E-residency: A digital answer to populism?

A flag of digital Estonia. Made by Zwiggy

Globalisation’s rapid growth has disrupted the lives of billions, provoking a protectionist backlash that continues to unfold. Russian-backed populists steadily advance against Western elections. Governments harried by angry protesters mull tariffs and expand infant industry protection. Business leaders ponder the consequences of potential barriers to trade for future profits. Estonia, a global digital leader, offers a solution for fearful business leaders and policymakers in its e-residency program. Its benefits are twofold: strengthening national cybersecurity measures to protect essential services and softening globalisation’s disruptive nature by facilitating individual access to the digital marketplace.

Estonia’s path to developing e-residency began with a debilitating nation-wide cyberattack in 2007. Following a Soviet-era statue’s removal from central Tallinn, intercommunal riots between Russian-speakers and Estonian-speakers erupted. The Kremlin blamed Estonia’s strict language legislation for the discontent, raising the specter of Russian meddling in neighbors’ affairs. Soon after, Russia-based denial of service (DDoS) attacks hit Estonia. Financial services became inaccessible, energy provision stalled, and the internet’s security mechanisms drowned under incessant “ping attacks.” Estonian leaders soon realized how well-managed digital sabotage could paralyse a country and defeat it before physical hostilities began. In response, the government launched an ambitious project to secure their digital infrastructure and public services.

E-residency presently helps individuals start companies within the EU trade bloc; but is applicable to other spheres of economic life. For 100 euros and a background check, anyone can become an Estonian e-resident. Critically, Estonian e-residency differs from Estonian citizenship; it does not confer freedom of movement within the EU or specific civil and political rights. E-residency nonetheless confers numerous benefits, primarily on business owners and entrepreneurs:

1. Estonian laws’ transparency and strict EU norms
2. Advanced blockchain protection (discussed later)
3. Benefits of Estonian EU membership, such as avoiding restrictive tariffs and other Union-wide policies designed to protect smaller EU-based business from multinationals’ competition.

E-residency is a transformational concept which bodes well for countries seeking an effective response to globalization’s economic and political challengers.

From the point of view of government, e-residency introduces good digital practices and secures individuals’ data – prime concerns in this era of cyber-interference and disinformation. Even after the 2007 attacks, Russia continues digital probing, engaging in industrial espionage, forming a “troll army” to harass detractors, and interfering with Western elections. The latter is particularly relevant for e-residents as Russian hackers target the very services which Estonia transferred to the cloud. In the 2016 U.S. presidential election, Democratic candidate Hillary Clinton’s adviser John Podesta’s emails were breached by a spear phishing scam, where hackers sent a seemingly legitimate message filled with code that opened a backdoor for the criminals to take personal information. Two-factor authentication would have prevented the data breach.

By inadvertently revealing his password, Podesta left himself vulnerable to foreign attacks. E-residency addresses existing vulnerabilities in social media and cloud storage by using blockchain, “a distributed ledger that can never be erased or rewritten,” preventing most types of malicious activity. Blockchain marks each record (block) with a timestamp and transaction data, making it inalterable. Digital guardianship thus replaces the human error present in third-party authentication. E-residency provides e-citizens with a digital ID card that contains their personal, business, even medical information on a single card. This is the idea behind the U.S. government’s PIV cards used in federal agencies. Multiple levels of protection and convenience provided by single storage minimize security concerns inherent to digital activity. Given that populism’s appeal surged amid growing citizen apathy and perceived government incompetence, using blockchain-protected electronic ledgers may increase governmental transparency, strengthening popular trust. Protection offered by e-residency can bolster citizens’ confidence in personal and national security, thus laying the groundwork for a thriving global business culture and good digital practices.

Working from the secure foundations of blockchain encryption, e-residents can build small and medium-sized enterprises (SMEs) within trading blocs, expanding markets to new entrants otherwise marginalised by multinational corporations. Voters fear that globalisation, disregards domestic preferences, favoring large international companies over smaller and more localised competitors. A 2016 Bloomberg Politics poll found that 60 per cent of Americans believe international trade exports more jobs than it creates, while 45 per cent of Europeans see globalisation as a threat in a November 2016 poll. Fearing unemployment and stagnation, desperate people see protectionism as salvation.

E-residency offers the opportunity to rectify historic imbalances and even preserve some competition within a protectionist system. Current e-residency services deliberately exclude large companies, limiting eligibility to individuals and SMEs. Adam Rang, Head of Location-Independent Investment at the Republic of Estonia’s e-Residency program, writes: “These companies have complex needs and considerations, as well as fixed locations, so do not benefit from reducing their administrative overheads online through location-independence in the same way that smaller and single-person companies can.” All e-residents use Estonian e-services and consultants, keeping profits local by bolstering the local IT and intellectual property industries. E-residency thus levels the economic playing field as local companies retain competitiveness and SMEs avoid monopolies’ hegemony.

Small businesses can reduce costs with e-residency, permitting investment into expansion as well as R&D. When tariffs increase and countries form protectionist blocs, larger companies must downsize due to their size and prominence. Smaller enterprises, however, may file for e-residency and remain within the tariff zone due to the favorable regulations described above. Estonia’s e-residents can access all 28 EU economies, offering limitless opportunities for businesses to grow. Limitations on e-residency, coupled with laws tailored to SMEs, can possibly offset the past twenty years’ imbalance in smaller and local firms’ favor. 

E-residency is a new, little-used concept. Few countries boast the digital infrastructure let alone the political stability to maintain such a system. Estonia’s prospering democracy suggests that investing in digital residency and blockchain-protected public services can foster integration and a safer, more open world while blunting the damage caused by globalisation’s populist aftershocks.

Samuel G. Kramer is a Master’s candidate at Georgetown University’s Edmund S. Walsh School of Foreign Service in the Center for European, Eurasian, and East European Studies. The views expressed in this article are his own.

cyber war, Estonia