The goal is to make the market, which still prefers cash to plastic, more transparent. Current transactions are “often carried out anonymously, with the shake of a hand and minimal documentation,” Israel’s Justice Ministry recently stated.
The exchange will issue two coins: one called 'carat,' which is targeted at a wide range of investors; and one called 'cut,' which is intended to be used for settlements between professional traders in the diamond market.
Only 25 percent of the value of the 'carat' will be backed by physical diamonds traded on the exchange, its Managing Director Eli Avidar told the Times of Israel. The move is expected to reassure investors, he added.
According to Reuters, the new cryptocurrencies will not be government-controlled. The creators of the project say it is a comfortable way to invest in the diamond market without taking possession of physical diamonds.
“We are creating a way for people to invest in the market without actually buying and selling diamonds,” said Avishai Shoushan, CEO of the year-old CARAT.IO, which created the digital coins for the exchange.
Shoushan said that quarter of the market value of both ‘cut’ and ‘carat’ will, however, be backed by physical diamonds held by a third party. It should make the coins “much less volatile compared to any other cryptocurrency,” he said.
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