The banks, including VTB Group and Sberbank PJSC, have formed a distributed ledger called Masterchain that uses a modified Ethereum protocol. The ledger complies with the country’s security standards, according to the FinTech Association, which the central bank backs.
Two months ago, President Vladimir Putin met with Ethereum’s founder, Vitalik Buterin, signaling a shift in the government’s position on cryptocurrency. Last year, the Finance Ministry threatened to arrest and imprison anyone using digital currencies.
Vyacheslav Putilovsky, an analyst at Expert RA, a Moscow rating company, said Russia is a highly developed banking market, and the leading banks want to match if not overtake their western competitors in adopting such technology. Blockchain technology can be used to verify intellectual property rights, contractual agreements and public ledgers without intermediaries.
The R3 consortium of U.S. banks in May raised $107 million from its members, which include HSBC Holdings PLC and Bank of America Corp.
A distributed ledger could reduce costs for record keeping mortgage certificates by up to 80%, in addition to speeding business by removing intermediaries like public notaries, the consortium noted in a white paper.
The Russian banks wish to begin applying the system for mortgages by mid-2018. The consortium also includes TSC Group Holding PLC, Bank Otkritie FC and Alfa Bank.
A virtual currency known as “gas” will reward third party miners for validating transactions within Masterchain, according to the white paper.
“Gas” is an abstract unit measurement for the resources needed to process one transaction and record it to the distributed ledger. It is also the nickname for Ether. Masterchain will require computing capacity in order to validate transactions.
Masterchain could also allow the banks to search one another’s database for blacklisted clients in an effort to reduce expenses and fraud risks.
Russia’s central bank has already implemented an Ethereum-based blockchain for processing online payments and verifying customer data with lenders.
Putilovsky said the mood in Russia could reverse again. He said the central bank’s position on cryptocurrencies remains muddled. He said the bank could play a key role either in developing the industry or in undermining it.
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