By John Bonar : Russian interest in cryptocurrencies is blossoming with the endorsement of the country’s president Vladimir Putin. While some within the country’s financial sector, including Bank of Russia chairwoman, Elvira Nabiullina, remain cautious, others are embracing the crypto currency phenomena enthusiastically.

Vitalik Buterin, the Russian-Canadian founder of Ethereum the second largest blockchain platform after Bitcoin, hosted the “Ethereum Russia 2016” conference in Skolkovo, and later announced the formation of Ethereum Russia in partnership with Vladislav Martynov, CEO of Yota Devices, a mobile communications and connectivity devices company based in Russia and financed by Russia’s state-owned Bank for Development and Foreign Economic Affairs, (VEB). Ethereum Russia was created to enhance the country’s ability to implement blockchain technology which underpins the cryptocurrencies.

Martynov explained that Ethereum Russia will provide education, events and architecture review for VEB, and guide the development of a new centre for blockchain research in the National University of Science and Technology (MISIS). It is funded by VEB. The centre in Russia’s Silcon Valley emulator will aim to introduce blockchain technology to the financial, banking and state sectors, as well as the industry of commodity exchange. Another function of the centre will be the support IT projects and startups working with blockchain technology.

Vice President of Skolkovo, Igor Bogachev, has said, “The Skolkovo Foundation, in co-operation with Ethereum, will organize the selection and acceleration of promising projects and teams, and provide support to blockchain startups in the form of tax benefits and grants. The development centre will not only be able to satisfy the current demands of the state and business, but also the future ones: Internet of Things micropayments, complex smart contracts execution, creation of hybrid platforms and state registers of any kind.”

In early June this year The 23-year old Russian-born Buterin attended the St. Petersburg International Economic Forum and met with Mr. Putin. During the Forum the Russian President declared,” The digital economy isn’t a separate industry, it’s essentially the foundation for creating brand-new business models.”

The Moscow government plans to regulate cryptocurrencies like securities rather than outlawing them, Finance Minister Anton Siluanov told reporters in September.

“The state certainly understands that cryptocurrencies are a reality, there is no point in prohibiting them,” Siluanov told reporters in Moscow. “It is possible to regulate them, so the Finance Ministry will draw up a bill by the end of the year.”

Alexander Dunaev, COO at emerging markets fintech company ID Finance, told Forbes magazine 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.’

Thanks to the original cryptocurrency Bitcoin’s widespread use for cross border anonymous transfers, many Russians consider bitcoins and other cryptocurrencies as money surrogates which have previously been linked with fraudulent pyramid schemes.

According to Bloomberg, Putin was attracted to Ethereum as a ‘potential tool to help Russia diversify its economy beyond oil and gas’.

‘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 has said.

The concern about cryptocurrency pyramid schemes has crystalized around Initial Coin Offerings (ICO’s) which have been used to raise millions virtually overnight and created millionaires out of the founders of a flood of new cryptocurrencies. These concerns prompted China’s draconian clamp down on ICO’s and cryptocurrency trading earlier in September which reverberated through the blockchain market.

Breaking through the clutter is a new blockchain, Relex. This private equity powered blockchain was launched by the US registered Squawk Advisors and operates out of Vietnam. It is based on the Ethereum platform and focuses on real estate development and has eschewed ICO fund raising and gone straight to the market. It listed on two exchanges in a low-key launch in mid-September and is currently trading for pennies. www.relex.io

However the founders expect that as the market absorbs the fact that Relex is focused on real assets through investing funds into the bricks and mortar of real projects that demand for the RLX coins will grow fast and acceptance onto other exchanges will follow. Relex is concentrating on transparency and is proposing to post examples of its contracts with developers on their web site. They already have contracts with Cocobay Danang in Vietnam and Woodfine Capital Projects of Canada and are negotiating with several others.

By John Bonar

CEO Yes to Business Ltd

John has over 14 years’ experience living in Russia from 1995 through 2009 and 24 years working with Russia from 1993 to date. For part of his time in Russia he was the UK representative on the Association of European Business’ in Russia governing Board of National Representatives. He travelled the length and breadth of the country. Now in London he is Deputy Chairman of the Westminster Russia Forum (www.westminster-Russia.org.uk) and lives in Dulwich.

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