(Forbes) – Russian president Vladimir Putin wants his country to be disruptive, and not just in Western electoral politics. (Doh!)
Speaking to a standing room only crowd at the annual Russia Calling investor forum, a rather sedate Putin rifled through a speech that could have been written by his Finance Minister Anton Siluanov. When he said, “we want to build disruptive technologies,” it was, arguably, the only highlight of his data-centric five-minute speech before waking off the stage. He was proceeded by an exodus of VTB Capital forum guests, irked that the president did not stick around for his usual Q&A session.
Putin’s “disruption” comes at a time when Russia’s government is hammering out legislation for blockchain and cryptocurrency use. The government does not have a unified view on these disruptive technologies yet. The Russian Central Bank is fine with blockchain, not fine with crypto coins. They are talking about issuing a crypto-ruble to help track transactions from currencies like bitcoin into ruble, which is now done informally.
The National Settlement Depository of the Moscow Stock Exchange is working with the Waves Platform, one of Russia’s biggest blockchain firms, to build a system that would ultimately allow for professional accounting of cryptocurrency trading by qualified investors.
A handful of opportunistic Russian hedge funds are already investing in the hundreds of crypto-coins out in the market. For now, they are keeping track of their investments on office spread sheets, sort of like an investor holding paper shares of every stock in their portfolio rather than having it stored somewhere for them.
Alexander Ivanov, the CEO of the two-year-old Waves, raised 30,000 bitcoin in 2016. The Russian exchange is one of their biggest projects, bringing blockchain to the most visible, powerful investor platform in the country.
“The project is being done in stages and the third stage would be to make sure it’s decentralized, keeping with the blockchain tradition, so your account cannot be turned off by an authority,” says Ivanov, sitting at the Strelka Bar outside of Red Square in Moscow. “Eventually you will have the framework, legal and technical, for big funds to trade in cryptocurrency,” he says, adding that Putin said he wanted regulation in place by next summer.
Russians are a risk-taking, technologically savvy lot. But a lot of their brain power high-tailed it to Silicon Valley, Berlin, London, Paris, and Singapore after 2015, in what one Russian investor in the Valley called a “mass exodus” once sectoral sanctions were renewed. Russian tech is not sanctioned, but start-ups do not have enough domestic financial support. Western backers have mostly been on pause, at best, with others outright avoiding Russia due to the political risks associated with the sanctions regime.
Only 3% of Russia’s GDP is tied to the so-called digital economy – anything internet related. “Data is the new oil. We are at least five years behind the world leaders in this space,” RosTelecom CEO Mikhail Oseevskiy said at Russia Calling.
For Russians to be disruptive in Russia, the government will have to develop more than its human capital. Russia has home-grown financial backers: oligarchs with money to burn on cryptocurrency funded start-ups. Others are putting later-stage money to work on Russian tech companies working on the blockchain.
One of the biggest problems is the tax system in Russia. It tends not to favor the entrepreneur. The payroll tax for companies is in the very high double digits, in addition to VAT and corporate taxes. By comparison, smaller tech-savvy nations like Belarus have no corporate income tax on IT firms and employees pay less than 9% income tax.
Some global Russians scoff at Putin’s “disruption.”
“Luckily you can ignore the local government because it’s a truly global business,” says Elena Masolova, CEO of Eduson, a corporate e-learning company and the founder of a Russian coupon company that sold to Groupon in 2010. She’s been investing in blockchain companies ever since, from Russia to California, and is the co-founder of TokenStars, a blockchain-based celebrity management platform. “For 18 years we have heard Putin making statements about this or that and nothing happens,” she says.
Masolova is part of a slew of serial Russian entrepreneurs connected to the stateless, blockchain A-list.
Of the top 50 start-ups measured by capital raised, 20% of them were either in Russia or had at least one Russian founder, according to Maslova’s own proprietary research.
Over the last 14 years, 50% of Google’s Code Jam winners were Russians. Despite all of this, Russian tech is underrepresented in the market. They account for just 3% of the total market capital on the Moscow Stock Exchange compared to 13% in China and 9% in the U.S., according to Goldman Sachs Global Investment Research. Only Yandex and Mail.ru are significant players, with Mail.ru now controlling the Russian Facebook, Vkontakte after a ‘forced sale’ by authorities. VKontakte’s founders run Telegram, a messaging app well-known in the cryptocurrency world.
Waves’ Ivanov said he is trying to build a company that operates in the real world, without losing the autonomous, decentralized nature of the blockchain. They went from a $17 million market cap last year to a $500 million one currently.
“We’re in Amsterdam. We’ll be in Berlin in November, London in January and New York in the spring,” he says, a testament to the global nature of the Russians involved in blockchain projects.
Aside from blockchain and the crypto-world, Putin mentioned earlier this year that another key disruptive tech, artificial intelligence, would play an important geopolitical role. “He who controls AI will control the world,” he said.