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The Explosive Impact of Block-Chain Technology

May 26, 2017, 16:52 UTC+3
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The St. Petersburg International Economic Forum 2016 recognised blockchain as one of the ten most promising technologies globally, as it can fundamentally change the markets, public administration, and even day-to-day lives of ordinary people. The distributed ledger market is growing by over 50% a year, while the exchange rate of the bitcoin, a cryptocurrency harnessing the blockchain technology, has risen by nearly four times since the beginning of 2016. In Russia, it was the banks that spearheaded the adoption of the new solution. In March 2017, Dmitry Medvedev, Russia's Prime Minister, suggested applying blockchain for the purposes of the national economy.

Blockchain is a decentralised digital ledger of transaction data that can be used to create multiple copies through P2P file sharing. The encrypted database copies are stored by each of the transaction parties and consequently cannot be altered or stolen. Hence, blockchain helps to enhance transparency and safety by excluding intermediaries from the transaction confirmation and registration processes.

According to Transparency Market Research, a US-based analytical company, the global blockchain market (the revenues of distributed technology companies) will grow from USD 316 million as at the start of 2016 to USD 20 billion in 2024. Currently, it expands at an annual rate of 50–60%.

  • According to Grand View Research, North America is the biggest blockchain market today, with Microsoft, IBM, Deloitte, Chain Inc, and R3 (a consortium bringing together over 80 leading global banks) as the main players. 
  • In late February 2017, the Enterprise Ethereum Alliance (EEA) was created to focus on the development of the Ethereum technology for corporate blockchain solutions. Representatives of major financial institutions, tech companies and blockchain startups, including Accenture, Banco Santander, BlockApps, BNY Mellon, CME Group, ConsenSys, IC3, Intel, J.P. Morgan, Microsoft and Nuco, lined up to join the EEA Board.
  • J.P. Morgan estimates that investments in blockchain startups have already reached the USD 300 million threshold. According to PWC, investments in the blockchain industry for 9M 2016 totalled USD 1.4 billion.

The bitcoin cryptocurrency is also rapidly gaining traction, with its exchange rate on the upward path and the sphere of its legitimate application expanding.

  • In September 2016, the US District Court, Southern District of New York, ruled that bitcoin qualifies as money. In October 2015, the European Court of Justice ruled that bitcoin is a currency, not a commodity. In Japan bitcoin is used as a legal method of payment, while in China bitcoin transactions are forbidden for banks and permitted for individuals.

The Russian Ministry of Finance and the Central Bank believe that in Russia transactions with bitcoin and other cryptocurrencies may be legalised by 2018. Alexei Moiseev, Deputy Minister of Finance, insists that such legalisation should be part of a wider drive to crack down on illegal money transfers, as the Government needs to know each party of the financial transactions. However, both companies and regulators are already busy developing blockchain solutions.

  • In October 2016, the Bank of Russia, jointly with the country's 10 major banks, created the FinTech Association charged with implementing financial innovations and fine-tuning the blockchain technology.
  • In October 2016, Russia closed the first transactions between the nation's largest banks using the Ethereum-based masterchain.
  • In late January 2017, Sberbank announced the successful development of the blockchain-based prototype of a currency exchange service. Earlier on, the bank disclosed its intention to launch an alternative electronic workflow system leveraging the same technology. Herman Gref, Sberbank CEO, is positive that a massive blockchain roll-out will take place in 2–2.5 years from now, as soon as the key stumbling blocks in technology are removed.
  • The Federal Tax Service of Russia (FTS) is mulling the use of blockchain in its interactions with the business community. Daniil Egorov, Deputy Head of FTS, said that this innovation will enable the Service to do away with the traditional tax statements, as the new technology will streamline the workflow and make staff accountants redundant.
  • In late December 2016, S7 Airlines and Alfa Bank made the first service payment through a letter of credit using the blockchain technology.
  • At the end of 2016, RosEvroBank leveraged Microsoft's blockchain solution to develop and pilot a remote customer identification project. Now the users will get access to a wide range of banking services through a single login window.
  • The Russian Carbon Fund and Aira Group developed a CO2 exchange platform using blockchain solutions, enabling participants to close carbon credit transactions worth millions of US dollars with counterparties from all over the world.

In March 2017, during a meeting with Deputy Prime Ministers, Dmitry Medvedev, Russia's Prime Minister, said that a wide use of the blockchain technology in the Russian economy would help fight bureaucracy: "[This technology] excludes intermediaries, and the authenticity of operations is confirmed by network users themselves. As there is no unified data repository and the data are split into blocks, it would be impossible to rewrite this information or somehow infiltrate it without the consent of other parties."

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