This article was first published by The Times of Israel and is re-posted with permission.
Several months ago, reporters in Israel began receiving a flood of press releases and urgent phone calls from public relations agents promoting new startups building a “blockchain-based P2P platform.” This platform, we were told, would use cryptocurrency to “revolutionize” the energy industry, or the diamond industry, or completely transform the way that people look for jobs.
Welcome to the hot new high-tech field of cryptocurrency and blockchain. Although the technology is difficult for many laypeople to follow, entrepreneurs and investors are flocking to it, partly because of the massive amounts of money other enthusiasts are pouring in. Cryptocurrencies are digital currencies that can be exchanged between people without the involvement of intermediaries, like banks or governments. Blockchain is the distributed public ledger that allows these cryptocurrencies to change hands without someone making digital copies of the currency or otherwise tampering with the record of who owns what.
Some tout cryptocurrency and blockchain as the next major driver of the Israeli economy, but it is unclear how much of the activity in this new high-tech field is legitimate, how much is mere hype, and how much is outright fraud perpetrated by malevolent actors, including transnational criminal organizations.
And so The Times of Israel recently sat down with a group of about a dozen cryptocurrency entrepreneurs, investors, lawyers, and accountants to discuss this very question: How much of this new field is legitimate, how much is fraud, and can the industry self-regulate so that investors can tell the difference and won’t end up losing all their money?
How to keep scammers out?
“How do we keep scammers from abusing the system?” Liraz Siri, a blockchain and cybersecurity expert, asked the invitation-only gathering of cryptocurrency entrepreneurs at the 45th floor Tel Aviv office of the Deloitte accounting firm.
In October of 2017, Israel passed a law outlawing binary options, a large-scale, decade-long fraud industry that stole billions of dollars a year from victims in Israel and abroad. In the absence of prosecutions by Israeli law enforcement, thousands of Israeli binary options operatives have been looking for new work, and the cryptocurrency field, with its lack of regulation, potential for easy money and libertarian ethos, is a magnet for such individuals. While the Central Bureau of Statistics does not compile data on the fraud sector of Israel’s economy, experts estimate that there are more than 100 fraudulent forex, CFDs, cryptocurrency, insurance, locksmith and Green Card lottery boiler rooms in the country.
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