From dream to nightmare: Belarus crackdown has tech firms restless

Will the political turmoil in Belarus put an end to the development of digital technologies and the financial freedom of its citizens?

A political crisis, mass detention of peaceful citizens and internet blocking in Belarus are hitting the country’s IT sector hard. Amid this social turmoil, some companies are moving their offices and servers abroad, others are using VPN services, while some are advising their customers to buy cryptocurrencies. 

What is happening in Belarus, a country that just a couple of years ago was considered to be a favorable jurisdiction for IT and cryptocurrency projects? And how is digital technology helping its people regain their social and economic freedom?

A failed Silicon Valley?

Belarus is home to numerous IT companies, many of which have become world famous for their applications: Viber, World of Tanks, Prisma, Maps.me and Msqrd, to name but a few. With the full-scale opening of Belarus Hi-Tech Park, or HTP — an offshore space for developers — the country also became one of the world’s most favorable jurisdictions for IT businesses.

In 2018, the country’s president, Aleksandr Lukashenko, took an unprecedented step and exempted resident companies from income and value-added taxes until 2049. He signed the decree On Development of Digital Economy, which made cryptocurrency mining and any operations with digital assets not only legal but also tax-free. The new technology-oriented policy bore fruit rather quickly, as by October 2019, the tech sector had already contributed to half of the nation’s GDP growth. Production in the first half of 2019 grew by 166%, and by the end of the year, HTP residents had exported services worth in excess of $2 billion.

Foreign companies began to open research and development offices in Belarus, and the demand for the services of local developers abroad grew at a frantic pace due to their low cost and sufficiently high quality. The world media began to call the country the “Silicon Valley of Eastern Europe” and its president the “cryptocurrency king.” It seems Belarus could strongly compete with Malta or Hong Kong if the country was not facing a political crisis. Lukashenko’s stance on IT has been assessed as very positive over the last several years, but the events of recent weeks may negate all these achievements.

IT terror in action

It all started after the 2020 presidential election in August when some citizens of Belarus and leaders of other countries refused to recognize Lukashenko’s victory as legitimate. As a result, strikes and peaceful demonstrations began, which turned into mass protests and the violent involvement of armed police. The authoritarian regime changed to a totalitarian one as authorities began to block access to the internet and intensified censorship of social media. Armed security forces also began to challenge peaceful protesters and break into the offices of the country’s largest IT companies such as Uber and Russian giant Yandex.

Many startups have also reported that their employees are being arrested, and with the internet going down for several days at a time, this is resulting in failures in the operations of some major applications. According to civil society group NetBlocks, the economic damage from the internet shutdown in the country exceeds $56 million per day.

The messaging app Viber, one of the most well-known international IT projects and one of the residents of the HTP, faced severe disruptions in operations. In fear of repeating the fate of Uber’s and Yandex’s office, the company closed its workspace and asked employees to work from home. The company also noted that it previously wanted to double the number of staff in the country but now plans to abandon this idea.

Companies find salvation in decentralization

Belarus, which recently created some of the world’s most favorable conditions for technology development, is now making it hard for IT companies to conduct their business in the country. However, some companies have been able to minimize risks by using decentralized methods such as moving their servers and offices to other countries and using VPNs. Alexander Shuhayeu, co-founder of Rocket DAO — a local venture capital investment marketplace — called the current situation in Belarus ambiguous:

“We see some paradoxes in Belarus: the government claims to be building and developing a ’Digital State,’ but at the same time it easily cuts off the Internet in the country and blocks access to unwanted websites. The work of cryptocurrency companies is legalized in the country (for members of the High Tech Park), but I would not be surprised if difficulties arise here if, for example, someone starts transferring funds to help the affected protesters through cryptocurrencies.”

Many entrepreneurs are moving their offices abroad, while others have declared their readiness to do so if the situation does not resolve. Max Krupyshev, CEO of CoinsPaid — one of the companies registered in the HTP — told Cointelegraph that the firm is constantly moving its key employees around its various European offices as internet gets cut off:

“We are watching the situation closely and working on plans A, B, C, and D for different mid- and long-term situation evolvements. Nevertheless, current events do not affect the work quality, and our crypto processing clients keep getting the same high-level service from us as always.”

Local crypto exchanges previously reported that they managed to keep their platforms running by using distributed and backup infrastructure. For example, FREE2EX prepositioned system elements and standby instances at different capacities in independent data centers. According to Aleksei Korolenko, chief marketing officer of the exchange, having backup locations in different cities and countries is necessary in post-Soviet countries, Latin America, China and other regions where the actions of authorities and regulators are unpredictable.

Dmitry Ogievich, CEO of the Minsk office of exchange Currency.com — which became the first legal crypto exchange in Belarus to trade government bonds — told Cointelegraph that the platform is trying its best to operate as normal:

“Referring to internet connection, we assure that all the possible risks were mitigated by our IT team and distributed infrastructure with offices in different countries, which guarantee continuous operations and failsafe services to our clients.”

Nevertheless, despite the measures taken, many businesspeople are concerned about the situation of uncertainty and have expressed fears that due to the actions of the current political regime, most foreign investors will refuse to engage with local markets.

Speaking to Cointelegraph about the consequences of the political instability in Belarus for the IT sector, Stanislav Basko, executive director of the Belarus Blockchain Association, named three potential problems: brain drain, foreign companies leaving the market and a decrease in the number of foreign investors. Still, it will most likely only be possible to assess the full picture several months later.

Sovereign internet, anti-censorship and pleas to Elon Musk

The case of Belarus shows that in the face of economic and political problems, decentralization is, perhaps, the only way to defend social rights to freedom of speech, internet access and financial independence.

And it’s not just about VPNs that can deal with specific websites being blocked; perhaps only fully decentralized solutions can cope with a full internet shutdown in the country. Telegram became the only messenger that was available to Belarusians after the company turned on anti-censorship tools for residents of the country.

We enabled our anti-censorship tools in Belarus so that Telegram remained available for most users there. However, the connection is still very unstable as Internet is at times shut off completely in the country. https://t.co/eA4S6Zz36H

— Pavel Durov (@durov) August 10, 2020

Another way for Belarusians to bypass internet censorship is through the Tor network, which saw a ninefold increase of users connecting via bridges — a censorship-resistant way of accessing the network that uses obscured servers.

According to Korolenko, the example of Belarus has shown that blocking the internet is both a costly and pointless idea, telling Cointelegraph: 

“Blocking takes resources, but people and businesses still find ways to bypass the block. Let’s also remember the official blocking of Telegram in Russia — it was recently officially allowed, in fact, recognizing the impossibility of actually blocking it.”

However, the stability of the internet in the country still leaves much to be desired. In search of solutions, Belarusians even reached out to Elon Musk on Twitter for help, with some requesting that he start testing SpaceX’s Starlink satellite internet in the region. Although Musk responded to the call, experts doubt that this is possible given the current political realities.

The case is very similar to previous attempts to transfer voting to a decentralized model using the e-voting platform Golos, which the government of Belarus called illegitimate. Similar problems exist in other countries with similar political regimes where attempts to hold blockchain-based elections, such as in Russia, have been questioned.

Exchanges: Belarusians are buying up crypto

Cryptocurrency purchases may also become illegal soon as Belarusians have started to flock to online platforms after losing confidence in authorities and the Belarusian ruble. Local media has reported that the country’s authorities are discussing a plan to block deposits in state-owned banks and introduce total control over the financial transactions of citizens. Transactions in foreign currencies and deals with foreign partners may be banned too.

The leading political Telegram channel, Nexta Live, called on the residents of Belarus to find alternatives to local banks as soon as possible and pay attention to cash and cryptocurrencies. Against this backdrop, many crypto exchanges have reported a sharp increase in demand for digital money from Belarusian users. According to Sergey Zhdanov, chief operating officer of Exmo — one of the largest exchanges in the CIS region — although user registrations haven’t skyrocketed, the average deposits have almost doubled since Aug. 1. He added:

“Belorussian users usually deposit either RUB or USD, and when we made a survey asking them if they need a Belorussian ruble as a fiat currency, only 3% of them answered positively. They stated that they don’t keep their savings in the local currency, as the possibility of deflation is astonishingly high.”

AAX, another crypto exchange — which has never had Belorusian traders among its users — has seen “a moderate, but steady” stream of demand over the past month. Thor Chan, its CEO, shared statistics with Cointelegraph:

“We’ve seen about a 300% increase in sign-ups a day before the Election Day compared to the week before. However, we have not observed any trading activities on the day itself which might have been caused by Internet lockdown in Belarus on the 10th of August. Trading activities and user flow have recovered by now.”

We do business, not politics

The situation in Belarus can play out in different scenarios. On the one hand, storm clouds may hang over the future of the HTP in connection with Valery Tsepkalo, the man who created the technology park in the country, exiting the presidential race and subsequently fleeing the country. On the other hand, the joint efforts of people, IT companies and technologies are bearing unprecedented fruits amid the fight against the centralization of power. Rocket DAO’s Shuhayeu opined:

“In Belarus of tomorrow, when the dictatorship falls, I am sure that we will become pioneers in the use and development of new technologies, because there are many talented professionals here, and a demand for justice, publicity and freedom has appeared in society.”

The Belarus Blockchain Association’s Basko also expressed his hopes for the resolution of the current situation, telling Cointelegraph that the organization and many other people will do their best to overcome the problems. When speaking with Cointelegraph, he dropped a phrase that has recently become the embodiment of the philosophy of local IT companies: “We do business, not politics.”