After taking a look at the Libra White Paper, I posted about the potential and some of the challenges that face the new digital currency, even before it gets off the ground.

The potential is exciting though, especially for those in emerging markets who may for the first time have direct access to a stable currency other than their home country’s currency. The key issue for emerging markets may be the exchange rate offered for rapidly inflating currencies and how the fund backing Libra would be able to manage accepting these currencies without incurring huge losses.

Nevertheless the potential still remains. Entrepreneurs in emerging countries will have the chance to earn income in a stable currency from anywhere in the world. The question still remains though, what if governments step in and start to get their hands into the accounts that hold this currency. If they are an entity that is regulated locally, they will have no choice but to go by what local government says, no matter how crazy they are (think Venezuela).

There is an alternative I came across the other day though. I featured this on my IG post today and touched on the potential benefits of it and wanted to expand more on it here.

Estonia and e-Residency

That alternative is called e-Residency and is offered by the small Baltic country of Estonia (or e-Estonia as they like to call it). Estonia is an EU member state with just 1.6 million people but happens to be one of the most digitally progressive countries in the world.

Residents can register companies, open bank accounts, pay taxes and even vote, all online.

Source: Running Remote

What e-Residency is Not

The name is a little deceiving though and was a bit of poor marketing on their part. The e-Residency program in no way offers traditional residency in the country. That is, you don’t get a passport or any rights to stay in the EU. You don’t have access to public services like healthcare or the public pension.

What e-Residency Is

What it is, is essentially a way for you to open and register an Estonia (and therefore EU) based company. The advantages of this are:

• 0% corporate tax and 20% flat income tax
• The ability to open a euro currency or multi-currency bank account
• More trust from customers due to incorporating in an EU state
• Access to online services such as PayPal, that you may not have access to in your home country
• Modern banking that can be managed remotely
• Saving of time and money by using secure government software

Essentially what this means is legitimacy for someone or a business that may find it challenging selling to developed country clients. For example, a customer in France who, upon buying a product or service, would then have to make a payment to a bank in say, Pakistan, may be hesitant and would much prefer to pay into an EU based account. With e-residency, this is no problem.

That first part about taxes may have caught your eye as well, especially if you are a US citizen. Beware though, because the most recent Trump tax bill passed in 2017, has a specific provision aimed at US citizens who control foreign companies.

In the case of Estonia, they do have a tax treaty with the US though, so unlike countries like the UAE or the Bahamas, that have no tax treaty with the US, the rules for Estonia are more strait forward. Even with the new tax plan in place, I did find that for those sophisticated clients (i.e. rich) Estonia may actually offer a tax advantage for those willing to go to the trouble.

Combining e-Residency with Crypto

We are in the beginning stages of what may be the first motions towards creating global citizens on the individual level. Meaning that in the future you will be able to create a company and make money online, that can do business essentially anywhere in the world without having to go through the fuss of an overreaching or corrupt government. Your money and your company can achieve stability and location independence no matter where you are which gives people the opportunity to focus on making their product or service the best it can be as opposed to worrying about regulation and compliance.

In essence, this is the digital nomad’s dream. The exchange for a stable digital currency, would eliminate the administrative hassle of having to deal with bank routing and foreign currency risk. e-Residency allows them to establish a reputable company in a developed market and pay taxes transparently and quickly.

As I have pointed out before, the big problem with other crypto currencies like Bitcoin is that they have no link to real world valuation and can be easily manipulated, so no one knows what they are worth and they never have a stable enough value to be able to plan for the future with.

Connecting the Two

For the moment there still may be a missing link depending on how Libra is rolled out. That link would be how to open a business account within Libra or whether banks will start to accept Libra deposits.

If Libra is only going to be for individual accounts, it may limit the scope of what can be done with the currency and how it can move internationally.

If banks however, start to accept Libra deposits as part of a multi currency account, it could be a game changer for Estonia. This is especially true if the first bank in is one within the EU. Libra was established in Switzerland and there are already 2 FinTechs that are expected to get approval for a crypto banking license.

I’m sure other developed country regulators are watching these developments and seeing if the Swiss can pull off really having crypto on a big scale without tainted money flowing into the system. Although it is just in the initial stages, these kind of pioneering endeavors will eventually open more doors and spurn new innovation that could change the landscape of banking and what it means to be an entrepreneur.

Conclusion

Since I am in a developed country, the e-Residency program is not as attractive for me at the moment. I am still able to do a lot of work and earn money all over the world through my bank or through PayPal. I do recognize the huge potential in the untapped banking and business markets around the world and these two attempts at solutions to get around the walls that hold up traditional finance.

With programs like e-residency and Libra the future is looking brighter for those talented people in many countries who just may need their government to get out of the way to succeed.

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