Israel is Developing a Digital Shekel Based on Ethereum Blockchain

Shumaila  |  Oct 23, 2021

The central bank of Israel has chosen the Ethereum network to kick off the first stages of its digital Shekel pilot program. However, the initiative may face severe difficulties.

Israel to Soon Launch Digital Shekel Based on Ethereum

According to a report, Israel's central bank has joined the trend and is in the process of issuing a CBDC. To make the transition, the institution picked the Ethereum network. The Bank of Israel's CBDC Project Manager, Yoav Soffer, explains why:

“We did a trial with Ethereum technology, not because we think that that’s necessarily the technology we’ll use, but because it was a technology that was available for us to get our hands dirty with, in order to understand its advantages and disadvantages.”

The central bank formed teams to put up a test environment based on the Ethereum blockchain and issue a CBDC token. It created digital wallets as a result, allowing team members to swap "imaginary digital shekels" with one another within the bank.

It's noteworthy that Australia, Hong Kong, and even Thailand employed a similar approach in their CBDC projects, while Israel looked at legal, economic, and technological elements as well.

Challenges to Tackle in the CBDC Project

The initiative, according to Soffer, is "challenging." He also mentioned that, due to its complexity, assigning a deadline for the testing project is difficult:

“In general, projects at the Bank of Israel have start and finish dates. You know when they will end and what you need to achieve along the way. We don’t know when this project will end, with all that that implies.”

Digital payment options have been on the rise in Israel during the COVID-19 pandemic. As a result, issuing a CBDC appears to be a viable option for fitting into society's new customs. Nonetheless, there are a number of obstacles in its way.

The Bank of Israel is unsure whether it will be able to develop a digital shekel that will meet all of the needs of the local populace. Furthermore, the infrastructure for such a product appears to be unprepared to support it in the long haul.

For example, Israel's leading financial institution must have a solution in place in the event of an emergency or a network outage, allowing users to settle transactions even if the network is down.

In addition, the central bank must devise a CBDC that is both accessible and competitive in comparison to other forms of payment. Otherwise, Israelis might just use other traditional techniques to settle daily transactions.

The most difficult task of all is persuading those who currently use cash to transition to digital payments. For better or worse, the former way is anonymous, whereas using a digital shekel would be tightly watched by the government, putting personal privacy at risk.

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