Trying to make sense of how Russia feels about Bitcoin and blockchain has become increasingly difficult as of late. Now, the Russian Central Bank strongly feels blockchain and distributed ledgers are not the same thing.
Russian Central Bank & Distributed Ledgers
It is not the first time the Russian Central Bank has shown keen interest in distributed ledger technology, as the financial institution views the concept as an integral part of FinTech. However, this does not mean Russian regulators will change their stance on Bitcoin all of a sudden, as they view cryptocurrency as an entirely separate issue from blockchain technology.
During a recent interview with FutureBanking, Vadim Kalukhov of the Russian Central Bank made a clear distinction between blockchain and distributed ledgers as well. Most financial industries feel the two concepts are identical, but there is a vast distinction between both offerings.
Blockchain is a chain of transaction blocks containing records on all transactions of the network. Distributed ledger is a technology of data or value exchange not necessarily based on blockchain. For example, Ripple protocol implies transaction-wise processing without any blocks.
While it is true the Russian Central Bank has launched an initiative to investigate distributed ledgers – called the Blockchain “Work Group” – nothing has been heard from it ever since. For the time being, they are merely researching the possibilities of this technology in the field of feature analysis and development of applications in financial markets. However, it appears they may favor distributed ledgers in the long run.
That being said, the plan to issue a Russian national digital currency on distributed ledger technology is still on the table. Ever since RSCoin and FedCoin were introduced to the world, this new train of thought has sparked a lot of interest among government officials. However, this is only a working theory for the Russian Central bank right now, and not necessarily a priority.
It is rather interesting to see financial regulators show a keen interest in distributed ledgers, also referred to as “closed blockchains.” Kalukhov believes these closed blockchains have a lot of potential in the world of finance, as they allow for various options of building the network itself. He said:
Bitcoin, for instance, is an open network. R3, which is a popular topic now, is a typical closed network. According to our estimations, closed and hybrid networks of distributed ledgers with strict identification and comprehensive rules have a great potential of development.
Such a statement hardly comes as a surprise. The Russian Central Bank, as well as other institutions, see Bitcoin as an anonymous currency, which introduces certain risks the central bank is not willing to take. The loss of confidential data, high resource intensity, and ambiguity of issuance are the main drawbacks of Bitcoin, according to these entities.
In the end, it seems as if certain financial institutions no longer want to be associated with blockchain these days. Despite a lot of businesses pivoting their model from Bitcoin to blockchain, distributed ledgers are the new buzzword these days. But a distributed ledger, as the Russian Central Bank sees it, does not resemble an open blockchain network by any means.
What are your thoughts on the distinction between blockchain and distributed ledgers? Let us know in the comments below!
Images courtesy of Vadim Kaluhkov, Russian Central Bank