The Israeli cryptocurrency regulator published a discussion paper in May 2018 that outlines rules for cryptocurrency reporting that are extremely in-depth, and could be used as an example for the rest of the world to properly regulate cryptocurrency so that it can become mainstream.
In July 2016, the Israeli Knesset passed the supervision of financial services law that created a regulator for non-institutional currencies, which includes cryptocurrency. This law was developed so services that deal with or exchange cryptocurrencies would be licensed, supervised, regulated, and stable so that the public would be protected when using these services. In October 2018, the law will come into full effect and the regulator will begin enforcing the transfer, custody, exchange, and management of cryptocurrencies.
The new rules for cryptocurrency reporting in the May 2018 paper could be passed by the Knesset before the end of 2018, and they provide a comprehensive and in-depth approach for identifying cryptocurrency users. Like most other governments in the world, the Israeli regulator calls for recording the name, address, and ID of cryptocurrency users, but additionally wants IP addresses and cryptocurrency addresses to be reported.
Anonymity-focused cryptocurrencies like Monero, Zcash, and Verge will require additional reporting to ensure proper identification and tracking. The use of VPNs and Tor to mask IP addresses will also be tracked and reported. Additionally, if cryptocurrency is sent to a mixer or a darknet market, that will be reported, hinting that Israel will integrate cryptocurrency tracing technology into its laws. These laws go further than ever to tackle cryptocurrency money laundering, and the rest of the world may follow Israel’s lead.
Bitcoin and cryptocurrency were built in the spirit of privacy and decentralization but Israel’s proposed regulations would seem to counter this. While cryptocurrency users may react negatively to this, it would be a positive step towards cryptocurrency becoming widely adopted in Israel.
Once these laws are in place, banks and other financial institutions will have clarity in facilitating the fiat side of cryptocurrency transactions, since they will know that cryptocurrency trading is legal when they follow these procedures to prevent money laundering.
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