Israel’s diamond exchange is turning to digital currencies to inject new life into a marketplace long ruled by cash and backroom handshakes, but it must first persuade traditionally conservative players that the technology can work. One of the world’s largest diamond centres, the exchange hopes its virtual currency will make trading more efficient and less opaque.
Current transactions are “often carried out anonymously, with the shake of a hand and minimal documentation”, according to a recent report by Israel’s Justice Ministry. That murkiness has led the FBI and Europol to target the trade as a vehicle for money laundering and crime financing.
Narrow profit margins between rough and polished gems make it hard for polishers to get financing, and banks have cut back lending or pulled out entirely.
Backers of the digital currency program believe it will help address those issues.
“We foresee alignment behind this currency because it’s going to make things easy,” Eli Avidar, managing director of the exchange, told Reuters in an interview.
“This industry is facing challenges, and this is going to in a lot of aspects address those challenges ... the profitability element of the business, the speed of doing business, money laundering aspects and the problematic elements of banking nowadays,” he said.
The exchange is planning to launch two coins.
The first, to be known as the Cut, will be available only to dealers on a peer-to-peer basis. Traders from around the world will receive digital wallets after being vetted by the exchange, similar to today’s background checks.
Each transaction will be verified in a matter of minutes and be available to the public on blockchain - a digital ledger maintained by a random group of peers - but the identity of who owns what will be kept private. The exchange can provide that information to regulators upon official request.