Eastern European countries love blockchain. Governments and companies in the region are already experimenting with applications for the technology and could beat the west at developing practical applications if they keep up the current pace.
The most recent initiative was the Estonian plan to launch a national cryptocurrency, an idea that was immediately slapped down by the European Central Bank (ECB), which pointed out that membership of the Eurozone means you can only use euros as money.
However, further east other governments have made more headway at finding useful things to do with blockchain and several trial projects are underway.
The Bitfury Group, a global company that is a leader in providing technological solutions based on blockchain, the underlying technology that powers cryptocurrencies like bitcoin, told bne IntelliNews that it’s working with Ukraine to roll out the first full-scale blockchain egovernance programme. A memorandum, signed by the two sides on April 13, could put a wide range of government data and services onto blockchain systems.
“We believe we have identified suitable pilot projects that will demonstrate the transformative power and unmatched security of our blockchain solutions, and we are looking forward to our partnership with the government of Ukraine,” Valery Vavilov, CEO and co-founder of Bitfury, told bne IntelliNews.
Ukraine’s justice ministry carried out its first trial auctions using blockchain technology on September 6, as part of an effort to improve transparency in government transactions. And separately Ukraine has just seen the first ever real estate transaction where a cryptocurrency was used to buy a building.
Founder of the popular technology publication TechCrunch Michael Arrington bought an apartment in Kyiv for $60,000, using the cryptocurrency Ethereum instead of cash. The deal was possible thanks to an agreement with the new Ukrainian State Agency for Electronic Government that registered the transaction.
Ukraine’s justice ministry is also intending to auction off assets seized from its former president and wayward oligarchs using a blockchain and has plans to transfer state property and land registries to the blockchain platform by the end of the year, Deputy Justice Minister Serhiy Petukhov said in September.
“We want to make the system of selling seized assets more transparent and secure so that the information there is accessible to everyone, so that there aren’t concerns about possible manipulation,” he said at a briefing.
The public record idea is a popular one that many countries are looking at. Sweden is testing a blockchain-based land registry and Dubai wants distributed ledgers to power its entire government by 2020. The most active early adopters, however, have been former Soviet republics. Estonia, recognised as a pioneer in e-government, has long-used blockchain-like technologies to secure health records and undergird its shared government database system, X-Road. “It can be much easier to build a digital society if there are no legacy systems and you can start from scratch,” says Kaspar Korjus, head of Estonia’s e-residency programme.
A blockchain is essentially a “distributed ledger” showing all the members of a particular network every transaction that was verified on it. The transactions are collected in blocks, which are then secured approximately every 10 minutes in a mathematical process called “mining”, and must be verified by other members in the network before they are confirmed. The ledger is essentially riskless as there is no central authority and there is no way a malicious third party can tamper with the records.
Vavilov says Bitfury and the Ukrainian government are looking at a number of areas where the technology can be implemented that include state registers, public services, social security, public health and energy.
If it goes ahead then this will be the second deal Vavilov has struck in the Former Soviet Union (FSU). Last year he cut a similar deal in Georgia to register land titles in blockchain land titling project.
With BitFury’s help, Georgia’s National Agency of Public Registry has recently moved its land registry onto the blockchain. Some 160,000 registrations have already been processed. Thea Tsulukiani, the country’s minister of justice, believes that the blockchain will mean Georgian citizens can “sleep quietly” when it comes to property rights.
And the tiny republic of Georgia is already a giant on the global bitcoin mining scene. In the hills overlooking the Georgian capital Tbilisi is a nondescript building that houses rows of servers quietly humming away. Bitfury located its massive processing farm in Georgia where it mines for bitcoins and has a whopping 6% of global mining capacity. China is the world’s leader with 60% of global mining capacity followed by the US and Canada (16%), Georgia (6%), Europe (5%), Iceland (3%) and Russia (2%).
Overall, the FSU has embraced the world of high technology and in many examples leapfrogged developed markets by going straight to state-of-the-art technology. For example, Russia is already the world’s third most active user of fintech — technology related to providing financial services — according to consulting firm EY. Using a smartphone to make bank transfers and SMS alerts when you make a withdrawal from cash machine have become part of daily life in Russia.
Vavilov, who was born in Latvia, compares what the former Soviet states are doing with blockchain to what many countries in emerging countries did in telecommunications. “By being among the first governments to embrace and implement this technology, countries like Ukraine and Georgia are positioning themselves to leapfrog other advanced nations,” he says.
Kazakhstan is the latest comer to the party. Blockchain fits in perfectly with its extensive plans to revamp its securities market that were launched recently. The National Bank of Kazakhstan (NBK) plans to sell its short-term bonds to retail investors using a mobile application based on blockchain technology, the bank said in September.
Investors will be able to buy notes with a face value of KZT100 (about $0.30) directly with no commission and no brokers involved on a system that is supposed to launch before the end of this year. The bonds have maturities ranging from one week to one year, which are usually bought by banks and funds, and can raise up to $700mn with each issue that bears a yield of 9.9%.
Along with the other FSU countries Kazakhstan is also competing to offer “the most favourable business climate” for cryptocurrency and fintech companies, according to the country’s new flagship financial reforms entity, the Astana International Financial Centre (AIFC).