Estonia Is Working on a Digital Currency—For Real This Time

Estonia’s central bank has announced it is working on a central bank digital currency (CBDC)—after years of teasing its interest in such an asset. 

Eesti Pank, the Bank of Estonia, said last Friday that it was working with its blockchain partner, Guardtime, and investment firm The SW7 Group, to research how a digital currency would benefit the country. 

In the run-up to the ICO-crazed crypto bubble of 2017, the managing director of Estonia’s e-residency program had hinted at the potential for a state-backed “estcoin” cryptocurrency, which spurred rumors that the technologically-advanced European country could be well on its way to releasing such an asset. In 2018, however, a government spokesperson for Estonia put that all to rest and said the nation had no plans to release a native digital currency.

But fast-forward to 2020—a time when nearly every central bank in the world says it is at least researching CBDCs—and the Baltic nation has changed course. 

The central bank’s Friday statement said they launched a “multi-year project” to “research how technologically suitable the Estonian e-government core technology is for operating a central bank digital currency.”

Eesti Pank’s research will look at whether the KSI Blockchain—a blockchain used by the Estonian government—is a suitable technology upon which to build its own digital currency. 

A CBDC is a digital currency pegged to a country’s fiat money, such as the US dollar or euro. No country yet has a fully-working CBDC but China is already in the process of testing a digital yuan. 

The idea is that CBDCs would work like cryptocurrencies but would be centralized—controlled by a state government or its central bank—unlike Bitcoin, Ethereum, or many other decentralized digital assets. 

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Eesti Pank said the project will last for two years. The first phase of the project will “determine how to architect a scalable, practically usable, and cryptographically secure platform to meet the needs of a central bank digital currency, including stringent requirements for speed, security, privacy and resilience.” 

Estonia’s central bank joins other banks in Europe that are looking into how a digitalized fiat currency could benefit their nations. 

The Bank of England is cautiously researching such a currency, and just last month, the European Central Bank applied to trademark the term “digital euro.”