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The Future of Digital Identity: Exploring the Digital Wallet and Euro in Estonia

Together with experts, we explored the concept of digital wallets, their opportunities, and the challenges related to developing this digital solution. The discussion was moderated by Henrik Roonemaa and featured electronic identity expert Riho Kurg, Cybernetica software architect Mattias Lass, and Rainer Olt, head of Eesti Pank's payment and settlement systems department.

What is a digital wallet? The term "digital wallet" or, more precisely, "digital identity wallet," refers to electronic personal identity. Figuratively speaking, a digital wallet is a mobile application where you can store various identification documents, such as an ID card or driver's license. On the one hand, it allows you to prove your identity, and on the other hand, it can be used to verify identity at various institutions as needed. Additionally, a digital wallet can be used to provide a digital signature, making it a somewhat familiar solution for Estonian users, thanks to the ID card, mobile ID, and Smart ID. As a result, Estonians are in a strong position compared to some other European countries. However, it must be considered that technologies need to evolve, and the ID card is already 23 years old.

The obligation to create digital wallets has been imposed on Estonia and other countries by the European Union. The requirements and standards applicable to digital wallets have been established centrally. For example, the wallet must support the presentation of various documents, which is why the currently widely used Smart ID in the Baltics does not meet the required standards. However, the wallet can operate on similar principles, such as using PIN1 and PIN2 for authentication and signing, respectively. Smart ID and the ID card will continue to be used in the future, but primarily at the domestic level.

Will the digital euro be added to the digital wallet? It is still too early to answer this question definitively, as the inclusion of the euro in digital wallets will be a future development. The decision to create a digital euro has not yet been made, but active work is underway to establish the necessary legal framework and other preparations. In Estonia, the Estonian Bank handles matters related to the digital euro.

The digital euro has several goals: Firstly, it enables money to be stored on a mobile phone and used for transactions without an internet connection, creating offline private money circulation. The use of digital euros is fundamentally similar to cash, meaning that neither the central system nor the bank receives information about the transactions—an innovation at the system level. Another important goal is to ensure that purchases can be paid for in the same way across the eurozone. Estonians are accustomed to the widespread use of debit cards, but in other European countries, cash is more commonly used. With the digital euro, there would be no need to worry about carrying or obtaining cash. Finally, perhaps the most important goal for Estonia, is enhancing crisis resilience by providing an alternative to bank cards and cash. This solution would be especially useful in situations where banking systems are down and ATMs and card payments are disrupted. However, it is certain that cash and bank cards will not disappear with the introduction of the digital euro.

Digital wallets are being developed by each European country according to their specific needs and capabilities. Since Estonia already uses various national e-services, end users have higher expectations, but it is also easier to integrate documents into the wallet from a technological perspective. Estonia has many opportunities that others do not, along with established habits of using digital solutions, so these should be maximized.

In Estonia, the digital wallet project and its implementation are managed by the Information System Authority of the Republic of Estonia. In cooperation with Cybernetica, an analysis of what a digital wallet means for Estonia and what needs to be done to create it has been completed. They concluded that reinventing the wheel would be unwise and that the solution could be similar to Smart ID. At the beginning of this year, a prototype was built, and an initial mobile application was created, where, in addition to the ID card, a digital driver's license could also be added. For example, if you use a digital wallet to log in to an online bank, you would be directed to the wallet, where you would enter the PIN code, and then be redirected back to the e-service. The next step is for the government to decide how and with whom to proceed with the wallet’s development.

The digital wallet also raises several security-related questions. As the system expands in functionality and more external vectors are added, this inherently decreases the level of security. There is also a new potential for attacks, as the wallet allows identity verification based on a QR code. However, care must be taken to ensure that the code scanner verifies the person’s identity rather than stealing it. This requires vigilance from wallet users, highlighting the need for corresponding public awareness efforts. Security and privacy aspects are also critical for the digital euro, and these are being strongly emphasized in both the technical and legal framework creation.

When will the digital wallet be on our phones? It must be available to citizens of the European Union and accepted in all EU countries by November 3, 2026, provided that the European Commission adopts the necessary implementing acts. The preparation period for the digital euro started in November last year, and work on its regulation is proceeding in parallel. For both projects, use cases have been or are being carried out, providing important insights into the use of digital solutions. Time will tell what the digital wallet and the euro will look like and how we will use them.

We would like to thank all the expert panelists for their contributions to the discussion! 
Please note that the video recording of the discussion in Estonian is available on YouTube: