Estonia’s “Estcoin” is a Nakamoto Scheme

Today we learn that Estonia’s Estcoin is still charging full speed ahead, despite the fact that European Central Bank supremo Mario Draghi more or less shot down the idea back in September:

From the Estcoin announcement blog post by project lead Kaspar Korjus:

Much of the criticism of estcoin was based on the fact that Estonia simply can’t start its own cryptocurrency even if it wanted to. Estonia’s only currency is the euro and this is an essential feature of our EU membership, which we are proud to have. No one here is interested in changing that.

That’s why we have always referred to estcoin as a proposed ‘crypto token’.

Actually, you’re still calling it “Estcoin.” You know, “coin.” As in currency. But I digress.

Kill it with fire, Mario

Lest we forget what the European Central Bank said about the Estcoin proposal back in October, I will repeat it here:

“No member state can introduce its own currency; the currency of the euro zone is the euro.”

So if it’s not a legal, national currency, what is Estcoin? Estonia says

“Governments do need to consider the disruptive impact of how crypto tokens can be used as currency because they provide a more efficient means for exchanging value globally. However, crypto tokens have far more significance than their use as a currency and don’t necessarily fall into that category.

“From Estonia’s perspective, estcoins were proposed as a way to raise money and support for the development of our digital nation from more people around the world. We would also want to structure the tokens so that they help build our e-resident community and incentivise our own key objective, which is to increase the number of companies started in Estonia through e-Residency.”

Ok, I get it. So Estcoin isn’t a currency, it’s a share or some kind of fund unit in a proposed national investment platform?

Not quite, per Estonia’s e-residency folks:

“What problem does estcoin solve for people who hold estcoins? This is another key and commonly repeated criticism of the proposal that estcoin is ‘a solution looking for a problem’. Since the proposal was published, I’ve been repeatedly asking audiences if they would be interested in purchasing estcoins and the response is a resounding yes, even if they are not always sure why yet.”

So Estcoin is

  • Something we are expected to buy,
  • That is called a “coin” but isn’t a currency,
  • That isn’t a share or other contractual investment,
  • That other people will also want to buy because it goes up in value,
  • Even though no one, including the Estonian E-Residency team, can say what the financial product being created will actually do or how it will work.

There is only one name for such a messy hodgepodge of unclear promises bundled together in something that isn’t a contract of any kind but is nonetheless intended to be an investment.

Estcoin is a state-sponsored Nakamoto Scheme. Sensible people with solid financial services experience in the Estonian government –  or, as a last resort, the EU institutions – can’t intervene and get some grown-ups in the room quickly enough.

 

800px-Marmota_flaviventris_standing_S_of_Donahue_Pass.jpg
This marmot disapproves of Estcoin