The Bitcoin of Israel Is Set to Tackle the Country's Banking Monopoly

The success of the pioneering Bitcoin has inspired a proliferation of new cryptocurrencies around the globe, and last week, six Israeli developers introduced their own virtual coin in an attempt to counter the concentration of power and wealth within the Israeli economy.

“The centralization of banks and power in Israel is extreme,” said Amnon Dafni, one of the six founders of Isracoin. “There are just a few banks that govern most of the property and money here. And these have tremendous influence on political parties. For me as a citizen this is frightening.”

These factors inspired Dafni and the five other founders of Isracoin to begin developing an alternative currency that could be traded directly between Israeli citizens, without the need for institutional middleman.

“Virtual currency could be a great thing for the Israeli economy. People would be able to commerce without the need of banks, directly in a very secure way from a cell phone, computer or tablet,” Dafni said in an interview with VICE News.

The global virtual currency Bitcoin has had some minor previous success in Israel, but its impact on the Israeli economy has been minimal.

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Dan Goldman, one of the founders of Isracoin, told VICE News that the problem with Bitcoin and other global virtual currencies was their “speculative nature.” According to Goldman this is “caused by lack of enough businesses and consumers in the same geography who share some symbiotic relationship between them.”

It’s one of the reasons Bitcoin has had little success in Israel, he said.

“People buy Bitcoin here because they think it is going to go up [in value]. It is not a part of daily commerce of this country,” Dafni said.

Unlike Bitcoin, Isracoin is a kind of national cryptocurrency, made available to Israeli citizens only.

But like Bitcoin, it retains the appealing traits of virtual money: reliable, untraceable, easily stored on laptop or hard drive, and free from the control (and charges) of the government and banking industry.

This freedom from charges is particularly important in Israel, where five banks control nearly 93 percent of the country’s assets.

This lack of competition has created a banking system in Israel ”rife with interest over-charging on credit, low interest on deposits, and high fees and charges for no apparent reason,” according to Isracoin’s website.

“There is little competition, so the services they give are very poor,” Dafni said. “Banks are only open for several hours, they take very high commission for every transaction, and will even inhibit costumers from transferring money to certain parts of the world.”

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Dafni believes that Isracoin can remedy this situation.

“It allows individuals to commerce directly from person-to-person. In the middle of night, to the other side of the world, from your computer or smartphone,” he said.

The banking establishment and the Israeli government have yet to respond to the launch of the virtual currency. But that may change if Isracoin becomes a viable alternative to the Israeli Shekel.

“[Banks] take the position of controlling your money, controlling your freedom. This wont exist with Isracoin,” Dafni said.

Isracoin has gone from idea to reality in a short period of time — in a course of about six months, and only in the “last six weeks or it so has gone into active development,” Goldman said.

On March 26, Isracoin was released for public mining — the process of making new currency available. So far 480 million Isracoins have been pre-mined — 10 percent of the 4.8 billion total.

Isracoin's initial release will be followed by a multiphase airdrop, or plan for delivery of Isracoin to the Israeli public via the web, beginning in May. The first phase will see the distribution of 500 Isracoins to every business that adopts it as a means of payment, equal to up to 50,000 businesses. The second phase will be to distribute coins to every person that can be verified as an Israeli citizen — up to a maximum of 2,850,000 people.

Isracoin follows a number of other national virtual currencies that have arisen in the failing economies of Europe and elsewhere. In Iceland, the Auroracoin, launched in February, achieved an impressive 6.6 percent market penetration in only four days.

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Israeli economist Shir Hever told VICE News he is dubious about Isracoin's impact.

"[Isracoin] seems to be a very marginal project," he said. "I doubt that it will be adopted in Israel, except maybe in very small pockets. It has very little exposure in the mainstream media."

Bot Goldman is confident that Isracoin can do even better than Auroracoin, because of their "forward-thinking distribution plan that includes businesses as well as individuals.”

And while the viability of virtual currencies is still up to debate, some in Israel are optimistic.

“It’s a good idea. Your smartphone is your wallet, and you deal directly with individuals instead of banks,” Ruth Webb, a student from Jerusalem told VICE News. “I like it. Capitalism at its finest.”

Photo via Flickr