E as in Estonia: EU’s Digitalization Spearhead With Debatable Blockchain Capabilities

News and Analysis

For an outsider, the stories about the digital age Estonians live in are fascinating. The country is widely considered to harbor the world’s most digitized society, most technology-enabled government, and first-ever blockchain system serving a state government.

Estonia is truly a pleasant place to live, we’ve checked. But right now we are more interested in the blockchain aspect of the country’s all-digital inner workings.

Being hailed as the blockchain pioneer, Estonia and its innovations leave room for certain misconceptions and exaggeration, especially regarding the country’s blockchain reliance. In this piece, we look for the actual role of the technology there.

e-Estonia: Nation-Wide Innovation Effort

Thanks to the e-Estonia Briefing Centre and e-estonia.com, there is quite a lot of readily available information on the digitization initiative led by the Estonian government. Therefore, let us highlight the basics and some of the notable aspects of the initiative.

The entire constellation of digitalized services and solutions encompassed by the e-Estonia initiative falls into 8 categories, each aimed at a particular aspect of governance, finance, data handling, and such. These categories are:

  • e-Identity
  • interoperability;
  • security and safety;
  • healthcare;
  • e-governance;
  • mobility services;
  • business and finance;
  • education.

The system built by the country provides the Estonian citizens and residents with electronic identity cards that allow their holders to digitally sign documents, participate in voting, check medical records, submit tax statements, and so forth. According to e-estonia.com, about 98% of Estonia’s 1.3 million people have ID-cards. The adjacent e-Residency program allows foreign nationals to run a “location-independent EU business” through the internet, including signing documents and accessing payment providers.

“Filling in your tax statement takes about three minutes. Everything is actually done by the Tax Department that probably uses AI or something like that. All you have to do is make sure everything’s right and digitally sign it. They even tell you how much they owe you for your overpaid taxes, and you just tell them where to send it. You can sign it with your ID or your phone, the choice is yours, and everything is secure. You get the same thing when it comes to insurance, health care, driver’s license, ID paperwork, and stuff. It never took me more than ten minutes online to do any kind of bureaucracy. Actually, it looks nearly perfect to me,” Helga, an Estonian resident, told forklog.media.

The country’s law is also made online. Each new proposal gets to the e-Law online database for the Estonian Ministry of Justice, where everybody can see all the submitted proposals and amendments made to those.

Similarly, the police and medics are also connected to the government’s online services. In such a way, the emergency respondents can access the personal records of their suspects or patients, as well as coordinate and communicate with their colleagues. There is also a database and an information exchange system facilitating the workings of Estonia’s courts.

Unsurprisingly, there’s also an online voting system called i-Voting. Since 2005, Estonians can vote online using their ID from a computer anywhere in the world, given there is internet access. As a deterrent against forced or bought voting, the system allows voters to cast an arbitrary number ballots in the given time, each new vote canceling the previous.

The whole digital infrastructure is tied together with X-Road, a data-exchange platform and the less-noticeable workhorse behind the digital republic. Logically, the myriad of digital government services and agencies generate a lot of data. As there is no centralized database to hold all of it, each agency keeps the data it produces. X-Road reportedly allows entities within the ecosystem to exchange data securely.

Data exchange scheme showing X-Road linking parts of the ecosystem

Data exchange scheme showing X-Road linking parts of the ecosystem. Source: RIA.ee

X-Road is a distributed and centrally-managed system that forms an integration layer for the entire ecosystem. It appears that this particular system gave rise to one of the misconceptions about Estonia’s blockchain involvement.

As much so that the developer of the tech, the Nordic Institute for Interoperability Solutions (NIIS), published a report explaining that the X-Road system is not, in fact, a blockchain. The misconception “X-Road is blockchain-based” is likely tied to the fact that X-Road utilizes cryptographic hash functions to link data entries.

“Cryptographic hash functions existed well before blockchain so even if both blockchain and X-Road use them does not mean that X-Road is based on blockchain. Both bicycles and cars have wheels, but we don’t say that a car is based on a bicycle just because the bicycle was the first one to use wheels. The same goes for blockchain and X-Road,” the NIIS report reads.

“But where is the blockchain then,” keen readers might be asking by now.

Admittedly, there are a lot of contradicting interpretations regarding blockchain tech in Estonia’s e-services. Although, there is this one particular system explicitly using the word “blockchain.”

KSI Blockchain?

According to the e-Estonia website, “KSI is a blockchain technology designed in Estonia and used globally to make sure networks, systems and data are free of compromise, all while retaining 100% data privacy.” Notably, the same technology is also used by the NATO Cooperative Cyber Defense Center of Excellence and the EU IT Agency (EU-LISA).

“Estonia was the first Nation-State in the world to deploy blockchain technology in production systems—in 2012 with the Succession Registry kept by the Ministry of Justice,” reads the PWC’s “Estonia—the Digital Republic Secured by Blockchain” report, briefly describing KSI Blockchain, 

The developer of KSI (Keyless Signature Infrastructure), Guardtime, claims that the technology does involve blockchain, albeit with a few caveats.

“Unlike traditional digital signature approaches, e.g.. Public Key Infrastructure (PKI), that depend on asymmetric key cryptography, KSI uses only hash-function cryptography, allowing verification to rely only on the security of hash-functions and the availability of a public ledger commonly referred to as a blockchain.”

Conveniently, the term “blockchain” is also defined. In this case, it is a “distributed public record of events; an append-only record of events where each new event is cryptographically linked to the previous. New entries are created using a distributed consensus protocol.” The creators imply that the KSI Blockchain system satisfies this definition.

The KSI Blockchain doesn’t store data, but the hash-values calculated for particular pieces of data in the ecosystem. As hashes usually do, these values can represent the data in a unique way, so they can be used as proof that the data hasn’t been tampered with.

“Data never leaves the system; only hash is sent to blockchain service. As no data is stored on the KSI Blockchain, it can scale to provide immutability for petabytes of data, every second,” states PWC’s report.

Indeed, the system is claimed to be able to process 1012 entries per second. That’s nothing to shake a stick at. The developers have achieved this feat by limiting the number of participants in the system, which allows “to achieve consensus synchronously, eliminating the need for Proof of Work and ensuring settlement can occur within one second.” So, there should be some consensus algorithm and not a computation-intensive one.

Back in 2017, David Gerard, a cryptocurrency journalist, made a series of suggestions as to whether KSI Blockchain should be called a blockchain. He noted that “the blockchain bit of KSI” is probably the glorified Merkle tree.

According to a PDF on Guardtime’s KSI, their blockchain is, in fact, a published calendar Merkle tree, also referred to as a hash calendar.

“Calendar Merkel tree is distributed publicly—it is the ‘blockchain database,” the document reads.

Notably, the KSI Blockchain technology is said to have been created back in 2007. This fact doesn’t sound right, given that Satoshi’s whitepaper wasn’t even out there yet. Although, the word “blockchain” is occasionally used rather liberally since the tech got picked up. It is likely that it was retroactively applied to a certain scope of technologies that evolved into today’s KSI Blockchain.

It Works, Blockchain or Not

With the lack of substantial technical details and arbitrary usage of the term “blockchain,” the question of whether KSI Blockchain is, in fact, a blockchain, gets uncomfortably close to a theological discussion. What appears to be more important is the difference Estonia’s digital ecosystem makes for its own citizens and foreign residents.

In this regard, the e-Estonia website boasts a range of accolades: #1 by start-up friendliness, #2 in the internet freedom rating, #1 by digital health, and entrepreneurial activity. Moreover, the initiative helped the once-struggling republic recovering from the occupation by the Soviets to overcome corruption, eliminate a lot of bureaucracy, and make it to the world’s top positions in terms of human rights protection, free press, democracy, and economic freedom. As a cherry on top, the country is quite welcoming towards blockchain and crypto-companies.

Blockchain or not, it seems to do the job and we should have more of that.

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