Why ripples from this Estonian blockchain experiment may be felt around the world

Later this year, Estonia's e-residency scheme to create a transnational digital identity will be coupled with Nasdaq's blockchain technology in an experimental shareholder e-voting scheme.
Written by Kalev Aasmae, Contributor
Tallinn, Estonia New City

Talinn's New City - the site of groundbreaking corporate e-governance.

Image: iStock

A tech pilot scheme to be launched this year in Estonia could set an example for future developments worldwide in how listed companies handle shareholder governance.

US stock-market firm Nasdaq is aiming to give Estonian e-residents and Estonian citizens who are shareholders in firms listed on its Tallinn stock exchange an opportunity to vote securely online in shareholder meetings.

The potential significance of the pilot scheme is the electronic system's speed and efficiency compared with traditional proxy-based voting.

For the e-voting process, Estonia's e-residency platform will be used to authenticate e-resident shareholders in shareholder meetings. Nasdaq's blockchain technology, based on the distributed public ledger that underpins Bitcoin transactions, will be then applied to record votes quickly and securely.

Another potential advantage of this approach is that it could entice more people to join the country's e-residency initiative.

E-residency project head Kaspar Korjus believes that the collaboration with Nasdaq isn't just good for his country's plan to give Estonian citizens and residents a digital identity, or for the local stock exchange, but it could be a starting point for something bigger.

"When we started the e-residency project a year ago, we knew we would change the way people think about nations and citizenship. Now, with our e-voting collaboration with Nasdaq, we will be revolutionizing corporate governance," he said in a statement.

The concept of Estonian e-residency emerged in 2014 as a transnational digital identity, available to anyone in the world interested in administering a location-independent business online.

Applicants for e-residency are fingerprinted and background-checked by the Estonian state. Once approved, the new e-resident is issued an electronic ID card which, in combination with a four-digit pin, can be used for secure digital identification.

E-resident entrepreneurs and freelancers can open and run location-independent businesses online, apply for a bank account and conduct e-banking, get access to international payment service providers, declare taxes, sign all relevant documents and contracts remotely-- these digital signatures have the same legal status as handwritten ones -- and get easier access to EU markets.

By the end of February over 9,200 people from over 127 countries had applied for Estonian e-residency, with citizens of Finland, Russia, and the US being the most interested in it. Some 94 percent of applicants, or 8,669, people have been approved so far. Altogether, they have founded 291 companies.

Co-operation with Estonia is also very important for Nasdaq because blockchain technology is a new development area, which in the words of Nasdaq CEO Bob Greifeld "could revolutionize the core of capital markets infrastructure systems".

In fact, proxy voting is only the second official blockchain project that Nasdaq has undertaken, the first being private securities issuance between an investor and company, which was announced in December last year.

For this transaction, Nasdaq enabled the issuer to represent a record of ownership digitally using Nasdaq Linq, while significantly reducing settlement time and eliminating the need for paper stock certificates.

Nasdaq plans to test blockchain technology as an alternative to other traditional processes, such as expediting trade settlements for transactions in public markets.

"On the heels of the successful execution of a blockchain transaction in the US private market, we are pleased to further advance this technology in Estonia," Nasdaq president Hans-Ole Jochumsen said in a statement, adding that Estonia was chosen for the e-voting pilot, because of its "robust information society and forward thinking coupled with the agility its size affords".

Jochumsen said Nasdaq is looking forward "to working closely with the government of Estonia to set a transformative example of the future of governance".

Read more about Estonian tech

Editorial standards