Estonia proposes estcoin, a government backed cryptocurrency, issued via an initial coin offering (ICO) after e-residency success

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Estonia is mulling its own version of bitcoin (Source: Getty)

Estonia is living up to its digital reputation and setting tongues wagging with its latest idea: its very own digital currency issued via an initial coin offering (ICO).

The buzz word of the moment in the heady world of cyptocurrencies, ICOs, are being used to raise cash via a digital token that's issued to investors.

What investors get back in return depends what the company offers, much like crowdfunding, but can be some sort of stake in the company or merely being able to use the blockchain-based software it's building. 

Read more: Estonia is ramping up its efforts to woo British entrepreneurs after Brexit

But what's on offer in a potential ICO of a nation state? That's exactly what Estonia wants to work out.

The head of its innovative e-residency programme has said the country is considering what the issuance of "estcoin", the country's very own digital currency, would look like.

In a blog post, Kaspar Korjus said: "Estcoins could be managed by the Republic of Estonia, but accessed by anyone in the world through its e-Residency programme and launched through an Initial Coin Offering (ICO)."

And the man behind the most succesful ICO to date which kicked off the trend is involved. Vitalik Buterin, the founder of Ethereum, (now the second most valuable cryptocurrency in the world) is offering his feedback on the project and suggest it could be a way for the country to attract international investment.

"An ICO within the e-Residency ecosystem would create a strong incentive alignment between e-residents and this fund, and beyond the economic aspect makes the e-residents feel like more of a community since there are more things they can do together,” he said.

Korjus said the money raised could be used in a similar way as Norway's multi-billion dollar oil fund, the largest sovereign wealth fund in the world, so it benefits both the investors and Estonians.

"The funds raised through estcoins could be managed through a Public Private Partnership (PPP) and only used as described in the agreement to actually help build the new digital nation," he said ambitiously. 

"This would enable Estonia to invest in new technologies and innovations for the public sector, from smart contracts to Artificial Intelligence, as well as make it technically scalable to benefit more people around the world. Estonia would then serve a model for how societies of the future can be served in the digital era."

He also suggested it could be used for a community run VC fund to back Estonian companies and those created by e-residents.

The company behind one of the biggest ever ICOs, Tezeos, has allocated part of its cash raise to traditional VC investing,

Read more: Unilever, Walmart, Nestle and IBM are starting a major blockchain project

But estcoins - which may not necessarily have that moniker - could also become a spendable cryptocurrency itself, like Ethereum's Ether token, not just in Estonia, but globally.

The Estonian government is looking for feedback on the idea to take it to the next stage.

"If there is support for this proposal, then the next stage before the ICO would be to provide a white paper that outlines the value of estcoins and how the investment will be used to develop our digital nation. It is likely to begin as a pilot project that can be scaled up based on demand," said Korjus.

Startups have raised $1.3bn so far this year from ICOs - more than half of that since June - sparking concern of a bubble in the as yet unregulated field.