Israel’s Blockchain Balance Spurns Crypto

Israel is one of the most innovative and technologically exploratory countries in the world, but it doesn’t tolerate tech that it deems a threat for very long. Just take Uber, an application that is seen as harmless in countries like the United States and UK, but one that had to endure a thorough audit by Israel’s chief antirust entity and ultimately decided to pull out of the country in 2014. Israeli companies such as Moovit and Gett now provide this service in a way that’s compliant with regulations, which are designed not to unbalance the small country’s transit industry.
The country has taken the same approach with blockchain, a new decentralized technology that enforces improved, cryptographically secure transmissions of data. Blockchain is more of a foundational technology than an application or platform. While some components of it are truly productive and practical ideas about how we can communicate virtually, others are either of no interest to Israel or represent a risk that the country will not tolerate. Like with Uber, Israel might recognize the value of the blockchain, but it is determined to deliver this value on its own terms.
As Israel grapples with the rise of blockchain, the theme so far has been to keep a lid on it. Many recent events demonstrate that while Israel is ready to welcome blockchain with open arms, many of the fruits of blockchain innovation—such as cryptocurrency and ICOs—are suppressed with the same fervor. For example, though tech-savvy Israelis are eager to invest in Bitcoin and other cryptocurrencies, the government has consistently made it harder and harder.
To combat money-laundering and the black market, the latter of which is estimated to be 22% of Israel’s economic output, Israel’s tax authority has slapped 46% taxes on crypto earnings and in July forced one of the only domestic exchanges to disclose all its large transactions. This action supplements others taken in early 2018, which saw the rapid swelling of Bitcoin’s price and that of the entire cryptocurrency market. At that point many companies on the Tel Aviv Stock Exchange (TASE) had incorporated blockchain or Bitcoin into their operations and even into the names of their companies to try to influence the price of their stock.
In March (and on the same day that Google banned cryptocurrency ads) the TASE blocked companies involved in cryptocurrency from being listed on the exchange. Its reasoning was logical after the market crash months earlier. With Israeli companies champing at the bit to integrate crypto and blockchain, the Israel Securities Authority (ISA) recognized that passive investors with exposure to national mutual funds and indices wouldn’t be well-served by the volatility of a crypto-tinged equity market.
Though it’s logical to want to protect the small, country’s economy from potentially destabilizing influences, it’s also hypocritical considering that the same regulatory entity is itself using the blockchain—and to stellar results. This dual-sided approach by the ISA illustrates the piecemeal method that Israel takes with new tech.
On Wednesday, the ISA announced that its cybersecurity measures were now relying on blockchain to secure public sector communications, such as messages between different branches of government. With blockchain as part of the agency’s Yael platform, the ISA can ensure that messages are authentic, coming from verified individuals, and “your-eyes-only”. It’s also planning to incorporate blockchain into a system whereby shareholders can more safely vote on corporate issues from afar. Another ambition for the ISA is to use blockchain to maintain a database of regulatory filings and documents.
As Israel’s primary regulatory authority, the ISA’s contrasting view of blockchain and cryptocurrency aligns well with the country’s unique yin and yang style of tech incorporation. Its suppression of cryptocurrency continues, yet even as recently as August the government was still mulling the possibility of a crypto-shekel, and domestic banks are now beginning to take advantage of blockchain. Bank Hapoalim, for example, recently entered into a partnership with Microsoft Azure to build a proprietary bank guarantees platform using blockchain.
Though the Tel Aviv Stock Exchange will reconsider its decision to ban blockchain companies, crypto’s early attempts at entry into the Israeli market have all but stopped. While there are surely vast risks associated with virtual currency investments, there is some merit in the idea, and Israel knows it. Judges and regulators in the country have therefore opted to put an expiration date on their rulings over the fledgling technology. The TASE decision, for example, is set to be tackled anew next year, and the February injunction forbidding Bank Leumi from closing local exchange Bits of Gold’s account is also temporary.
Israel is adept at determining which technology will help it in a meaningful and controllable way, and which simply seek to leverage their disruptive power. The same battle is playing out across the world as governments juggle the benefits of blockchain with its threatening and unstoppable creation: cryptocurrency.