleading, and was causing people to erroneously regard it as a “fiat currency” — backed by a central authority, which is what preserves the value of the currency.
The UK government is planning to crack down on bitcoin and other cryptocurrencies in response to such concerns, with an eye to passing legislation compelling traders to reveal their identities in some circumstances, and online platforms where cryptocurrencies are traded to carry out due diligence on buyers.