Russia’s state-controlled bank, Vneshekonombank (VEB), expects to become a vehicle for a blockchain revolution in the country’s public sector.
The bank is opening Russia’s first blockchain competence centre in Moscow at the National University of Science and Technology (MISIS) as part of a wider strategy to introduce the technology.
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“There are very many possible directions for blockchain applications, such as property rights registration and document issuing or smart contract technology,” said VEB chairman Sergei Gorkov.
“We also see prospects for the introduction of blockchain in processes related to procurement. Blockchain provides great opportunities to optimise procurement, which it can make open and transparent.”
VEB’s plans for blockchain are in line with the Russian government’s recently announced strategy for developing the digital economy as the country tries to reduce its dependence on energy supply exports and become a global player in technology.
“Russia had two options for its technological development,” said Vladimir Demin, head of VEB’s blockchain competence centre. “It could have chosen to try to catch up with countries that were already far ahead in technology, which was a feasible way, but not a very interesting one.
“If we had chosen, for instance, to catch up with paging technologies back in the 1990s, we would have eventually caught up, but this would have led us nowhere. No one uses pagers any longer.”
According to Demin, Russia chose to focus on upcoming technologies that are new everywhere, such as blockchain, quantum computing, artificial intelligence and big data. It is in these areas that VEB intends to be at the forefront of technological innovation.
One of VEB’s main aims is to create a blockchain infrastructure that will later be used by the country’s public sector. “Our goal is to create an ecosystem that will implement blockchain projects for state agencies and state corporations,” he said.
“We also want to figure out which platforms blockchain projects will be implemented on. There are already dozens of platforms in the world.”
VEB plans to select several blockchain platforms and certify them in compliance with Russian legislation to ensure the encryption systems they use are officially accepted. Then the platforms will be offered for implementation in various projects.
One platform has already been selected, with VEB recently signing an agreement with the Ethereum Foundation to use its platform.
“We want to show the market that the government is interested in blockchain,” said Demin. “If we want to be leaders, we need to show the market that there is demand for this technology and that it is efficient.”
As well as facilitating and managing projects and organising events,VEB’s blockchain competence centre is expected to run specific blockchain-based projects. For each of these, it will hire specialists, ranging from developing and encryption to legal services and consulting.
VEB is already running several pilot blockchain projects, and expects these to increase interest from government agencies and corporations.
One project that is close to completion is being run in collaboration with the Federal Service for State Registration, a government agency in charge of registering property deals. “Our task is to speed up the process by removing intermediaries,” said Demin, adding that blockchain enables the agency to quickly obtain all the data it needs to register property deals by cutting out notaries and medical institutions issuing certificates, for example.
Another project is focusing on an intellectual property system based on smart contracts, which would revolutionise the existing copyright fee collection system, which has long been criticised for lack of transparency.
“At this point, our task is not to make money, but to introduce the technology and show that it works,” said Demin. “Money will be made by those who apply our pilot projects to industrial use. VEB will be just a moderator in this process.”
]However, the introduction of blockchain technology to Russia’s public sector faces legal challenges because existing laws lag behind technological innovations. For example, the blockchain-based property deal registration system cannot be launched properly until certain legal amendments are made.
“On a technological level, we will solve this task quite quickly, but it has numerous legal nuances, and resolving these will take time,” said Demin. “But if we can show how attractive the prospect [of using blockchain] is, we will be able to amend the legislation quickly enough.
“The technological aspect of blockchain is the easiest part of it. The process of rolling out a blockchain system is relatively straightforward. But the structural and legal aspects are much more difficult.”
Another major challenge is a shortage of skilled professionals in the blockchain area. “For some time, we have tried to find blockchain specialists in the labour market and we realised there are too few of them, so our task is to train many more,” said Demin. “We need hundreds of thousands – and in the very short term.”
To increase the number of blockchain professionals, VEB has signed an agreement with Innopolis University near Kazan, Tatarstan, and will also facilitate training of blockchain specialists at MISIS.
Meanwhile, the bank plans to continue its technological advances, and the next stage will be a competence centre for quantum computing.
“This is not a very pressing issue because quantum computers are not around yet, but they may be in five years’ time, providing a totally new capacity for encryption, which, in turn, is vital for blockchain technology,” said Demin.
Russia has one of the world’s few schools for encryption, and this is certainly a field to look at, he added. “VEB intends to combine all research in the fields of quantum computing and encryption in one competence centre to eventually make Russia a world leader in that field.”