Farmer Mikhail Shlyapnikov says creating his own virtual currency allowed him to raise almost $2 million in two months. The currency, the kolion, is named after the Moscow region village of Kolionovo, where Shlyapnikov lives. During its April launch period, investors from around the world bought $500,000 worth of the currency. Since trading began at the beginning of May, one kolion has almost doubled in price to be worth just under $2. Shlyapnikov says that buyers of his agricultural produce are now looking to acquire kolions—gambling the currency will continue to strengthen. “I have a new instrument,” he says. “It’s like getting a tractor.” Shlyapnikov’s kolion project is a rare case of cryptocurrencies—of which bitcoin is the most famous—underwriting real-life ventures. Up until now, their use has been mostly restricted to online projects. But experts say examples like that of Shlyapnikov will become more common as the popularity of cryptocurrencies grows at break-neck speed. And expansion in Russia is likely to be fueled further by a change in rhetoric from officials. Just last week, President Vladimir Putin made the development of the “digital economy” a centerpiece of his keynote speech to the St. Petersburg International Economic Forum. “It’s an international trend and we are only at the beginning of this journey,” says Shlyapnikov. Make bitcoin not war Cryptocurrencies are built on a technology called blockchain, a decentralized database for recording financial transactions and other types of deals. Blockchain was developed for bitcoin, the value of which soared past $2,800 this week (almost five times more than this time in 2016).



“Over the last year, blockchain technology entered the real world,” says Pavel Novikov, the director of financial technology at Skolkovo, the Russian tech hub. Many companies that use blockchain raise money by selling digital coupons that can then be used to buy goods and services on their platform or saved as an investment. Such “Initial Coin Offerings,” or ICOs, are increasingly popular. For example, a group of entrepreneurs and scientists is currently pushing the sale of a new virtual currency called ZrCoin. The proceeds of the ICO will be put towards building a factory in the Russian city of Magnitogorsk that will produce zirconium dioxide, a chemical used for making heat-resistant alloys. ZrCoin, whose ICO ends Friday, has already proved a success, collecting over $5.6 million. Shlyapnikov points out that those who organize ICOs do not have to be technical experts. “I don’t understand how blockchain works, I don’t understand how the internet works, I don’t understand how internal combustion engines work, I don’t understand how mobile phones work—but I use all of them,” he says. The success of ICOs has generated greater interest in bitcoin and other cryptocurrencies, which are relatively difficult to transfer into traditional assets. Pavel Vrublevsky, head of Russian payments firm Chronopay, says that he only recently realized the potential of cryptocurrencies. Chronopay announced earlier this month that it would accept payments in bitcoin from all of its clients, which include Russian telecoms giant MTS and charities like Greenpeace.

“As soon as I saw that people were raising real money in ICOs I got interested,” says Vrublevsky. “Make bitcoin not war.”

“Cryptocurrencies were always popular in Russia”

Russia’s competitive advantage The use of blockchain is spreading rapidly in most countries, but some believe it has a particularly bright future in Russia. Technical and mathematical education standards in the Soviet Union were some of the highest in the world, and this tradition has persisted in modern Russia. Despite declining standards, the country still produces some of the world’s leading mathematicians. The founder of Ethereum, the second most popular cryptocurrency in the world after bitcoin, is Russian-born Vitalik Buterin, 23. The world’s largest bitcoin manufacturer, or “miner,” Bitfury, was created by Valery Vavilov, 37, who was born in then-Soviet Latvia. “Cryptocurrencies were always popular in Russia,” says Skolkovo’s Novikov. “Russian-language developers are the most visible among developers working with blockchain technology.” Marina Guryeva, the founder of several blockchain projects, says that Russia and other former Soviet Union countries are drivers of blockchain growth. The trend is driven, she says, by high technical education standards, a lack of heavy-handed regulation and the attractiveness of an investment opportunity not tied to a volatile ruble or low-interest deposit accounts. Additionally, cryptocurrencies can give access to investment to many Russian businesses ineligible for state support or unable to afford the high-interest loans on offer from domestic banks. One of Guryeva’s projects, Golos, is a Russian-language social network built on blockchain technology. She says its success is driven by the sense of ownership enjoyed by its members as much as a desire for profit. Golos currently has over 40,000 users and its own cryptocurrency system that means you can earn money for posting well-received material and being an active member of the community. “The value [of the currency] correlates to the number of users and the popularity of the network,” she says. “Everyone can feel like they are an owner of what takes place on the platform, and everyone has the opportunity to influence how the platform develops.”



Official re-think A dramatic shift in the rhetoric used by top Russian officials about cryptocurrencies and blockchain assets in recent months has given a boost to the fledgling industry. In little under a year, officials have gone from proposing that cryptocurrencies should be banned and their users imprisoned, to suggesting legalization is on the cards. On June 2, Putin told delegates of the St. Petersburg International Economic Forum that the digital economy was “the foundation that will facilitate the creation of a new business model.” Deputy Prime Minister Igor Shuvalov reiterated the message, telling journalists Putin had “come down with a bout of the digital economy flu.” He said the president had kept advisors close up until well after midnight one evening to discuss the issue. Putin even met with Ethereum founder Buterin during the forum. Ethereum raised $18 million during its ICO and its currency is currently trading at $256 —18 times more than this time last year. Russia’s Central Bank has been more cautious about cryptocurrencies, but its head Elvira Nabiullina told U.S. television network NBC last week she was “analyzing the possibility” of legalization. Her deputy, Olga Skorobogatova, who oversees cryptocurrencies, announced at the St. Petersburg forum that the Central Bank was considering launching its own cryptocurrency. Top officials have also reportedly said that discussions are underway to allow the trading of cryptocurrencies on major Russian stock exchanges. Some see the change of attitudes as a result of the work of influential figures close to Putin known to be in favor of cryptocurrencies. German Gref, the head of Russia’s largest bank, state-owned Sberbank, has publicly called for the legalization of bitcoin and a coffee shop at Sberbank’s Moscow headquarters reportedly accepts payment in the virtual currency. Boris Titov, the Kremlin’s business ombudsman, and Alexei Kudrin, a former finance minister, have also spoken out against banning cryptocurrencies. “We have crypto-adepts in high places,” says Vladimir Smerkis, the co-founder of the Token Fund, a blockchain based investment vehicle for investing in digital assets.



“We have crypto-adepts in high places”