There has been an uproar and confusion in the crypto industry in Israel, as Israel’s parliament- the Knesset- decided to postpone the law regulating cryptocurrency exchanges by four months on May 31.
Although the delay is not appreciated, if experts are to be believed the discussion paper floated, which could become the first primary law for cryptocurrencies in the country, has some path-breaking clauses which could set an example for the world.
Israel: The start-up nation embracing Blockchain
Estimates indicate that in 2017 Israel-linked ICOs raised almost $500 million, a remarkable slice of the total ICO pie that year. Startup Bancor raised plenty of eyebrows from within the blockchain fraternity as it managed to raise close to $150m through an initial coin (“ICO”) offering in June 2017. And, it’s not just ICOs that are elevating Israel’s reputation within the world of blockchains its even on the rise amongst companies looking to implement and take advantage of blockchain’s functionality.
Some of the industries that are already running trials with blockchain include secure tagging, tracking and the tracing of any digitalized item, with blockchain even being considered for tracking intellectual property and digital rights. Also, banks seem to embrace the nascent technology. Bank Hapoalim, Israel’s largest bank by assets, is one institution looking to embrace blockchain in a bid to secure documents digitally that could see the end of customers needing to go into bank branches.
The Bank has asked for the help of Microsoft Azure, Microsoft’s cloud computing service and a market leader in blockchain development.
Need for path-breaking regulation in Israel
With all aspects of Blockchain and cryptocurrency gaining fast acceptance in Israel, a robust and path-breaking law is the need of the hour in Israel. And that’s what the discussion paper demonstrates.
According to experts, who are closely tracking the regulatory developments in the country, the paper takes a truly pioneering approach to the regulation of crypto-related financial services. The paper talks about the identification, reporting, and documentation duties of regulated financial service providers and this is perhaps the first time any national (or state) regulator has attempted an all-inclusive approach to the problem of identifying the holders of virtual currency.
One of the best-known features of most virtual currencies is the anonymity of the holders and it is this anonymity (or pseudo-anonymity) that concerns law enforcement agencies because of its capacity to be used in activities such money laundering, the financing of terrorism, and other unlawful activities. With the discussion paper, Israel’s regulator has stated that each licensed cryptographic financial services provider will have to identify not only its customers and document all standard information – name, identity number, address, etc. — but also some unique identifiers that have not been collected or documented so far, namely, the addresses (public key) of the virtual wallets involved in the transactions and the IP address used by the customer.
Additional special reporting will be required for crypto-specific transactions the regulator identifies as suspicious, such as the use of anonymous virtual currencies (such as Monero, Zcash, Zcoin, and Verge); trade through “mixer” platforms or use of anonymous IP addresses
These regulations are unprecedented both in scope and technical detail. If they are enacted, Israel will have taken the regulation of virtual currency a big step forward.