Russia’s biggest banks take lead in embracing blockchain technology

Russia’s biggest banks take lead in embracing blockchain technology
Banks in Russia are looking to make transactions safer and faster by adopting blockchain technology, a system that is currently changing the financial sector, Bloomberg reports.

The country's biggest lenders, including Sberbank and VTB Group, have reportedly developed a distributed ledger called Masterchain.

The mechanism is based on a modified ethereum protocol and complies with Russian national security standards and is supported by the country's central bank, according to the FinTech Association.

“Russia’s not a very developed banking market. The top banks here are betting that they can catch up and maybe even overtake their Western competitors in their adaptation of this type of technology,” Vyacheslav Putilovsky, an analyst at Moscow-based rating company Expert RA told Bloomberg.

The blockchain is essentially a specifically designed platform that allows two or more partners to enter into a smart contract without an intermediary. The technology may also be used to verify contracts, intellectual property rights and online public ledgers without a third party.

Applications of this kind may significantly transform the global financial system along with other industries.

According to FinTech, shifting the paperwork of mortgage certificates to a shared ledger can slash costs by up to 80 percent. The savings come from speeding up all the business processes by eliminating such intermediaries as public notaries.

Russian lenders Otkritie, Alfa Bank and TCS Group, are reportedly going to launch a commercial application of the system for mortgages by mid-2018.

The Central Bank of Russia has reportedly started a pilot of an ethereum-based blockchain to process online payments and verify customer data.

Masterchain also enables Russian lenders to search through each other’s database of blacklisted clients to minimize fraud risks and expenses.

Similarly to ether, a built-in cryptocurrency mined and used by the Etherium blockchain, Russia’s Masterchain will have its own virtual currency tentatively called “gas.”

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“Gas” is an abstract unit of measurement for resources needed to process one transaction and record it in the distributed ledger, and will also be used for rewarding users and third-party miners for validating transactions within Masterchain.