The Israeli Tax Authority on Monday confirmed that bitcoin and other digital currencies will be taxed “as property, not a currency,” in the so-called Startup Nation’s latest move to tighten the bolts on the nascent technology. Writing as an early pioneer in the cryptocurrency space – and as a business leader weighing entry to the Israeli market – it is clear that Israel’s proposed policies will only stifle innovation and hamper the economic prosperity delivered by digital currencies.Prior to Monday, Israeli authorities had also outlined their plans for taxing ICOs, or initial coin offerings – a popular new way for start-ups to raise capital from the public through sales of tokens. Still, Israeli start-up up to now have instead opted to launch their ICOs in countries like Gibraltar – and it seems that astonishingly, no Israeli firms have yet conducted an ICO, even as the phenomena sweeps the rest of the globe. Someone should explain to regulators that the tax revenue on zero is zero.The Israel Securities Authority chief also recently made clear the Start-up Nation’s hostility to the revolutionary technology, with a decision to forbid the Tel Aviv Stock Exchange from listing firms engaged in trading of cryptocurrency.The Bank of Israel did say that it would explore the creation of a digital shekel – but mainly with an eye toward capturing lost tax revenue.Instead of a prevailing focus on how this technology can be manipulated to create yet another revenue stream for a bloated government, the mindset should be to find every way possible to remove barriers to innovation.Prime Minister Benjamin Netanyahu last month declared that he’s seeking to emulate America’s success in using tax reform to jump-start job creation and spur private investment. Lower taxes are always better, and Netanyahu signaled a willingness to further reduce the 6% corporate rate paid by some multinationals. Mandating a hefty capital gains tax on digital currency, ranging from 25% for individuals and up to 47% marginal rate for businesses – plus the 17% VAT for traders and miners – is 180 degrees from the goal of making Israel’s markets free and competitive.There are a few steps Netanyahu and free-market lawmakers could take. For starters, there should be a moratorium on new regulations for the industry, giving it time to gain traction in Israel. For individuals and small businesses, there must be a tax exemption up to a certain amount for modest transactions (while VAT is still paid on goods). In a nod to tax revenues in the economy of the future, taxes should be payable in bitcoin.Belarus is one country to understand this early, and declared all exchange in digital currency would be tax-free for the next five years. It’s curious that Minsk could emerge as a more attractive tech hub than Tel Aviv. Bitcoin and other digital currencies are the people’s emancipation from the legacy financial system. Like the early days of the Internet or the cell phone, no one can say how wide-ranging this disruptive technology will be. One thing is clear, however: busybody bureaucrats must get out of the way.As it stands, the Israeli government is warding off foreign investment and keeping potential domestic innovation on the sidelines. A modern, minimalist regulatory and tax climate is a prerequisite for Israel’s tech sector to be able to continue to produce cutting- edge advancement in today’s globally competitive economy.The author is founder of Bitcoin Center NYC – the world’s first live exchange – and co-founder of blockchain start-up Zap.org. Amir Weitmann is chairman of the Likud Party’s libertarian faction.