The Executive Director of the Center for Analysis and Communication of Economic Reforms (CAERC), Vusal Gasimli, delivered the opening address at a conference organized by the Azerbaijan Banks Association.

He noted that the economic reforms carried out under the leadership of Ilham Aliyev ensure innovative development in the country. The Strategic Road Maps envisage the application of advanced information, bio, nano, cognitive, financial, and communication technologies across all sectors. Azerbaijan’s Digital Trade Hub, built on blockchain technologies and the X-Road platform, is a clear example of public–private partnership.

As worldwide, the application of blockchain technologies is being carefully studied in Azerbaijan, with risks and opportunities thoroughly assessed. The transition of Azerbaijan’s financial and banking sector to a qualitatively new stage, the further improvement of financial services, expanded access to financial resources, and enhanced global competitiveness will also depend on the effective use of blockchain technologies.

In regulating blockchain and other new financial technologies, the “sandbox” approach used in international practice may also be considered in Azerbaijan. This would allow for an environment based on the “test and learn” principle, relying on private sector activity and initiative. Since blockchain technologies are still new, even developed countries have not yet fully established precise regulatory mechanisms.

In global practice, central banks focus on two key issues regarding cryptocurrencies. First, the issuance of cryptocurrencies by central banks remains uncertain, as such issuance would imply a transition from a two-tier to a single-tier banking system. Second, central banks have not reached final decisions on the extent to which other financial institutions should be allowed to conduct cryptocurrency transactions or engage in crypto mining. This is due to unresolved risks related to tax evasion and money laundering, as effective mechanisms are still under development. At the same time, new protocols are being introduced. For example, the Bank of England is facilitating the application of Distributed Ledger Technology (DLT), which creates opportunities for syndicated lending. Discussing DLT with representatives of Azerbaijan’s financial and banking sector and preparing proposals, if appropriate, appears advisable. Overall, control mechanisms for cryptocurrency transactions remain fragile, transcend national borders, and are still evolving.

In several countries—Singapore, Australia, India, Ireland, and Cambodia—pilot projects already exist to conduct interbank transactions via blockchain. For instance, India’s largest banks have begun using this technology. Banks within the consortium they established can now monitor not only their own databases but also all interbank data. Each transaction is automatically recorded in the system, enabling smoother and more efficient interbank operations. Most recently, Ireland’s Allied Irish Banks, Ulster Bank, and Permanent TSB, together with the world’s leading audit firm Deloitte, have been working on a blockchain platform to make interbank transactions faster and more secure. The steps taken by Ireland, Cambodia, and India indicate that in the near future, interbank transactions will increasingly be conducted via blockchain platforms—faster, more efficiently, more securely, and at lower cost. In Azerbaijan, there is a need to further expand analyses in this direction.

As in the United States, Japan, France, and many other countries, income derived from cryptocurrency transactions is subject to taxation under Azerbaijan’s tax legislation. Research and improvements continue in line with global trends regarding the use of cryptocurrencies in e-commerce, monitoring cryptocurrency circulation, and tax regulation.

Another sector expected to be significantly boosted by blockchain is trade. Building trade on blockchain platforms can eliminate intermediaries, simplify trade processes, enhance export and import security through cryptographic contracts, shorten transaction times, and reduce costs. Currently, research is underway on the application of blockchain technologies within Azexport.

There is also a need for more in-depth research into opportunities such as smart contracts, blockchain token sales, and Initial Coin Offerings (ICOs) in Azerbaijan.

As blockchain technologies advance, they will create new realities for banks, depositories, and notaries, making early preparation essential.

Blockchain technologies are expected to bring significant benefits in areas such as healthcare, protection of property rights, consumer services, remittances, and big data.

Taking risks, cybersecurity, and opportunities into account, it appears appropriate for the public and private sectors to cooperate in Azerbaijan along three key directions to expand the application of blockchain technologies:

1. further development of legislation;

2. implementation of technologies;

3. human capital development.
   Effective cooperation within the education–science–business triangle is also required.

Accuracy, immutability, and transparency of information are among blockchain’s core advantages. Faster and more secure transactions, along with lower service costs, are key factors driving the continuous growth of this technology’s user base. When weighing these advantages against potential risks, it becomes clear that the benefits of blockchain technologies outweigh their disadvantages.