Putin And Ethereum: A Match Made In Fintech

Photo credit: ALEXEY NIKOLSKY/AFP/Getty Images

Russian President Vladimir Putin endorsed cryptocurrency and Bitcoin rival, Ethereum, earlier this year. What does this mean for the future of the Russian technology industry and fintech in the long term? Is Russia one-step ahead with Burger King’s WhopperCoin? With geopolitics being at the forefront of everything Russia does and those experimenting with cryptocurrencies still in doubt and insecure, Putin’s interest was treated with caution.

Just yesterday, Russian state-owned development bank Vnesheconombank (VEB) and other government ministries unveiled a blockchain research center to be headquartered at the National University of Science and Technology in Moscow, as part of a digital initiative led by Putin. VEB chief Sergei Gorkov highlighted that this would lead to the development of blockchain with ‘a group of investment funds with external financing from both Russian and foreign investors,’ Gorkov said.

Alexander Dunaev, COO at emerging markets fintech company ID Finance, said that the Russian government is recognizing the change in financial services caused by technological disruption. ‘The last time the world saw such an unprecedented change was in the second half of the 20th century with the adoption of personal computers – which Russia missed due to geopolitical isolation. There is a lot of will to avoid this pitfall in the future.’

‘The Central Bank supports the changes enthusiastically. We see this in the creation of a legal framework to embrace fintech – we can draw attention to the liberalization of remote identification rules and general infrastructure sponsoring. It will be helpful to keep building on top of the current momentum with the adoption of the PSD2 rules to liberalize access to data,’ Dunaev said.

It could be said that Putin’s endorsement of Ethereum, the more tried and tested of the blockchain cryptocurrencies, came after being left behind as Dunaev mentioned. However, again, there is a lot of concern surrounding the growth of blockchain because of bitcoin’s association with money laundering. ‘The Russian judiciary treats bitcoins as the so called money surrogates which have previously been linked with fraudulent pyramid schemes and are now illegal for both companies and private individuals,’ Dunaev said.

According to Bloomberg, Putin was attracted to Ethereum as a ‘potential tool to help Russia diversify its economy beyond oil and gas’. After meeting Ethereum founder Vitalik Buterin, Putin said that ‘the digital economy isn’t a separate industry, it’s essentially the foundation for creating brand new business models,’ – critical after Russia’s recession. Vlad Martynov, adviser for non-profit organization The Ethereum Foundation, compared blockchain to the internet.

‘Blockchain may have the same effect on businesses that the emergence on the internet once had – it would change business models, and eliminate intermediaries such as escrow agents and clerks. If Russia implements it first, it will gain similar advantages to those the Western countries did at the start of the internet age,’ Martynov said. This attitude has led to a boom of a different kind this year in Russia, according to Dunaev.