Israel is considering regulating the bitcoin, the Internet’s crypto-currency, and financial authorities are warning citizens that using such decentralised virtual currencies is risky.

Money, money, money: Israel is considering regulating the bitcoin and is warning citizens of the risk of using it – Photo: Reuters

Bitcoins are passed between two parties digitally and can be traded on exchanges for real-world currencies. The bitcoin’s value fluctuates according to user demand but it is not backed by any government or central bank.

Supporters of the bitcoin are drawn to its decentralized platform and say it is here to stay. Detractors call it a bubble and expect it to be forgotten in a year or two.

However, it has proved increasingly popular and governments and regulators around the world have been searching for the best way to respond.

Israel, home to pioneering high-tech firms in fields such as cryptography, has emerged as a bitcoin hotspot, prompting Bank of Israel Governor Karnit Flug to convene a meeting this week with other financial regulators, including those for capital markets, taxes, securities and money laundering and terror financing.

“It was agreed to continue to examine various perspectives related to the use of, and trade in, virtual currencies,” the authorities said in a joint statement on Wednesday.

“These perspectives include possible macro effects, their legal standing, their regulation, money laundering and terror financing risks, taxation and consumer protection.”

The statement said the Israeli public should be aware that the bitcoin is unsupervised, is not legal tender and presents fertile ground for fraudulent activities. At the same time, such transactions are anonymous and often hard to trace, it said.

“This anonymity is liable to be exploited for criminal activity, including money laundering, financing illegal activities and financing terrorism,” the statement said.

“Law enforcement authorities are therefore likely to close trading platforms in virtual currencies which are used for illegitimate activities, by preventing access or use of customers’ capital, which would likely be held by those platforms.”

Other governments have also issued warnings on the use of the bitcoin and New York’s financial regulator revealed plans this month to govern virtual currency firms in the state to protect consumers and combat money laundering.

At least two dozen Israeli startups have popped up in the past year with a view to creating tools that will allow the bitcoin to be used in almost any kind of transaction, from buying shoes to issuing company stock.

In recent weeks, the bitcoin was hit by attacks from unknown computer hackers that led to problems at two exchanges. They had to temporarily halt withdrawals by customers who stored bitcoins in digital wallets provided by the exchanges.

This week, a bitcoin was worth about $635, down from around $1,000 at its peak in late 2013. It was worth only about $150 as recently as last September.

View original Israel Hayom publication at: http://www.israelhayom.com/site/newsletter_article.php?id=15621