Menu : Ukraine State Property Auction with the Blockchain

March 31, 2016 - Blockchain : Ukraine State Property Auction with the Blockchain

Chain-Finance got the opportunity to speak to Pavel Kravchenko, the founder ofDistributed Lab and project lead on, a blockchain-based decentralized auction system for state property privatization and leasing.pavelkravchenko

The project’s government and private partners recently signed a memorandum on the project.

What organizations are partners in the project? Was this your idea Pavel?

The project is run by Georgian reformers team from the Innovation and Development Foundation NGO in partnership with Distributed Lab. The same team introduced [a] previous model of auctions (Prozorro) that is now used by government institutions to buy supplies. But decentralized auction is going to be a silver bullet in fighting corruption since there is no single point of control. Two biggest Ukrainian banks (Oschadbank, Privatbank), Microsoft and banking software developer Unitybars are also partners in the project.

It is being launched in Ukraine. Do you have Ukrainian government backing?

Yes, high profile politicians (former president of Republic of Georgia and current governor of Odessa region Mikhail Saakashvili together with his team and many other activists) and organizations are backing it. It was negotiated that the State Property Fund, the State Agency of Land Resources and the Regional State Administrations of Odessa, Dnepropetrovsk, Sumy and Kyiv districts, as well as the Ministry of Economy (the Department of State Reserves) are going to submit assets to the auction.

What protocol and technology is your proof-of-stake system based on?

We used our own Infra platform to create blockchain applications (, which is based on Stellar codebase. The main differences of Infra are local consensus groups (consensus mechanisms could be different), coin-free design, support of multiple blockchains, decentralized approach to manage identities and uniform protocols of communication between networks. It is essentially a protocol for financial web that allows to build transaction and settlement environment.

The most interesting story is a proof-of-stake mechanism. We had to allow everybody to be able to become a trading platform, so potentially we were vulnerable for 51% attack. Since we are working with traditional institutions (such as government, banks, trading platforms), there can’t be any widespread proof of stake consensus that uses some coins. But its spirit is there – we are using receipts from banks that are signed with digital signature as a “coin”. Users send bids and deposits to the banking accounts of trading platforms and this money is counted in the blockchain via signed receipts that banks publish. So the proof-of-stake consensus algorithm calculates stake size of each platform that equals percentage of money that was sent to their accounts. [The] Bank cannot lie about these payments because it will lose its license very fast. Additional benefit is that bank does KYC when accepting payment and such info as a name of the payee is also stated in that receipt.

There are a number of blockchain technologies on Microsoft Azure (e.g. Alphapoint, BitPay, Blockapps, CoinPrism, ConsenSys, Emercoin, Eris Industries, Factom, IOTA, LibraTax, Manifold Technology, Multichan (Coin Solutions), Netki, and Ripple.) Will you be using any of these technologies?

No, it was faster for us to apply needed changes to what we’ve had, and Docker container with a node can be run on Microsoft Azure very fast.

Or will have distinct entry on Azure? If so, when will it go live?

It is a question of weeks, Microsoft has to test it in order to add to their Marketplace.

Have you considered using the platform for overall government asset management, including state resources beside land (e.g. other natural resources like minerals and fossil fuels) ?

Sure, there are many ideas and activists around, we are working now on reverse auctions and talking to banks in order to use it to sell collateral.

How is banking acceptance of blockchain tech vital to this process?

Banks are very interested mainly because they realize that such a technology (and specifically presence of open-source, tested codebases) allows them to build solutions much faster and cheaper.