The Future of e-Residency

Comistar is a service provider on the e-Residency marketplace. Because of that, our business is somewhat dependent on the success of the e-Residency program. As a result, we try to think about the future of the e-Residency and how that future may affect our business.

It’s very unlikely that there will be negative developments in terms of what e-Residency is and how it works today. I am more concerned that if there are no improvements to the value proposition, then other countries will catch up. Azerbaijan already has its own digital-id project, but as it’s not a European country then it’s hard to see them as competitors.

But why am I talking about in terms of competition? Because it is a competition. For talent, investments, ideas. And if you’re a small country like Estonia, you have to compete. There’s no domestic market or natural resources. The attractiveness of our business environment is one of the keys to the success of Estonia.  As it is for Hong Kong, Singapore, Ireland, Latvia, and many other jurisdictions in a similar position.

And you can even see this competition playing out in the US between different States. Many businesses from San Francisco, New York and LA are fleeing to Texas and Florida. Because Texas and Florida have better tax regimes for businesses.

It’s the same in the European Union. Many entrepreneurs from highly bureaucratic and high-tax regimes are choosing Estonia, Malta or Gibraltar (due to Brexit the status of Gibraltar has changed as well) as their place of business. It’s completely understandable.

And while domestic markets of France and Spain are still attractive and sufficient for local entrepreneurs, it’s still hurting these countries when tons of their productive (and wealthy) people are choosing to relocate their businesses or even their whole lives.

As a result, you would think that countries like France or Spain would then try to improve their business and tax environment. But that’s not how the officials think. Their thought process is completely different. They are looking for ways to punish anyone who is leaving the country. For example, Finland has a rule where entrepreneurs who leave the country have to pay dividend tax to Finland for three years after leaving!

That has been a rather long intro to some of the potential future scenarios for e-Residency. So let’s dig into that!

The Future of e-Residency

There’s definitely room for improvement for e-Residency in the future. And one of the obvious improvements would be losing the physical card. The necessity to pick-up the physical card is the main bottleneck for scaling the program. And we’re talking about digital-id, so why do we have physical card part of the equation at all?

Currently, the necessity comes from the regulation and more importantly, from the need to identify the applicant of the e-Residency card. Thus, when an approved e-Resident picks up the e-Residency card, then he or she will need to provide fingerprints. And for Estonia to have a sustainable and safe e-Residency ecosystem, it’s important that all applicants are identified properly.

E-Residency concept was introduced back in 2014. In 2021, with the rise of the KYC software in recent years, we now have better tools and ways to identify people. And these new tools should satisfy any need the e-Residency program has for the identification process.

The problem with the physical cards (and this problem has been amplified greatly by the Covid situation) hasn’t gone unnoticed on the state level. The process of solving this issue has been started. Which means that soon the e-Residency will be accessible to many more people once it’s fully digital.

Value proposition

The second thing that I would like to talk about is the value proposition. Today, the value proposition of e-Residency is simple: open & manage your location independent business in Europe in a low bureaucracy environment.

This value proposition mainly appeals to starting entrepreneurs. And for this audience, I think there’s room for a better value proposition. I think it would be possible to provide more tools for these entrepreneurs.

These tools could be:

– Marketplace of mentors– Different software tools to manage the company– Courses (marketing, sales, etc)– Collaboration platform– Masterminds– Financing– Banking (solved today, but not perfectly)– Accelerator program

And there are more things like these that could really benefit the e-Residency entrepreneurs. So they would have a higher chance of building successful businesses. And become better entrepreneurs.

To develop any of these ideas I’ve outlined, it would need a different kind of focus and resources than the e-Residency team has today. And let’s not forget that e-Residency is a novel concept, and the first priority is to build a strong and reliable foundation.

And perhaps these tools should be developed by market participants like Comistar (i.e we already have software built to manage the company, we have banking marketplace at bankapply.eu, etc).

Pushing and building for a higher value proposition is how I see the Estonian e-Residency future to play out. And it would be a platform that gives you much, much more than what it gives you today.

But don’t make the wrong conclusions about the value proposition e-Residency has today. An easy and cost-effective way to start and run a business isn’t a bad value proposition. It’s a great one.

All I am saying is that it can be improved.

Blockchain Initiatives

A couple of years ago there was a plan to introduce Estonian own cryptocurrency. And e-Residency marketplace members could transact and use that cryptocurrency to pay and unlock the state services, etc.

While this idea is off the table at the moment, I think it might make sense to re-visit some of these initiatives. And improve on these ideas. We’ve seen the rise of DeFi (decentralized finance) and the whole crypto space has matured and improved a lot since e-Residency team discussed different possibilities in regards to cryptocurrencies.

I think it’s worth thinking about if we’d like to cultivate the community and collaboration. The way blockchain applications/projects are built and governed by the community is where I see the world moving. Where many different stakeholders can contribute and earn rewards doing so.

There could be a voting mechanism for future developments, credit markets (lending protocol), staking and many other possibilities which could unlock additional revenue streams.

I know it’s a bit optimistic scenario to hope for.

But optimists are the ones who change the world.

What do you think? What’s the future for e-Residency?