Can Isracoin become God’s chosen cryptocurrency?

Introducing shekel 2.0.

 

Aaron Sankin

Business

Published Mar 31, 2014   Updated May 31, 2021, 1:35 pm CDT

Dan Goldman’s drive to provide the people of Israel with a new currency is, at its heart, a deeply political effort. ?For many years now, [the] Israeli people have been dealing with soaring costs of living, exorbitant banking fees, and overall too little financial freedom,” Goldman explained. “Israel has a problem with concentration of wealth in very few hands, and this affects everyone. It becomes even worse when the banks also exert control on the political parties.”

Joining together with five other tech-savvy young Israeli activists, Goldman created Isracoin, a Bitcoin variant he hopes will become an alternate national currency for Israel.

Isracoin, which launched earlier this week, isn’t simply relying on its name to encourage adoption among the Israeli populace. Isracoin’s creators plan on conducting a four-stage ?airdrop” where coins are given out for free to people and businesses across the country. This distribution strategy was pioneered by the creators of Auroracoin, who gave 31.8 auroracoins to every Icelandic citizen earlier this month.

Goldman, who says he had been involved with cryptocurrencies for quite a while, explained that this sort of national distribution strategy has the potential to solve one of the biggest problems many people have with Bitcoin—namely, that the largest holders of the currency are treating it as a vehicle for investment rather than something that can be used to buy and sell goods on a daily basis. Goldman insists the root cause of this situation is Bitcoin’s tiny market penetration within any specific geographical area.

?Bitcoin is global, but only has a couple of million users. … While that is a large number, it is ridiculously low when you convert it to a percentage of the population it is supposed to serve,” Goldman noted. ?You end up with a measly 0.028 percent market penetration. While not nothing, it is definitely not nearly high enough for it to become practical for day-to-day use for most people and therefore remains mostly speculative.”

This problem isn’t just limited to Bitocoin. The adoption rate of any cryptocurrency within any specific locality is minuscule—except when it comes to Auroracoin. Within a few days of its initial airdrop, 5.5 percent of all adult citizens of Iceland had claimed their auroracoins. Goldman forsees that a similarly country-specific doling out of free coins to Israelis could lead to a critical mass of adoption and overcome the propensity to hoard difficult-to-spend coins that’s long plagued Bitcoin.

However, Isracoin’s creators aren’t just planning to copy Auroracoin’s distribution method. They also aim to improve upon it.

While Goldman is impressed by what Auroracoin has done so far, he points the currency’s lack of widespread support from Iceland’s business community as its biggest potential weakness. Isracoin is attempting to combat this issue head on by having the first airdrop, which is scheduled for May 6, directly give 500 coins to any Israeli businesses that volunteers to accept payment in Isracoin. The hope is this offer of free money will be enough to entice businesses to begin accepting the currency, which, in turn, will boost circulation as Isracoin holders are presented with a wide variety of options for where to spend their coins.

Although the application process for businesses has yet to occur, Goldman insists his team has been inundated with emails from businesses that are excited to participate.

The Isracoin airdrop is a four-step process that won’t be limited to businesses. On June 6, up to 2.8 million Israeli citizens, about half of the country’s total adult population, will become eligible to receive 100 Isracoins just for filling our some proof-of-residency forms. Stage three will involve credit grants of 5,000 coins to Israeli businesses that accept Isracoins as payment. The fourth stage is the creation of an Isracoin economic development fund tasked with donating to local startups as well as charity and development projects.

All told, about 10 percent of all the Isracoins in existence will be minted by the currency’s founders and then put into circulation through these distribution mechanisms. The other 90 percent will be graudally mined by individual users. There are already three different mining pools that have been set up to let miners combine their resources in an effort to mint new Isracoins more efficiently.

Israel is already in the top five countries with the highest rates of Bitcoin adoption, an enthusiasm Goldman hopes will transfer over to Isracoin. Israeli regulators appear skeptical of cryptocurrencies but have yet to go as far as banning or significantly restricting their use.

Earlier this year, the Bank of Israel released a public notice warning about the some of the risks associated with using virtual currencies. Those risks included the currencies not technically being legal tender in Israel, their high levels of price volatility, the potential for the currencies to be used in illegal activities, and the long history of trading platforms ignominiously collapsing without users being able to get their money back.

National cryptocurrencies are a trend that’s quickly catching on. In addition to Iceland and Israel, efforts to bind currencies within specific geographies have cropped up in Spain (SpainCoin) and within the Oglala Lakota native tribe, which resides on the Pine Ridge Reservation in South Dakota (MazaCoin).

While there are hundreds of cryptocurrencies zinging their way back and forth across the Internet, the national strategy taken by the groups behind these coins appears to be a relatively effective way to encourage mass adoption. Shortly after its launch earlier this year, MazaCoin became the 13th most valuable cryptocurrency in the world in terms of market cap (although it has since slipped down to 58th). Auroracoin, on the other hand, currently holds the fifth largest market cap—right above media darling Dogecoin.

Most of the national cryptocurrencies arose in economies facing enormous structural problems. Iceland’s banking system was one of the world’s hardest hit by the 2008 financial crisis and regulators there have since imposed strict capital controls, making it an expensive proposition to move money into or out of the country. Spain’s unemployment rate is nearing 30 percent and, on the Pine Ridge Reservation, unemployment has been estimated to be as high as 90 percent.

“People don’t trust the financial system [in Iceland], so there are people looking for something else,” Eli Dourado, a research fellow at George Mason University’s Mercatus Center, told the Daily Dot in an interview earlier this month. “It’s a really interesting way to try to get a currency off the ground—to take advantage of the distrust.”

In contrast, Israel’s economy seems comparatively healthy; however, the populist arguments of Isracoin’s backers still may resonate. ?If the people are the ones creating coins then, by definition, that is already a shift in centralization of wealth,” Goldman said. ?If banks can’t charge you fees for nothing, that is a change in cost of living. Isracoin will actually be by the people, for the people. The many rather than the few. This is a process, however… one that could, and probably will, take quite a while.”

?Isracoin is not a revolution,” he added, ?it’s an evolution.”

Photo by Grauesel/Wikimedia Commons

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*First Published: Mar 31, 2014, 9:14 am CDT