Russia’s Largest Bank Dissatisfied with Central Bank’s Masterchain Blockchain; Seeks Alternatives
Russia's biggest bank, Sberbank, has expressed its disappointment in MasterChain, a blockchain interbank project created and developed with the backing of the Russian Central Bank.
According to Oleg Abdrashitov, Sberbank’s Head of Institutions Blockchain Lab, the MasterChain platform is largely inept, insecure and not as fast as it should be. Abdrashitov initially announced that the bank would exit the platform in search of more effective and blockchain enterprise solutions. Abdrashitov said:
“Masterchain does not satisfy the requirements for Sberbank’s use cases, so for all future exploration we will use enterprise blockchain platforms such as Hyperledger Fabric or Quorum.”
According to him, this will not be the first time a client would be expressing displeasure with a blockchain project and usually when this happens, these clients exit without any noise. However, this particular case might be more significant because Sberbank is Russia's largest bank and also holds a 50% share of the mortgage markets in Russia. Notably, the mortgage market is MasterChain’s major target.
Shortly after this, Oleg Abdrashitov retraced, saying Sberbank will remain with MasterChain but will still search for alternatives for blockchain solutions.
In 2017, MasterChain was officially launched by the FinTech Association (AFT) which was also founded by the bank of Russia in the same year. The project kicked off with support from Russia's five biggest Banks. They include Sberbank, VTB, Alfa Bank, Raiffesenbank Russia and Otkritie.
The FinTech Association is made up of 13 members and even though the exact cost of MasterChain’s creation and operation is unknown, it had previously been declared that each member of the association will be paying an annual fee somewhere between $120,000 to $230,000. Based on this we can assume that the project, over the last few years has cost all the participants a few million dollars.
No Confirmed Launch Date Yet
At the moment, Russia's National Settlement Depository (NSD), charges fees equal to a small fraction of a percentage of what every mortgage bond it keeps is worth. On its own, this seems like a small price to pay but for a bank as large as Sberbank, it still costs a couple million dollars annually. MasterChain intends to create a Decentralized Repository System to hold digital mortgage bonds and this solution according to Abdrashitov, is a good idea for the banks.
He also mentioned that even though a decentralized system like MasterChain would need heavy funding for its creation, once it's deployed, it will be much cheaper to use.
However, as grand as this sounds for Sberbank and all other institutions, the MasterChain deployment is far behind schedule.
Abdrashitov noted that the project’s mortgage pilot was proposed to officially deploy this month but it's technical developments handled by the FinTech Association is moving at snail speed. Because of this, the set date for July might not work. According to him:
“We have not received a new release of the Decentralized Depository System from AFT yet and haven't tested it so the proposed July date is in question.”
This opinion was also corroborated by Raiffeisenbank Russia’s Head of Tech Research and Digital Innovation, Eugenia Ovchinnikova, who also said there really is no final date for the launch.
MasterChain is Not Fully Decentralized
There is a noted centralization problem with master chain. Its basic policy makes it very private and controlled so that it’s not permissionless. The blockchain is also not very public and can only be viewed by specific participants and pre-approved entities to run nodes and verify transactions. This is very different from other major blockchain networks like Bitcoin and Ethereum where everything is fully public and there is no restriction on running nodes.
It has been noted that this lack of decentralization wasn't exactly Sberbank’s problem but also that it was even more centralised than this. According to Abdrashitov,
“its operation fully depends on the FinTech Association’s central server that controls mining and consensus.”
Another problem Sberbank has with MasterChain is a fundamental similarity with Ethereum. Just like the latter, MasterChain transactions are powered by gas fees which is a small amount of the blockchain’s native digital asset. However, this isn't even a consideration on the platforms Sberbank is now considering.
Abdrashitov has also noted that the tokens used to pay gas are shared by the node from the FinTech Association. However, if that runs out and Sberbank needs more and then begins to produce by itself, it automatically gets disconnected from the network and no one has been able to explain to him why this happens.
Ovchinnikova, on the other hand, has said that the gas tokens are given out for free with the wallets being automatically replenished periodically. She also said that the participants on the master chain are allowed to share their tokens and don't always have to wait for the Association. However, it could make sense that Burbank needs a lot more tokens than the other participants which is probably why they run out quickly.
Unsafe and Sluggish
Abdrashitov also expressed disappointment with the system speed. According to him, uploading one mortgage bond – a zip file not more than 30 kilobytes – takes up to 3 minutes. He said:
“Business people are not used to dealing with something where you push a button and then you go take a break [waiting till it’s done]. The leadership is looking at that and getting disappointed in the blockchain tech. We are spending shareholders money [and] we need solutions that are practical.”
Regardless, he noted that the network is probably slow because is based on the Ethereum framework, is permissioned and is also a closed network.
Speaking of the network's insecurity, Abdrashitov said it's very unsafe because there are a small number of nodes. He said
“Proof-of-work systems are good for thousands of participants. But if there are only five, it’s easy for one of them to rewrite the ledger.”
Sberbank is so distrustful of the system that it intends to use the legacy system together with MasterChain so there’ll be a backup if a collapse happens.
He has also noted that Masterchain cannot handle different kinds of processes. According to him, a new network has to be created for every possible use. Abdrashitov suggests that developers replace the proof-of-work consensus with something more enterprise-friendly.
What Platforms are Being Considered by Sberbank?
The Hyperledger Fabric and Quorum are the major considerations for Sberbank in the future. They are expected to facilitate Sberbank activities like over-the-counter trading, payments and mortgage lending, etc.
Already, Sberbank has tried Fabric with a few pilot activities. These include a trade finance agreement between popular electronics retail business, M-Video and its business partners; issuance of MTS (a telecom firm) bond certificates and so on.
Ovchinnikova has also disclosed that Raiffeisenbank is considering Fabric, Corda and also its own R-Chain project. It would, however, seem that Raiffeisenbank is not as riled up as Sberbank regarding MasterChain’s shortcomings.
According to Ovchinnikova:
We’re ok with the fact that the very first trials of the new technologies don’t look close to what’s required on the production stage.