Russia’s Blockchain Revolution

The second part of the appeal of Brickblock is that there is no lower limit on investment. Drzazga used to work in real estate, raising investment for projects and offering properties to investors.

The typical German real estate fund has a minimum investment requirement of €5,000, as they need to cover the admin costs of bringing in new people, but as the smart contracts attached to Ethereum take care of all that work, the minimum investment is no longer necessary.

In effect, Brickblock is offering a new distribution channel to real estate funds and opening up their list of potential investors to the whole world. On the obverse side of the coin, Russian investors — including the middle class — are very keen to park their savings in something safe outside of Russia, and according to recent polls real estate is currently the asset of choice.

Since the Cypriot banking crisis, the previous favorite offshore haven for middle-class Russian savings, money has flooded into the German property market with prices rising over 30 percent in the last three years.

“The last appeal of the blockchain technology for a real estate investor is the transaction is riskless,” says Drzazga. “As the transaction is instantaneous and the record immutable there is no counterparty ‘delivery vs payment’ (DvP) risk in this investment. The smart contract records both sides of the deal at the same time.”

While some in the Russian government and elsewhere have likened bitcoins to a Ponzi scheme, the advantage of Brickblock tokens is they are backed by bricks and mortar, which has an intrinsic value.

Governments have become interested in blockchain as a way of keeping public records and cutting down on corruption, however, the extinction of the DvP risks in these real estate transactions is extremely appealing for any sort of trading. Typically exchanges offer settlements that are guaranteed in three days (known as T plus 3), or less, but potentially a smart contract enhanced Ethereum token could eradicate the need for much of a broker’s back office and massively reduce both risks and costs.

This point has not been lost on the Russians who will, if they launch cryptocurrency-based trading, insist that it goes through an exchange so the development of these contracts will remain under the control, or at least supervision, of the financial regulators.

Central bank collywobbles

And that is going to take a while. The Kremlin may be “ill” with the idea of blockchain and its applications, but all the central bankers in Eastern Europe have the collywobbles from the unregulated cryptocurrencies that come with it. Russia’s financial authorities are very nervous about backing a fiat currency that they have no control over and is underpinned by nothing.

“I would like to clarify — we do not prohibit crypto-technologies, we study them. Still, there is a big difference between the crypto-currency and crypto-technologies,” Central Bank of Russia (CBR) governor Elvira Nabiullina said at SPIEF.

The National Bank of Ukraine is likewise unhappy and Ukraine’s justice ministry is already trialing a blockchain registry.

The point of currencies is they are controlled by the central bank that issues them. By definition, crypto-currency cannot have a central authority so it is the antithesis of traditional money.

“We can say that [bitcoin] is definitely not a currency because there is no central issuer. And we cannot recognize this as a means of payment,” said Oleg Churiy, deputy head of the National Bank of Ukraine, in September.

But in Russia, the orders have come down from above and the pieces are being put into place. The CBR’s deputy governor Olga Skorobogatova has been put in charge of overseeing cryptocurrencies and announced at SPIEF the central bank was considering launching its own cryptocurrency.

At the end of August, Russia’s finance ministry was working on a bill on cryptocurrencies that is aimed at protecting buyers and sellers of cryptocurrencies legally, Deputy Finance Minister Alexei Moiseyev said on August 28. The bill should be submitted to the Duma soon.

“What we see, for example, with bitcoin, this information wave around this whole story, the enthusiasm of citizens who are not qualified investors, is dangerous, because if we look at the dynamics of bitcoin, it is very similar to the dynamics of the value of MMM shares,” Minister of Economy Maxim Oreshkin said on September 27 referring to the Yeltsin-era Ponzi scheme that duped millions of Russians.