Israel's Diamond Exchange, one of the world’s largest diamond centers, is to launch two digital currencies in efforts to make trading more efficient and translucent.
A recent report by Israel’s Justice Ministry says current transactions in the Exchange are often “carried out anonymously, with the shake of a hand and minimal documentation”.
The FBI and the Europol consider the Exchange as a vehicle for money laundering and crime financing because of this. Banks have also cut back lending or pulled out entirely from the Exchange because narrow profit margins between rough and polished gems have made it hard for polishers to get financing.
The supporters of the digital currency program think launching the currencies 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.
“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.
Launching the Cut and the Carat
The exchange is planning to launch two coins. The first, to be called the Cut, will be available only to dealers on a peer-to-peer basis. After being vetted by the exchange, traders from around the world will receive digital wallets.
Dealers think the Cut could solve increasing problems which occur when moving money between traders and retailers due to more strict banking regulation.
Each transaction is designed to be verified in minutes and be available to the public on blockchain. The identity of ownership will be kept private.
A spokeswoman for the Economy Ministry, which oversees the diamond trade, says there has been no in-depth discussion yet on how the coins would be regulated.
Presale of the Cut was carried out at the International Diamond Week that started on Monday.
The coins should be in use in a few weeks, said Avishai Shoushan, CEO of the year-old CARATS.IO, which created the coins for the exchange.
Targeting institutional and retail
The second coin, Carat, will be issued later and targets institutional and retail investors. These investors want to put money in the diamond market without taking possession of physical diamonds.
To make the tokens much less volatile compared to any other cryptocurrency, one-quarter of the market value of both coins will be backed by diamonds held by a third party.
Trading volume, including local and international, reached $23 billion in 2017 on the Israel Diamond Exchange. Israel’s exports in diamonds dropped by 12 percent in 2017 to $15.5 billion.
De Beers said diamond jewelry sales were around $80 billion in 2016 but analysts said they went through a stagnant year in 2017.
Analysts would like to see how the Exchange will be regulated, given that the coins are being launched without any government regulation in place.
Bitcoin has shed 70 percent of its value from its high in December because of market concerns about global regulatory bans. Many bitcoin supporters say, on the other hand, that regulation should be received well.
Via: Israel Hayom