Estonian Flag, by alexliivet, via Flickr
Image: Estonian Flag, by alexliivet, via Flickr

The small Baltic state of Estonia is rapidly emerging as a leading blockchain hub, now hosting some 700 blockchain companies with foreign shareholders and challenging the Swiss city of Zug, also known as Crypto Valley, according to a new research by ORS CryptoHound, a blockchain and artificial intelligence (AI) analytics startup.

ORS CryptoHound, which interviewed Estonian law firms, software developers and corporate services providers including NJORD Estonia, Comistar Estonia, Guardtime, Private Financial Services, Eesti Consulting, KRM Advisor and Consulting24.co, found that the four pillars that have helped Estonia pave its way to success are the possibility to set up and run businesses online, 0% taxes on undistributed profits, the ease of obtaining a cryptocurrency license, and advanced anti-money laundering regulations.

“Many entrepreneurs relocate their blockchain businesses to Estonia due to existing cryptocurrency regulations, favorable tax regime, and ease of doing business. More than 700 cryptocurrency/blockchain companies with foreign shareholders are running their blockchain business from Estonia,” said Dmitri Lihno, the head of Private Financial Services’ Estonian branch.

“I would say that Estonia is one of the world’s leaders in passing to a digital society and adopting blockchain. My counterparts from different countries are awed by the fact that one can set up a company in Estonia online in 20-30 minutes, and file taxes with a couple of clicks.”

Estonia has been building out its e-government since the mid-90s, and today still, the program continues to make headlines with bold digital initiatives including the e-Residency program, which allows non-Estonians access to Estonian services such as company formation, banking, payment processing and taxation.

e-Estonia, a movement by the government to facilitate citizen interactions with the state through the use of electronic solutions, has birthed e-services such as i-Voting, e-Tax Board, e-Business, e-Banking, e-Ticket, e-School, University via internet, the e-Governance Academy, as well as the release of several mobile applications.

These digital initiatives earned the country a spot in the highest echelons of the United Nations’ E-Government Development Index.

Mikk Maal from Comistar Estonia referred to the country as “the most digital society in the whole world.” He mentioned that members of their parliament hold sessions online, and foreigners can run Estonian businesses remotely via their e-Residency program.

As part of the e-Estonian movement, the government and public sector have been early adopters of blockchain, starting testing the technology in 2008. Since 2012, blockchain has been in production use in Estonia to protect national data, e-services and smart devices both in the public and private sector.

“The whole Estonian ID-card system is built on an early blockchain technology called Keyless Signature Infrastructure (KSI),” said Mikk Maal, a co-founder of Comistar Estonia.

“In Estonia, the ID-card is used not only for identification, but also for accessing and using various state services, including but not limited to voting, tax reporting, education, company formation, etc. I would say Estonia benefited a lot from blockchain technology even before it became so popular.”

The Estonian KSI Blockchain technology currently protects a number of different Estonian e-services, including e-Prescription database, e-Law and e-Court systems, e-Police data, e-Banking, the e-Business Register and the e-Land Registry.

“[The technology] shows information about companies in the Estonian e-Business Register, e-Land register, and e-Court system, as well as provides insight into when and how this information has been changed,” explained Ain Aaviksoo, the general manager of Guardtime, a major software developer for Estonia’s e-society.