Various governments have begun exploring the potential of backing a cryptocurrency as a national currency. Venezuela established Petro coin, the first state-backed cryptocurrency, under the leadership of Nicholas Maduro. However, the coin has come under heavy scrutiny as it is completely controlled by Venezuela and is in violation of cryptocurrency’s main tenant of decentralization.
Israel’s Finance Ministry and the Bank of Israel have also toyed with the idea of developing a state-backed cryptocurrency. According to an anonymous finance official, the digital shekel would be identical in value to the physical shekel and would help the Israeli state fight against tax evasion. The digital currency would also record every transaction by mobile phone and allow for speedier transactions.
While a state-backed cryptocurrency potentially offers more stability to a currently unstable market, a cryptocurrency solution is more likely to come from the private sector. Israel has a budding cryptocurrency industry, and is home to its own blockchain association. Bloomberg ranked Israel as the 10th most innovative country in the world, in large part because of it’s high-tech density and patent activity, two vital factors for cryptocurrency development.
Israel’s biggest banks are also involved in cryptocurrency becoming more mainstream in Israeli culture in very different ways. The Bank of Hapoalim has partnered with Microsoft Azure to digitize financial assets using blockchain technology. Microsoft Azure is at the forefront of blockchain development, and the bank hopes the partnership can bring about safer and faster financial transactions.
On the other hand, in February 2018 the Israeli Supreme Court overturned previous rulings and ruled Bank Leumi could not terminate accounts based solely on cryptocurrency transactions. The bank had previously blocked customer cryptocurrency transactions under the guise that they did not meet Israel’s anti-money laundering rules.
The ruling set a precedent favoring cryptocurrency adoption in Israel and some of its more unique uses such as cryptocurrency casinos and gambling. While the government and institutional banking have become more active in the cryptocurrency space, cryptocurrency can also be used for all types of transaction. The Israeli Supreme Court’s ruling allows for more access to the cryptocurrency market in Israel from cryptocurrency exchanges and casinos to banking with cryptocurrency.
One facet of Israeli law that is perhaps holding Israel back from widespread adoption is heavy taxation on the product. Governments across the globe have been working to find ways to tax the decentralized currency since it has become a multi-million worldwide industry.
In Israel, cryptocurrency is classed as taxable property and is taxed under capital gains tax. Corporations would get taxed at a rate of 46% on profits and individuals at 25%.
In America, the IRS’s decision to tax cryptocurrency panicked the cryptocurrency community. Many investors worried they would be in violation of tax laws, however the government’s intervention has not slowed down cryptocurrency as an industry.
A quick Google search reveals a massive industry with its arms spreading all over the financial world with exchanges, websites, magazines, and forums all solely dedicated to the future of digital currency.
While the private industry drives much of the innovation of cryptocurrency, some mainstream adoption may come in the form of government intervention. Cryptocurrency purists would say that governments’ foray into the cryptocurrency space runs against the currency’s basic principles. But, the entry of governments worldwide has caused a massive increase to the notoriety of cryptocurrency, and due to its massive potential, it was only a matter of time before states like Israel stepped into the cryptocurrency ring.