Russia Making Life Harder for Blockchain Companies

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Blockchain technology was created in 2008 to be borderless, but the real world’s border is imposing limitations to this technology. Blockchain works on the concept of “Distributed Ledger” and is a publicly available digital accessible ledger in peer to peer network. It is a chain of multiple blocks because whenever a transaction occurs, a new block is added to the existing chain.

     The blockchains with Russian cryptography are a non-starter for the global market players because the open-source solutions based on Western cryptographic standards available in other countries can’t be used in Russia because of the certification requirements. Federal Security Service (FSB), which is the successor to the KGB supervises everything related to cryptography in Russia.

    The Federal Security Service has a certification process for blockchain companies, which might cost over a hundred thousand USD and take more than one year. According to experts on the Russian enterprise blockchain market, The Fintech Association, a consortium helmed by the Bank of Russia, took about three years to obtain the certification for Masterchain, its blockchain for banks. The Fintech Association is still working on to get another certificate from the Federal Security Service for a particular product on Masterchain. This shows any new iteration and implementation of the code using cryptographic elements needs to go through this long process.  Russian enterprise blockchain projects like Waves and Bitfury’s Exonum were still working on getting certified but they also may need more than one year.

     The certification process of the Federal Security Service is challenging the borderless feature of blockchain technology were Russia is trying to get the cryptographic community to accept its encryption algorithm as a standard globally and the blockchain industry is trying to figure out what to do with a product that foreign partners might be reluctant to adopt, inside the country.

      For blockchain companies in Russia, the FSB certification process brings special challenges because more than the time taken for the certification process need for certified cryptographic modules raises questions about the transparency and reliability of blockchain technology.

CryptoPRO is also one of the licensed providers of the government standard cryptography solutions certified by the FSB. Using a solution from a licensed vendor is the easiest way to comply with the FSB requirements, but the code of such solutions is not open-source and can’t be audited.

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