Russia's Largest Exchange is Using Blockchain to Lure Global Investors
As Russia slowly emerges from a lengthy recession in the wake of collapsing energy prices, the Moscow Stock Exchange may have discovered a secret weapon in recruiting international investors – blockchain.
In spite of double-digit returns to investors between 2005 and 2010, and a current pump in Russian investment credited to US President Donald Trump’s "cheerleading" of the nation, relics of cold-war fears persist among many investors.
Couple that with the Moscow Exchange Group's relatively young technology, and a blockchain solution using Hyperledger Fabric has the potential to catapult the service ahead of more mature infrastructures and create an increased trust in the international community.
Moscow Exchange Group's head of decentralized solutions, Alex Yakovlev, explained the solution was designed in large part to give investors increased confidence by providing a cryptographic proof that the tokenized votes they cast from anywhere in the world are properly counted.
Yakovlev told CoinDesk:
"You avoid miscounting and double-spending because of tokenization. You count inside the blockchain and you put the results inside it. That's cool for foreign investors, because in the case of Russia, we need the trust from outside."
The e-voting platform, as well as a blockchain solution for recording commercial papers, are now being implemented in Russia's National Settlement Depository (a division of the Moscow Exchange Group), in tandem with a proxy-voting service that lets any qualified stock owner vote without revealing any information about themselves.
To achieve the high-level of anonymity, Yakovlev said he and his team used zero-knowledge proof algorithms that are not native to Hyperledger Fabric to tabulate votes at the chaincode level. The tokenized votes can then be anonymously verified and counted, with the record of the final vote stored in a 'registry result wallet' available for download.
"Because of tokenization, you receive real trust because it is the same as cryptocurrency," said Yakovlev, yet regulators and others will still be able to see certain information as is required by law.
"You can trace the [data] if you have special rights."
As recently as five years ago, some owners of stock in Russian companies had to actually come to Russia to cast votes, a serious impediment to potential investors, according to Yakovlev, who has been a member of the Linux Foundation for more than 20 years and helped lead the push within the Moscow Exchange Group to adopt blockchain.
Then, the Moscow Exchange Group, which also oversees the NCC Clearing Bank, the Moscow Energy Exchange and several other organizations, began the process of implementing a common electronic signature for the transmission of secure messages.
By December 2016, Yakovlev's work had so progressed that he presented his ideas at a Hyperledger member summit in Brooklyn, New York, during which he first publicly described his vision for an integration of zero-knowledge proofs with Hyperledger.
Now that the development of the project is complete, Yakovlev said that, in addition to increased trust and decreased operational risk, the solution will also provide more security by moving the "single point of failure" from a centralized system and a backup to a more distributed model running on "normal desktops."
"You don’t need any kind of special hardware. There is no bottleneck, and it is resistant to crypto-attacks."
This year marks the 25 anniversary of the end of communism in the former USSR and the establishment of the Moscow Exchange Group.
By comparison, the New York Stock Exchange is celebrating its 200th anniversary, and the Amsterdam Stock Exchange – said to be the oldest in the world – is 415 years old. It is the relative youth of Moscow Exchange Group's financial infrastructure that Yakovlev in part blames for proportionately low direct investment in Russia.
For example, while a 2012 report by Invest in Russia found that the country had the fifth largest GDP in the world, it ranked only 13th in terms of foreign direct investment. Since then, Russia’s GDP has slipped to the sixth largest in the world.
"Here we have just 25 years of capitalism," said Yakovlev. "And it takes us to provide additional trust that we can clear, we can settle, and we can provide to share holders a real possibility to participate in corporate actions."
Once that is accomplished, he hopes, the Moscow Exchange Group's blockchain platform can be used to help other nations "not from the first world" to leap-frog over more traditional financial infrastructures and go straight to a distributed solution.
As part of this push, Yakovlev met in London earlier this month with several international Central Securities Depositories (CSDs) to help lay the foundation for a possible more widely spread implementation.
"It will make technology cheaper because you will not need to set up a whole system inside each country. [Further,] you will be allowed to set up a node with unified interface and it will allow [you] to work with each country with the same level of trust for corporate actions."