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BARAK BEN-EZER: Real money is defined by the FATF, the IMF, the IRS, et cetera, et cetera, as something which is a circulating legal tender of a sovereign nation. What we are doing now is developing the new type of blockchain that will basically facilitate this legal tender.
Anybody who thinks that in a post-911 world, you can have a currency go mainstream that is anonymous and doesn't have compliance measures is probably putting their head in the sand. You need to go through a higher bar of due diligence and all that. But once you've met this bar, everything inside is much easier for you.
SOV will be the first crypto that has all the wonderful benefits of crypto but could also become a global trading currency because it has all the network effect that fiat currency has.
GABY HEFFESSE: Hi, I'm Gaby Heffesse. I'm a public policy and political consultant for investors. Today, I'm about to sit down with Barak Ben-Ezer, who's helping the Marshall Islands launch the first ever sovereign cryptocurrency. We'll find out what he's doing, why he's doing it and what his vision is for the future with digital currency.
Barak, thank you so much for being here with us today. So, the Marshall Islands is launching the first sovereign cryptocurrency with your help. Can you tell us a little bit about this project?
BARAK BEN-EZER: Yes. So, basically, the idea here was to solve a big problem with crypto, that we all really- like Bitcoin. But Bitcoin and the other crypto assets, they have a problem, which they are like an island, and the island has its own activity and speculation going on all that stuff. But it's not really connected to the global, financial, economic and banking system. If the idea is to facilitate real commerce and financial use cases with crypto, you've got to find a way to integrate with the mainland of financial services, you cannot just remain an island.
And so, we start with the premise of why is crypto an island? Why is it in a way, ostracized from the mainstream system? And then how can we solve it? The conclusion we got to is that, A, crypto today, there's a lot of regulatory and legal ambiguity as to what is actually it's legal status. And if you ask the SEC, they would tell you it's a security. If you ask the CFTC, they would tell you it's a commodity. And the IRS would tell you actually, that's crypto or Bitcoin is a property. And so, if you do a simple transaction like buy a cup of coffee, let's say with your bitcoins, you need to pay capital gains on this transaction, which is a- forget about the taxes. It's a bookkeeping nightmare.
How do we solve that? We want to have regulatory clarity and to really know what is the legal status of this thing. So, basically said, they're going to put it in one of the baskets right, a security, a commodity, or something. What is the natural basket for a currency to legally be a currency? Now, turns out that then we ask ourselves, okay, what is the legal definition of a currency?
So, real money is defined by the FATF, the IMF, the IRS, et cetera, et cetera, as something which is a circulating legal tender of a sovereign nation. Basically, there's a monopoly only sovereign entities can issue currency. So, that was the premise of how we started, let's partner with a country. Let's be hired by a country that is interested in issuing a crypto legal tender.
GABY HEFFESSE: So, that already differentiates you from all the other cryptos because they're not breaking that definition that's established that you're partnering with a sovereign. So, that's one barrier that you've moved past.
BARAK BEN-EZER: Yes. That is why the currency is called The Sovereign or SOV.
I'm a public policy and political consultant for investors. Today, I'm about to sit down with Barak Ben-Ezer, who's helping the Marshall Islands launch the first ever sovereign cryptocurrency. We'll find out what he's doing, why he's doing it and what his vision is for the future with digital currency. Barak, thank you so much for being here with us today. So, the Marshall Islands is launching the first sovereign cryptocurrency with your help. Can you tell us a little bit about this project? BARAK BEN-EZER: Yes. So, basically, the idea here was to solve a big problem with crypto, that we all really- like Bitcoin. But Bitcoin and the other crypto assets, they have a problem, which they are like an island, and the island has its own activity and speculation going on all that stuff. But it's not really connected to the global, financial, economic and banking system. If the idea is to facilitate real commerce and financial use cases with crypto, you've got to find a way to integrate with the mainland of financial services, you cannot just remain an island. And so, we start with the premise of why is crypto an island? Why is it in a way, ostracized from the mainstream system? And then how can we solve it? The conclusion we got to is that, A, crypto today, there's a lot of regulatory and legal ambiguity as to what is actually it's legal status. And if you ask the SEC, they would tell you it's a security. If you ask the CFTC, they would tell you it's a commodity. And the IRS would tell you actually, that's crypto or Bitcoin is a property. And so, if you do a simple transaction like buy a cup of coffee, let's say with your bitcoins, you need to pay capital gains on this transaction, which is a- forget about the taxes. It's a bookkeeping nightmare. How do we solve that? We want to have regulatory clarity and to really know what is the legal status of this thing. So, basically said, they're going to put it in one of the baskets right, a security, a commodity, or something. What is the natural basket for a currency to legally be a currency? Now, turns out that then we ask ourselves, okay, what is the legal definition of a currency? So, real money is defined by the FATF, the IMF, the IRS, et cetera, et cetera, as something which is a circulating legal tender of a sovereign nation. Basically, there's a monopoly only sovereign entities can issue currency. So, that was the premise of how we started, let's partner with a country. Let's be hired by a country that is interested in issuing a crypto legal tender. GABY HEFFESSE: So, that already differentiates you from all the other cryptos because they're not breaking that definition that's established that you're partnering with a sovereign. So, that's one barrier that you've moved past. BARAK BEN-EZER: Yes. That is why the currency is called The Sovereign or SOV. GABY HEFFESSE: And why the Marshall Islands, though, why is that the first? Why does that make sense there? BARAK BEN-EZER: There's 196, sovereign nations in the world, it's very scarce. We have billions of people, you have millions of corporations and only 193 sovereign entities now, sorry, 196. And the biggest, let's say, threshold to be sovereign is if you are a voting member of the UN. So, we're looking for a country that was a voting member of the UN, that doesn't have its own currency. And that is small, because you got to be able to put all the right people in the same room in one week.
GABY HEFFESSE: I guess you didn't want to deal with the bureaucracy of a very, very big country?
BARAK BEN-EZER: Exactly. The goal was to make it happen in 2018, to prestidigitation. And lastly, it has to be a democracy. Because we want to deal with our agenda, we can identify with their values. And has good relationship with the United States. Because it's critical. After applying all those filters, the Marshall Islands was shining through. And it's a thriving democracy. They have even a woman president, and they have very good relationship with United States. They have even a comp of free association with America, the United States have a missile base over there, et cetera. They never had their own currency, they use the US dollar. And they're a member of the UN.
GABY HEFFESSE: Right. And do you also see the Marshall Islands as a place where the current system disadvantages them particularly more than in the US, for example? That the digital currency could help this current structure of the Marshall Islands more so than maybe within the United States for example?
BARAK BEN-EZER: Yes, absolutely. So, one of the biggest benefits of cryptocurrencies is that they can really help people in developing nations that are unbanked, because the economics for banks to operate are sometimes- and other banks don't want to deal with people who have low income, for instance. And so, when you have a crypto wallet, it's like, level the playing field. Everybody can just download a crypto wallet and have and hold their money in that way.
GABY HEFFESSE: So, talk to me about a crypto wallet, how would I hold a crypto wallet?
BARAK BEN-EZER: The natural way to have crypto wallet today is on your phone. And the ways of having a smartphone today almost like you can get a Chinese Android for like less than 50 bucks today.
GABY HEFFESSE: So, you work with the Marshall Islands. Where are you today with that process?
BARAK BEN-EZER: Yes. So, after having moved to the Marshall Islands last year and spending months and months over there and ended up- the government their best legal tender legislation in the parliament. It's called The Sovereign Legal Tender Act. And now, there's the legal foundation to issue the world's first crypto legal tender. What we are doing now is developing the technology, the new type of blockchain that will basically facilitate this legal tender.
It's going to be very different than the blockchains we know today. Because when you're talking about government money that you want to have integrated with the global financial system, you got to have compliance built-in, you got to have real identity, it cannot be anonymous. Anybody who thinks that in a post-911 world, you can have a currency go mainstream that is anonymous and doesn't have a compliance measures, is probably putting their head in the sand.
GABY HEFFESSE: Right, it's ironic, because this whole crypto thing started as fraud and the anonymity and it was associated with crime. But really, it can actually help with that, because you have footprints and you can actually get rid of the anonymity. There's no reason for that to be a part of it.
BARAK BEN-EZER: Exactly. So, ask yourself, if you have nothing to hide, and most people who use crypto or invest in crypto, they don't really have anything to hide, then in that case, anonymity becomes a burden. And so, if we enable you to hold crypto that can easily be also deposited into a bank, then we have solved a big barrier for mainstream adoption. And so, if you take this decentralized database, which is essentially a blockchain that records all the transactions, and you overlay real identities on top of it that has been vetted with all the- to see that you're not some a terrorist or something like that, there's some approval process to be able to go into the system and start transacting, then you're actually creating- and you had obviously, a privacy layer, this is essential. Then you have actually created a system that is much more compliant than the- not only the current crypto that we have, but also the current banking system.
GABY HEFFESSE: So, tell me a little bit more about the privacy how that's different from our current system?
BARAK BEN-EZER: Yes. So, first, Bitcoin, for instance, it's pseudo anonymous, meaning that you have your public address, and you can look anonymous, but then once you do KYC, your public address is associated to a real identity. And then from that point on, you're actually completely exposed, and everybody knows all your transactions going backwards, and also in the future. And so, it's essential if you're going to combine identity with a blockchain system to also have privacy measures. Now, your privacy in the SOV system of the Marshall Islands is going to be maintained.
If there is some like a global, let's say, court order against you, then the regulators in the Marshall Islands might consider to leave the vet of anonymity from specific accounts and give this information to the law enforcement in that country that had this court order.
GABY HEFFESSE: Did you approach the Marshall Islands with this idea? What was their reaction when you said I want you to launch the world's first cryptocurrency? BARAK BEN-EZER: Yes. So, first, when it started, everybody looked including family and friends thought that we went crazy. Yes, we're going to get a country to issue currency. Yes, good luck with that, Barak. But I really thought, and the people working with us, that it makes sense. It makes sense for crypto to have a crypto that's a legal tender, it makes sense for the global financial monetary system, and it would also make sense for the country because there's a lot of upside for them, because they're going to own most of these currency. And if it actually become a success, they're going to become- It's like they found digital gold on their islands.
BARAK BEN-EZER: Yes. So, first, when it started, everybody looked including family and friends thought that we went crazy. Yes, we're going to get a country to issue currency. Yes, good luck with that, Barak. But I really thought, and the people working with us, that it makes sense. It makes sense for crypto to have a crypto that's a legal tender, it makes sense for the global financial monetary system, and it would also make sense for the country because there's a lot of upside for them, because they're going to own most of these currency. And if it actually become a success, they're going to become- It's like they found digital gold on their islands. And so, I believe that if something makes sense, then it's bound to happen at one point of time, so why not give it a try? When we got to the Marshall Islands, initially, we pitched it to some of the ministers, the Minister of Finance, and also the minister and Assistant to the President, Mr. David Paul. And he got it immediately. Yeah. He was like, wow, that's amazing actually. It could really benefit our country, because we can become a global financial center, much like other island nations that became financial centers. But if you're going to become a financial center in the 21st century, everybody understand that the puck is going into blockchain and crypto, why not be the pioneer of that and be the trailblazers and capture all this value there?
GABY HEFFESSE: So, he became the main engine for pushing this through and getting a legislation?
BARAK BEN-EZER: Yeah, he was a big champion for that. But then it became like more and more people got into that in the Marshall Islands and became excited about it. And they understood how it could really benefit the country long term.
GABY HEFFESSE: But how long was this process?
BARAK BEN-EZER: It was months that we were living there full time, and not really communicating too much with the outer world, keeping it on the down until it actually happened. And the law eventually passed in end of February 2018. And at that point also, my co-founder, Dr. Peter Dittus joined us on the island. And Dr. Dittus was the former Secretary General of the BIS, the Bank of International Settlements, arguably the most senior monetary economist that has ever joined the blockchain project. But he recognized that there's a lot of things to be fixed in the global monitoring financial system. That's why he was excited about joining this project.
GABY HEFFESSE: So, geographically, the Marshall Islands is interesting for this project, right? Because one of the things you talk about is how there's what- 1000 little islands that make it up and there were four banks. So, this actually is solving a very specific domestic issue for them is what.
BARAK BEN-EZER: Yes. So, the Marshall Islands have 1153 Islands. And only four of them, like major ones have bank branches. The other ones are mostly cash economies. And they settle between the islands, literally with cash on boat. This boat going was cash US dollar into the ocean and settling accounts between the islands. Now once you have a national cryptocurrency, all this inter- island settlements, this internal remittances, and also external remittances, it becomes just a matter of pushing a button.
GABY HEFFESSE: So, the legislation in the Marshall Islands was February of last year, what have you been doing this last year? What has been the work to move this project forward?
BARAK BEN-EZER: We've been actually working on several avenues. One of them is actually to understand the product requirements for this new type of blockchain, that has real identities and compliance baked in. How do you do it in a way that is aligned with the IMF, the US Treasury, the World Bank, et cetera, and the country obviously, because they want to be aligned with those institutions.
GABY HEFFESSE: Is it the US Treasury, because they're currently on the US dollar? Or do you think the US Treasury is always involved in this decision?
BARAK BEN-EZER: Yeah. We still live in a world that the United States is the leading power, the hegemon in a sense, so you need to be aligned with US interests.
GABY HEFFESSE: So, how did the IMF respond to you?
BARAK BEN-EZER: Not favorably, initially, and you got to go back and think about, what is the mandate of the IMF? The IMF- you got the World Bank that is about international development. But then you got the IMF that is about maintaining global stability, whatever that means, right? Because in that sense, everything that is new goes against the global stability. And if we're talking all of the sudden about a crypto legal tender, that definitely seems maybe not in alignment with global stability from their point of view, and we definitely understand that.
And so, we're engaging with those institutions, including the IMF. And the benefit of being contracted by a sovereign nation is that we get to have those conversation with those geopolitical organizations. And so, to understand really what bothers them and try to alleviate that, because we want to collaborate. The idea is to create something that people will be happy with. We understand that their concerns could be divided in two main buckets. The first bucket is macro stability, nothing could be more stable than the dollar for them. So, why change the dollar?
But the other place where they had concerns is compliance, what is called AML and CFT- anti-money laundering and counter financing of terrorism. This is especially important after 911. That's like, you got to be CFT resilient. And we said this is a bet where we can actually win, AML and CFT. That's where we can shine through.
GABY HEFFESSE: Is that something that the IMF cares about? Is that something within their mandate that resonates with them?
BARAK BEN-EZER: Yes, absolutely. Yes, it's also something that really resonates with the US Treasury.
GABY HEFFESSE: Were they hesitant at first as well?
BARAK BEN-EZER: Because of those- a lot of people in crypto, including myself, before starting this project, we think that the global p