A new Israeli virtual currency was launched Wednesday, with its backers claiming it will help revolutionize the economy and reduce dependency on banks. But it enters a skeptical market already saturated with so-called cryptocurrencies.
Isracoin opened its digital doors to mining Wednesday night, flying in the face of warnings from the country’s central bank and major financial bodies for Israelis to avoid Bitcoin-like digital money. The Israeli government has so far, however, stopped short of outlawing virtual currencies altogether.
The new Israel-tailored digital currency joins the ranks of dozens of minor cryptocurrencies trying to make inroads in an online market dominated by Bitcoin and a handful of others.
Wheras other virtual currencies promote their universal, international nature, Isracoin — by name and ideology — appears custom-tailored for the local digital marketplace. Isracoin’s communications director, Amnon Dafni, told The Times of Israel that part of the impetus for founding a new virtual currency in Israel was the failure of Bitcoin to take hold here.
“The fact is that [Israelis] don’t use this wonderful technology in an application to advance the economy,” he said. By branding it with local flavor, Isracoin’s developers reasoned, they could encourage Israelis to use it. He said that using Isracoin will be reasonably possible for tech luddites to figure out, comparing it to “using email or a cellular device.”
On their website, Isracoin’s developers make clear their discontent with the Israeli banking system, saying it “is rife with interest over-charging on credit, low interest on deposits and high fees and charges for no apparent reason. The public has no choice but to endure this, while the cost of living skyrockets.”
With a whiff of the 2011 social justice protests that rattled Israeli national politics, they say that their new decentralized cryptocurrency “will benefit the hard working population of Israel and help reduce cost of living and debt.”
But that’s not to say their aspirations are limited to the Jewish state. Dafni said they anticipate that the currency will take off online, become an integral part of the Israeli economy, and expand outside Israel.
Despite the recent Mt. Gox Bitcoin exchange’s collapse due to gross loss of funds and growing uncertainty over the security of virtual currencies, he insisted there were no issues of security surrounding the new e-money.
“The Bitcoin platform is very, very secure,” he said, in response to inquiries about Isracoin’s digital security. Although the precise cause of the disintegration of Mt. Gox has not yet been determined, he said there was no issue of security. “We use the same technology, and our level of security is super, super, super high and it’s being inspected from every direction and angle.”
Dafni was tight-lipped, however, as to who was managing the regulation of Isracoin, vouchsafing only that it was “a professional staff.” He did say that Isracoin was, generally speaking, not in favor of regulation, particularly by the government or Bank of Israel.
He also couldn’t say how much the Isracoin would cost per unit at the get-go, emphasizing that such matters were left to the free market and he couldn’t speculate.
Dr. Moshe Cohen, assistant professor of finance and economics at Columbia Business School, was skeptical that Isracoin would bring any added value to the burgeoning market of virtual currencies.
“There’s a lot of these alternative currencies that are trying to sprout up because it’s an opportunity to appreciate a currency from zero to who knows what,” he said. “The main question [for Isracoin] is what are you offering that Bitcoin isn’t offering and how is your product differentiated.”
He said Bitcoin has an inherent advantage in the Israeli market and abroad because it has already developed a network and a name. “In order to beat that advantage,” he said, “a new currency or a new transfer technology has to offer something really unique that the existing currencies don’t offer,” such as added reliability, or protection from accidental loss, theft and fraud.
“A branding piece is not going to be enough to attract a large enough network,” Cohen said. “They’d have to make a strong case of added value.”
Shuky Aharonovich, a Bitcoin activist and user in Israel, was skeptical that the Isracoin would be able to lower the cost of living in Israel, pointing out that government taxes, not the shekel itself, were a major impediment to that aim. He said one of the major sticking points for the Isracoin developers would be convincing Israeli businesses and users to adopt Isracoin at all.
Those who are savvy to the business of wheeling and dealing in cryptocurrencies have already latched onto the Bitcoin and it would be an uphill battle for Isracoin to convince them to change allegiances, he said.
Dafni said he was doubtful there would be any opposition to Isracoin from the Bank of Israel or Finance Ministry, pointing out that even China has not banned cryptocurrencies.
“Here [in Israel], to outlaw this kind of thing seems so anachronistic,” he said. Isracoin, he said, was not out to topple the shekel. “It’s another layer” to the Israeli economy.
The Finance Ministry and Bank of Israel were not available at time of publication for comment on Isracoin.