The latest development out of Moscow is that Russia’s largest bank, Sberbank, and the Federal Antimonopoly Service (FAS) have launched a pilot program to increase the speed, reliability, and quality of exchanging documents, using blockchain technology.
Called “Digital Ecosystem for Exchanging Documents,” the project uses a blockchain for storing documents, allowing them to be transferred anywhere with an internet connection almost instantly, while electronic signatures make them cryptographically unforgeable.
Sberbank is the largest bank in Russia and all of eastern Europe by assets, and the third largest in Europe. At 175 years old, it has been both fully private and fully nationalized, but now exists with 51 percent ownership by the central bank of Russia, and the rest by private investors. With gross assets in January 2016 of 22 trillion roubles, or about $360 billion USD, Sberbank is worth just slightly less than the entire Russian Federation’s monetary reserves.
The Russian Federal Antimonopoly Service (FAS) is a central government department that exists to combat unfair business practices, and oversees antitrust law. Many industry-specific departments exist under FAS, including the Department for Control over Financial Markets and the Department for Control over Foreign Investment. Additionally, FAS regulates natural monopolies within the Federation.
The project team also includes Russian companies that could use similar solutions, including Aeroflot, Russian Coal, and ForteInvest.
“Digital Ecosystem is innovative because the document exchange process does not involve communications providers. The convenience of this solution and its cost-optimising effect is achieved by using the networks of its participants.”
– Stepan Kuznetsov, Managing Director of Sberbank’s Shared Services Department
The Russian Federation has an on-again, off-again attitude toward blockchain technology. A local Law previously banned any “surrogate” currency, including “virtual money” that isn’t approved by the Central Bank of Russia.
The laws been on the books since before bitcoin’s creation, and stipulated that entities introducing their own digital currencies faced fines of up to US$25,000. Distributors such as exchanges and sellers of surrogate currencies faced correctional labor, including being sent to a gulag for two years. However, no Russians have been convicted of these charges.
Several further bills to ban bitcoin have been proposed since 2014, but none have been passed by Russia’s legislative house. The latest bill to propose an outright ban came in April.
Three months later the leader of the Kremlin-allied Growth Party, Boris Titov, called for more blockchain research and a “ban on bans,” while claiming that more than two million people used Bitcoin in Russia.
“If today we were to attract the principal technologies and investors in Blockchain and cryptocurrency we would have the geographical and human resources to reach the advanced countries of the world not only in these areas, but completely.”
– Boris Titov, Russian politician and businessman
Within a few days every Russian newspaper had a headline about bitcoin and blockchains, and the Deputy Finance Minister of Russia, Alexei Moiseev, had the innovative idea of making bitcoin an official foreign currency. “The use is limited to issue foreign money in Russia is impossible. But currency can be bought, put in your pocket and go abroad,” the Finance Minister said. He planned to introduce a bill clarifying bitcoin in this way by the end of 2016.
On August 12, the main anti-bitcoin bill was formally abandoned. Sberbank started regularly talking about blockchains and joined a Russian blockchain consortium with the Central Bank of Russia. The bank’s plan on using a permissioned blockchain by Hyperledger, and have already completed a six-month test to estimate the consortium’s usefulness.
Other government projects, such as the Active Citizen voting network, with over 1.3 million users, started speaking up as well, telling the press that they feel blockchain technology’s legal status is stifling progress.
By the end of August, Moiseev was in the media discussing blockchain technology again, this time coming out against the previous “frontal prohibition” bill on Bitcoin. However, the Deputy Director of RosFinMonitoring, the country’s anti-counterfeiting agency, warned that the economy could “lead to total collapse” due to the use of cryptocurrencies, including Bitcoin.
“One may look at it as a challenge to national sovereignty, when there’s an injection of currency equivalents into the economy, equivalents which volume isn’t regulated and which value isn’t backed by anything.”
– Deputy Director Livadny, RosFinMonitoring (translated)
Sberbank’s CEO Herman Gref, who happens to be the former Economic Development Minister, has been one of Bitcoin’s most outspoken proponents in Russia this year. He opposed a bitcoin banning bill with Moiseev, advocating for less regulation of the nascent technology.
Gref argued that the country’s tech sector would risk falling behind other nations if they ban bitcoin, and predicted a technological regression in Russia should they ban the exchange of bitcoins for rubles.
“In my view, it is critically important to determine the role and position of the government and even better to stimulate instead of prohibit the development of groundbreaking technologies, namely the blockchain,” said the Sberbank CEO.
The country’s largest bitcoin exchange by volume, LocalBitcoins.com, was then blocked by Russia’s firewall. As the most popular way to get bitcoins in the country, the Finnish company very quickly put together some instructions to get around the blockade.
Trading volumes dipped a little, before quickly resuming. It was immediately apparent that Russia’s two-plus million bitcoin users had little trouble evading their national firewall.
Moiseev spoke to the press about Bitcoin again last week, stating that it “has not taken on a mass character that could pose a threat to our financial system right now.” However, he did leave room for doubt. “In the future, it could possibly emerge given that it is not regulated.”