Russian Banks Prepare to Hit the Gas on Digital Currency Use

With Russia looking to cure its economy of a hydrocarbon addiction, a consortium of the country’s biggest banks is proposing that it explores a different kind of gas for the answer, according to Bloomberg.

The lenders, including Sberbank and VTB, aren’t developing gas of the natural variety. It’s also the name of a virtual unit based on the blockchain of ethereum, the world’s biggest cryptocurrency after bitcoin. The banks are hoping that by adopting the technology they will make payments safer and faster, while thrusting Russia to the forefront of a trend that’s transforming the financial industry.

Two months after President Vladimir Putin met the founder of ethereum, the banks have developed a distributed ledger dubbed Masterchain that uses a modified ethereum protocol while complying with national security standards, according to the country’s central bank-backed FinTech Association.

Blockchain, the technology used for verifying and recording transactions that’s at the heart of ethereum and bitcoin, can also be used to verify contractual agreements, intellectual property rights and public online ledgers without intermediaries. Applications like these may reshape the global financial system and other industries. R3, a global consortium similar to Russia’s FinTech Association, raised $107 million from its members including  Bank of America and HSBC in May.

Moving the record-keeping of mortgage certificates to a distributed ledger may cut costs by as much as 80 percent, speeding up business by cutting out intermediaries such as public notaries, according to a whitepaper from the association, whose members also include Bank Otkritie, Alfa Bank and TCS Group. The banks want to begin commercial application of the system for mortgages by mid-2018.

A built-in virtual currency tentatively called "gas" will be used to reward users and third-party miners for validating transactions within Masterchain, according to the whitepaper. A “gas“ is an abstract unit of measurement for resources needed to process one transaction and record it in the distributed ledger. As a decentralized blockchain ledger, Masterchain will need computing capacity to validate every transaction. The term “gas“ is used in the cryptocurrency community as a nickname for ether, the digital currency used for transactions on the ethereum blockchain.

Russia’s central bank has already deployed an ethereum-based blockchain pilot to process online payments and verify customer data with lenders including Sberbank. According to the whitepaper, Masterchain may also let Russia’s banks search through each other’s database of blacklisted clients to reduce fraud risks and expenses. Russia’s push to develop blockchain technologies after Putin’s meeting with ethereum’s Vitalik Buterin is a big change from the Finance Ministry’s threat last year to jail anyone using digital currencies.